FHA Mortgagee Letter ML-2020-05
FHA has published guidance for lenders during the current market environment.
Appraisal Guidance
FHA will allow the Exterior Only and Desktop appraisal options. Originators and appraisers are expected to familiarize themselves with FHA’s adaptation requirements. All appraisals must still be run through FHA’s EAD portal. (Please note that a 2055 or 1072 cannot be sent through the EAD portal).
If a Desktop appraisal is deemed to be the best option – Home Point will require a photo of the exterior of the home and each comparable. Appraisers may use public records or other reliable sources (such as MLS) for these photos.
Income Guidance
FHA will allow the use of an email correspondence from the employer’s work email as reverification of employment.
The existing Home Point requirement for an additional Reverification dated within 48 business hours of closing still applies and only the email option listed above is eligible for that verification.
Summary of Changes
1. Changes to FHA’s re-verification of employment:
• FHA is allowing flexibilities related to the Mortgagee’s process of completing re-verification of employment, which includes verbal verification of employment. This is applicable for all FHA Title II forward and reverse mortgage programs, where re-verification of employment is required.
2. Changes to FHA’s Appraisal Protocols are as follows:
• Most Single Family forward and HECM for Purchase transactions may utilize an optional Exterior-Only or Desktop-Only Appraisal inspection scope of work.
• Traditional HECM, HECM-to-HECM refinances, Rate and Term Refinances and Simple Refinances of properties may utilize an optional Exterior-Only inspection scope of work.
• All appraisals made in connection with the servicing of FHA’s forward or reverse mortgage portfolios may utilize either the Exterior-Only or Desktop-Only Appraisal inspection scope of work.
• No changes are made to Streamline Refinances, which do not require appraisals or to the appraisal requirements for FHA’s Cash-Out refinance, 203(k), and certain purchase transactions.
Re-verification of Employment
Mortgagees do not need to provide a re-verification of employment within 10 days of the Note date as described in Handbook 4000.1, Sections II.A.4.c.ii(C)(1)-(2) and II.A.5.b.ii(C)(1)-(2) Traditional and Alternative Current Employment Documentations, provided that the Mortgagee is not aware of any loss of employment by the borrower and has obtained:
• For forward purchase transactions, evidence the Borrower has a minimum of 2 months of Principal, Interest, Taxes and Insurance (PITI) in reserves; and
• A year-to-date paystub or direct electronic verification of income for the pay period that immediately precedes the Note date, or
• A bank statement showing direct deposit from the Borrower’s employment for the pay period that immediately precedes the Note date.
Appraisal Policy
Mortgagees do not need to provide a re-verification of employment within 10 days of disbursement as described in Section 3.8 and 3.9 of the HECM Financial Assessment and Property Charge Guide, provided that the Mortgagee is not aware of any loss of employment by the borrower and has obtained:
• A year-to-date paystub or direct electronic verification of income for the pay period that immediately precedes the Note date, or
• A bank statement showing direct deposit from the Borrower’s employment for the pay period that immediately precedes the Note date
When applicable, as described below, the appraiser may amend the scope of work to perform an Exterior-Only (viewing from the street) or Desktop-Only. The Appraiser may rely on supplemental information from other reliable sources such as Multiple Listing Service (MLS), and Tax Assessor’s Property Record to prepare an appraisal report. The Appraiser may rely on information from an interested party to the transaction (borrower, real estate agent, property contact, etc.) with clear appraisal report disclosure when additional verification is not feasible. The appraisal report must contain adequate information to enable the intended users to understand the extent of the inspection that was performed.
The Exterior-Only and Desktop-Only Appraisal options must continue to be reported on the current FHA approved appraisal forms with amended certifications and scope of work disclosures.
Appraisal Forms and Amended Certifications
The optional Exterior-Only and Desktop-Only appraisals must be reported on the existing Acceptable Appraisal Reporting Forms by Property and Assignment Type. These forms will require amended certifications and clear scope of work disclosures. Mortgagees are reminded that Exterior Appraisal forms Fannie Mae 2055 and Fannie Mae 1075 are not FHA approved forms and are not compatible with FHA’s Electronic Appraisal Delivery (EAD) portal.
The appraisal report must include a signed certification indicating whether the Appraiser did or did not personally inspect the subject property and the extent of the inspection. FHA has provided model certifications for the Exterior-Only and Desktop-Only scope of work.
