Fannie, Freddie update loan doc, QC standards

The first part of the guidance updates the age of documentation to ensure the most up-to-date information is being considered in any ability-to-repay analysis. The age of document requirements will change from 120 days to 60 days for most income and asset documentation. If an asset account is reported on quarterly, lenders must obtain the most recent quarterly statement.

When receiving employment and income verification from third parties, the vendor database must have information no more than 60 days old as of the note date. And because the federal tax deadline was extended to July 15, the agencies are eliminating these documentation requirements:

• A copy of the IRS Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Tax Return), and
• IRS Form 4506-T (Request for Transcript of Tax Return) transcript confirming “No Transcript Available” for the 2019 tax year.

All other requirements contained in B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns, continue to apply.

In looking at the conversion of financing from construction to permanent loans, the agencies said the age of credit documentation requirements is changing from 120 days to 60 days of the original closing.

When verifying self-employment income, lenders must verify a business’ existence within 120 days of the note date, but the agencies now will require confirmation within 10 business days of the note date.

Below are examples of methods the lender may use to confirm the borrower’s business is currently operating:

• Evidence of current work (executed contracts or signed invoices that indicate the business is operating on the day the lender verifies self-employment);
• Evidence of current business receipts within 10 days of the note date (payment for services performed);
• Lender certification the business is open and operating (lender confirmed through a phone call or other means); or
• Business website demonstrating activity supporting current business operations (timely appointments for estimates or service can be scheduled). See B3-3.1-07, Verbal Verification of Employment for our existing requirements.

The agencies also provided some relief to the post-closing quality control (QC) review process, effective for all loans currently in QC and those selected for reviews until June 2020.

On the reverification front, any income, employment, and asset reverifications typically mailed can be completed verbally or electronically. To take advantage of this flexibility, the lender must:

• Internally track all loans that did not have a successful reverification attempt during this time, and
• Conduct a special discretionary sample of such mortgages and perform the required reverifications on the sample population upon the expiration of these flexibilities.

In looking at the field review of appraisals, rather than obtaining field reviews on 10 percent of the lender’s random sample, lenders are allowed to use third-party tools such as Collateral Underwriter for the sample. If the reviewer reaches a different opinion regarding the value of the property through this process, then if possible, the lender may obtain a field review to determine whether the property value can be supported. Lenders are reminded that desk reviews by the QC staff still are required on the remaining 90 percent sample.

Additional requirements also have been issued for the use of a power of attorney.

To begin with, all powers of attorney must include the address of the mortgaged property, and the existing Selling Guide conditions allowing persons “connected to the transaction” to serve as an attorney-in-fact or agent in refinance transactions will also now apply to purchase transactions as well as limited cash-out refinances.

Unless a recorded Internet session is required, a power of attorney may only be used in a purchase transaction with a note date on or after Apr. 7, 2020, if, after the Closing Disclosure or other closing statement, as applicable, has been delivered to the borrower before closing, an employee of the lender or settlement agent explains the terms of the loan to the borrower(s) to confirm that each borrower understands them, the agencies stated. This discussion must take place in person, telephonically, or using a video conference system, and must be memorialized by an acknowledgment by the borrowers of his or her understanding of the terms of the loan. The acknowledgment may be in writing or in a recording of the telephonic or video discussion.

For purchase transactions the attorney-in-fact or agent may not be the property seller, any relative of the property seller, or any direct or indirect employee or agent of the property seller, unless in any such instance such person is also a relative of the borrower. And whenever an attorney-in-fact or agent is an employee of the insuring title insurer or is an employee of the policy-issuing agent of the insuring title insurer, the title insurer must have issued a closing protection letter for the transaction.

Whenever a power of attorney is used at closing, the provisions of B1-1-01, Application Package Documentation requiring the borrower’s personal signature of the initial Form 1003 continue to apply if the initial Form 1003 can be signed personally (including through the United States Postal Service or commercial delivery service), or signed electronically as permitted by the Selling Guide, the guidance stated.

Provided the power of attorney is not required to be notarized under applicable law, the power of attorney is not required to be notarized if the transaction is a limited cash-out refinance unless the attorney-in-fact or agent named in the power of attorney is employed by, or otherwise represents or is affiliated with, the title insurance company that will issue the lender’s title insurance policy, and the title insurance company is affiliated with the lender.

