COVID-19 invites Fannie Mae and Freddie Mac to adopt alternative assessment methods
The Federal Housing Finance Agency (FHFA) on Monday, March 23, ordered Fannie Mae and Freddie Mac to relax their standards on property valuation and employment verification. The agency said the reason for the move was the “extraordinary circumstances” the country faces during the COVID-19 (coronavirus) pandemic.
Among the changes to some of the underwriting guidelines will be to allow only outside inspection evaluations or office evaluations. The FHFA says the measures are aimed at meeting immediate liquidity needs in the secondary mortgage market. The agency will continue to monitor development and update its policies as necessary.
The is effective immediately for all outstanding loans. They will remain in place for loans with an application date on or before May 17, 2020. A PDF of the letter with information on guideline adjustments is available here.
The FHFA has taken other measures in response to the national emergency, including a suspension of foreclosures and evictions for at least 60 days and an abstention for borrowers facing hardship due to the coronavirus.
Steven Plaisance is President and CEO of the Mortgage Division of Arvest Bank, Arkansas’ largest mortgage lender which currently manages more than 310,000 mortgages, totaling more than $ 59 billion.
Plaisance also sits on the residential board of governors of the National Professional Association of Mortgage Banks (MBA). The board is responsible for establishing legislative and regulatory policies and MBA positions on residential lending matters. Plaisance and others provided an early contribution and have been in regular communication for several weeks with the FHFA and other housing agencies affected by the COVID-19 pandemic.
“We were very pleased to see rapid action from the FHFA and subsequent announcements from Fannie Mae and Freddie Mac, who provide liquidity for the majority of conventional funding in the United States,” said Plaisance. “We’re all in the same boat, trying to help our families improve their financial situation by refinancing and buying homes, so we’re delighted to see our valued valuation partners helped out at this time.
Plaisance expects the temporary flexibilities of the traditional appraisal process to help mortgage lenders get loans closed and channeled more efficiently. But the mortgage industry, he said, was already inundated with business in a very short period of time. A new report from California-based Attom Data Solutions, which tracks national data on housing and foreclosures, said the total number of loans in the United States increased by 40% per year in the fourth quarter of 2019 at 2.27 million, which is the highest point since the third quarter of 2016.
“The capacity quickly overtook the industry, so customers should be patient and expect delays for a variety of reasons,” said Plaisance. “Now the effects of COVID-19 are impacting appraisals, employment for borrowers, documentation efforts, ancillary services, county and city clerk offices, potentially securities and debt companies. closure, and many other partners in the home loan process.
“Right now, all the lenders are trying to take out as many loans as possible.”
Plaisance said there was nothing to indicate – other than that they were monitoring the situation – that other aftermarket loan programs such as the Federal Housing Administration (FHA), the United States Department of Veterans Affairs (VA) or the US Department of Agriculture (USDA) would institute similar programs the measures. These loan programs are typically higher risk, starting with little or no down payments, and often consist of more money purchase transactions, so collateral relief can be difficult.
“The conventional loan market mainly refinances with these low rates, which has made some of their relief on valuations much easier to apply,” he said. “It would be a surprise to see a lot of relief, if any [FHA/VA/USDA].
“The same can be said for giant investors, where loans over $ 510,400 are classified. The collateral risk is too great to be shortened and we do not expect any relief from investors in the secondary market. “
Plaisance said Arvest recently suspended interior home inspections on nearly all of the bank’s internal portfolio loans.
“It was a welcome relief for our evaluation partners during a very difficult time for all,” he said.