FHFA extends relaxed appraisal, lending standards

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FHFA extends relaxed appraisal, lending standards

The Federal Housing Finance Agency (FHFA) announced on Thursday it has extended relaxed lending and appraisal standards put in place due to COVID-19 another month for both Fannie Mae and Freddie Mac.

The flexibilities surrounding alternative verifications of employment and appraisals were originally set to expire on Jan. 31, 2021, however, the government entity is now pushing that back to at least Feb. 28, 2021.

According to the release, the extended flexibilities include-

  • Alternative appraisals on purchase and rate term refinance loans;
  • Alternative methods for documenting income and verifying employment before loan closing; and
  • Expanding the use of power of attorney to assist with loan closings.

At the brink of the pandemic in March, the FHFA began directing both the GSE’s to ease their standards for property appraisals and verification of employment given the “extraordinary circumstances.”

In a letter sent by Fannie, the Enterprise cited many lenders were unable to obtain an appraisal based on a full interior and exterior inspection of the subject property as the virus continued to spread.

In turn, the FHFA supervised the GSEs to begin using both drive-by appraisals and desktop appraisals in certain circumstances to ensure that the mortgage process was not held up due to appraisal issues.

Those alternative appraisals may become long-term solutions, as the FHFA released a Request for Input (RFI) through February that highlights specifically the benefits and pitfalls of hybrid appraisals, updating the Uniform Appraisal Dataset (UAD) and an increased use of appraisal waivers. As a result of their initial push in March, the Urban Institute reported a 14% increase overall in appraisal waivers, which contributed to an increase in refinance activity.

Beyond that, the FHFA noted that employment verification was becoming increasingly more difficult as many businesses had either shut down entirely or were running with limited crews. To that end, the GSEs will accept alternative forms of employment verification, including a recent paystub, to ensure lending can continue.

Specifically, the FHFA states that “in the event lenders cannot obtain verbal verification of the borrower’s employment before loan closing, the Enterprises will allow lenders to obtain verification via an e-mail from the employer, a recent year-to-date paystub from the borrower, or a bank statement showing a recent payroll deposit.”

As always, the FHFA said it will continue to monitor the coronavirus situation and update policies as needed.

As of Jan. 14, the CDC has reported over 1.7 million news cases of the virus in the past seven days, though much of the recovery will rely on the dispersing of the vaccine.

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