If a power of attorney is required to be notarized, it may be remotely notarized in accordance with A2-5.1-03, Electronic Records, Signatures, and Transactions with the additional flexibility that it may be remotely notarized in all jurisdictions, even if not expressly permitted by the Guide, as long as the power of attorney is not required to be recorded. If the power of attorney is required to be recorded, it may be remotely notarized only in the jurisdictions permitted by A2-5.1-03. In addition, the limitations in B8-5-05 requiring at least one borrower signature of the note and security instrument are suspended.

Effective April 20, eNotes will be permitted to be delivered in transactions in which a printed or electronic power of attorney is used on the same conditions as those applying to paper notes, except that the power of attorney must accompany the eNote through MERS eDelivery. In anticipation of the change in the eMortgage Guide, lenders that are authorized to deliver eNotes may begin permitting the use of powers of attorney immediately, provided that the eNote and related power of attorney may not be delivered until after April 20.

There are some policies still in effect when using powers of attorney:

• Lenders may not deliver loans that have unacceptable title impediments.
• Lenders must comply with all federal, state and local laws in accordance with A3-2-01, Compliance with Laws. In addition, for Texas Section 50(a)(6) loans, lenders may only use a power of attorney to execute the note or security instrument if the power of attorney is signed at a location at which a Texas Section 50(a)(6) loan may be closed and in conformity with applicable requirements.
• The current and revised provisions of B8-5-05 are always subject to the lender’s determination that applicable law requires the acceptance of a power of attorney in particular circumstances.

Finally, remote online notarization (RON) guidance was updated until further notice.

“Due to disruption related to COVID-19, many lenders are reporting difficulty in obtaining in-person notarizations and have requested increased flexibility to obtain remote notarizations (RON) to be used with eMortgage transactions as well as ink-signed transactions,” the lender letter from Fannie Mae stated. “Selling Guide, A2-5.1-03, Electronic Records, Signatures, and Transactions describes our current policies with respect to using RON and with this Lender Letter will allow the following flexibilities.”

The guidance states that lenders are able to sell loans with RON documents in 42 states listed by the agencies, on these conditions:

• The notarization is performed in accordance with and is legally valid under the laws and regulations of the state in which the notarization is performed, at the time it was performed, and in compliance with the Uniform Electronic Transactions Act, as adopted in such state, and the Electronic Signatures in Global and National Commerce Act.
• The notary public is licensed and physically located in the state where the notarial act occurred and, where required by law or regulation, is specifically licensed to perform a remote online notarization.
• The loan is delivered with Special Feature Code 861 if the remotely notarized document is a security instrument or amendment to the security instrument.
• The loan is not a Texas Section 50(a)(6) loan.
  • The system used for the remote notarization must meet the following minimum standards:
  • At least two-factor identity authentication, including using a government-issued photo ID that has a signature, credential analysis and identity-proofing;
  • Tamper-sealed notarized documents and system security sufficient to (A) prevent interference with the authenticity, integrity and security of the notarial ceremony or corruption or loss of the recording of the same, and (B) protect the communication technology, electronic record and backup record from unauthorized use;
  • The remote online notary must keep a secure electronic journal of the notarial act including evidence of identity of the principal (a video and audio conference can be the basis for satisfactory evidence of identification) and maintain a backup of the electronic record; and
  • Recording of the notarial ceremony with storage for the minimum period required by applicable laws or if no period is specified in the applicable law, for seven years.

Other conditions to sell a RON loan are:

• The lender must maintain the recording of the notarial ceremony for the life of the loan.
• If the loan document is required to be recorded, then the county recorder in the state and county where the property is located must accept the remotely notarized document for recording.
• The lender makes all selling representations and warranties per the Selling Guide, including representations and warranties related to:
  • Clear title and first lien enforceability;
  • Compliance with laws and responsible lending practices; and
  • Requirements regarding title insurance, including those in B7-2-04, Special Title Insurance Coverage Considerations. If the notarized document is a security instrument or an amendment to a security instrument, the remote notarization must comply with the title requirements in B7-2-04 and the title insurance company may not take any exception for the remotely notarized loan.

Lenders also may not require a borrower to use remote notarization and must have other notary options for borrowers available. Additional states which expressly adopt a law that expressly permit the use of remote notarization or expressly accepts (either through state law or through the application of an express federal law) remote notarizations performed out-of-state in accordance with the laws of the state in which the notarial act is performed, also will be permitted to sell loans with RON documents meeting the requirements.