Written By: Joel Palmer, Op-Ed Writer
Fannie Mae has released guidance on selling and servicing policies impacted by the federal government shutdown that began before Christmas.
Fannie said in a letter to lenders that the guidance is based on the assumption that the shutdown will be temporary. Once the shutdown is over, the policies covered in the letter will expire immediately. Fannie also said that it may provide additional guidance if the shutdown lasts for a prolonged period.
The letter clarified that borrowers affected by the shutdown are not ineligible for a mortgage based solely on the shutdown. Fannie’s Selling Guide provides the following guidance:
•Lenders can obtain a verbal verification of employment (VOE) after closing, up to the time of loan delivery, if one cannot be obtained during the shutdown. If the verbal VOE cannot be obtained prior to delivery, the loan is ineligible for sale to Fannie Mae.
•For borrowers in the military, the Selling Guide currently allows for a Leave and Earnings Statement dated within 30 calendar days (or 31 days for longer months) prior to the note date in lieu of a verbal VOE.
•For borrowers furloughed on or after closing of the mortgage loan due to the shutdown, the loan remains eligible for sale. This is provided the lenders has obtained all required documentation prior to loan delivery.
•If employment has been validated by Desktop Underwriter (DU), the validation will remain eligible for representation and warranty relief on employment. This is provided the lender complies with the “close by” date in the DU message. Otherwise, the standard guidance provided above related to obtaining a VOE would apply.
The lender letter also provided information on temporary policies regarding validation through the IRS and Social Security Administration. Requests may not be processed during the shutdown.
For IRS transcripts, requests may remain in pending status until normal government operations resume. Fannie said DU will continue to return validation messages for tax transcript verification reports received before the shutdown. It will not, however, access new verification reports for validation.
For Social Security number validation, Fannie is temporarily revising its policy to enable lenders to obtain verification prior to loan delivery. If the Social Security number cannot be validated prior to delivery, the loan will not be eligible for sale to Fannie Mae.
The guidance also established conditions for which Fannie will purchase loans secured by properties in Special Flood Hazard Areas (SFHAs) that do not have an active flood insurance policy.
Recent legislation extended the National Flood Insurance Program’s authorization to May 31, 2019. However, Fannie noted that “the NFIP may have limited ability to issue new policies, issue increased coverage on existing policies, or issue renewal policies during the shutdown.” Fannie said its guidance will “help ensure the continued availability of mortgage financing to borrowers seeking to purchase properties located in SFHAs.”
Until evidence of flood insurance is obtained, lenders may deliver a mortgage loan to Fannie Mae if the borrower can provide acceptable evidence of
•A completed application for flood insurance and a copy of a check or the settlement statement reflecting payment of the initial premium, or
•The assignment of an existing flood insurance policy from the property seller to the purchaser.
Fannie further stated that lenders must have a process to identify those properties sold to Fannie that do not have the proper evidence due to the shutdown. They must also take steps to obtain flood coverage once the shutdown ends and retain documentation to support acceptable evidence of flood insurance.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.