Origination in the Era of COVID-19: the GSEs, FHA, and VA Issue Guidance for Appraisals and Income Verification

COVID-19 has strained all aspects of life in the United States, including the housing and mortgage industries.  Social distancing, stay-at-home orders, and business closures have disrupted the abilities of many workers to complete their duties on a “business as usual” basis.  In the mortgage market, there is a direct impact on a mortgage lender’s ability to originate a residential mortgage loan when a borrower’s employment and income status may quickly change, appraisers may have difficulties gaining access to the interior of homes to complete their reviews, and gathering around a closing table could violate state or local health directives.  As a result, each of Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA) have announced guidance regarding changes to their normal origination guidelines during the COVID-19 emergency.  This guidance includes temporarily-relaxed standards with respect to appraisals and employment/income verification requirements to accommodate social distancing guidelines and the fact that many employers are temporarily closed or employees are working from home.  Fannie Mae and Freddie Mac also tighten certain underwriting requirements to ensure borrowers have continuity of income for new originations.  While the guidance issued by Fannie Mae and Freddie Mac cover several other topics, including use of powers of attorney, remote online notarization, quality control requirements, and e-signatures, this Legal Update focuses on the appraisal and employment income verification guidance provided by Fannie Mae, Freddie Mac, FHA, and VA.

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