COVID-19 Questions and Answers
Last revised: March 27, 2020
Q1. What is FHA’s Office of Single Family Housing doing to prepare for possible disruptions in its business operations should the Coronavirus (COVID-19) warrant office closures?
A1. All of FHA, including Single Family, is prepared to operate remotely to ensure our business operations continue with as little disruption as possible in the event of office closures.
Q2. Is FHA continuing to endorse loans?
A2. Insurance endorsements for all FHA Title I loans and Title II forward and reverse mortgages continues; however, there may be processing delays if staff is working remotely.
Q3. Is the FHA Resource Center continuing normal operations?
A3. Yes. However, if the Homeownership Centers (HOCs) are closed there will not be FHA staff members available to receive escalated calls. If this occurs, we recommend that stakeholders email their questions to the FHA Resource Center at: answers@hud.gov for a quicker response.
Q4. (REVISED 3.18.20) Must lenders still complete the annual recertification by March 31, 2020?
A4. (REVISED 3.18.20) FHA has extended the due date for annual recertification to April 30, 2020 for those lenders with a December fiscal year end. However, lenders that can complete the annual recertification before April 30th are encouraged to do so.
Q5. Are requests for lender insurance (LI) authority being processed?
A5. Yes. The LI approval process is electronic, so lenders may continue to submit these requests.
Q6. Can lenders still submit applications to become FHA-approved lenders?
A6. Yes. The FHA lender approval process is electronic, so lenders may continue to submit these requests.
Q7. Will FHA still conduct lender monitoring and/or loan reviews?
A7. Yes. FHA staff will conduct these reviews remotely. All on-site reviews are suspended until further notice.
Q8. Will the Credit Alert Verification Reporting System (CAIVRS) be available if there are office closures?
A8. Yes. CAIVRS will be available to determine if a borrower has a delinquent federal debt.
Q9. Will the FHA TOTAL Scorecard be available for lenders?
A9. Yes. The FHA TOTAL Scorecard will be available.
Q10. (Revised 3.27.20) Will FHA still conduct in-person lender trainings?
A10. (Revised 3.27.20) No. All FHA Single Family in-person trainings are suspended. Online webinar trainings will continue. FHA will continue to assess the situation to determine when in-person trainings can resume.
Q11. Are there special loss mitigation program options available to borrowers who may be negatively impacted by the Coronavirus?
A11. As with any other event that negatively impacts a borrower’s ability to pay their monthly mortgage payment, FHA’s suite of loss mitigation options provides solutions that mortgagees should offer to distressed borrowers – including those that could be impacted by the Coronavirus – to help prevent them from going into foreclosure. An example of one of these options is our Special Forbearance for unemployed borrowers. The SFB-Unemployment Option is a Home Retention Option available when one or more of the Borrowers has become unemployed and this loss of employment has negatively affected the Borrower’s ability to continue to make their monthly Mortgage Payment. These home retention options are located in FHA’s Single Family Housing Policy Handbook 4000.1 (SF Handbook) Section III.A.2. See FHA INFO 20-18 for more details. FHA is closely monitoring the situation and will provide updated guidance, as needed.
Q12. Is FHA requiring servicers to conduct occupancy exterior inspections during this time?
A12. Yes. The standard in FHA’s SF Handbook states that the mortgagee must perform a visual exterior inspection. No physical contact with the borrower and/or occupants is required. For more information, please see SF Handbook, Section III.A.2.h.xi — Occupancy Inspection.
Q13. Does FHA require physical contact with the borrower and/or occupants when acquiring possession of a property in connection with occupied conveyances?
A13. No. When identifying property occupants, FHA does not require physical contact with the borrower and/or occupants. For more information, please see SF Handbook, Section III.A.2.s. —Acquiring Possession.
Q14. Will I be able to place a bid on a HUD-owned property via the HUD Homestore bid site?
A14. Yes. The bidding site is available.
Q15. Is FHA continuing to process claims?
A15. FHA will continue to process claims; however, servicers may experience slightly longer processing timeframes if there are office closures, particularly for any claims submitted manually and Title I claim submissions and Title I manufactured housing endorsements.
Q 16. Is HUD suspending credit reporting for FHA-Insured mortgages?
A 16. FHA requires servicers to comply with the credit reporting requirements of the Fair Credit Reporting Act (FCRA); however, FHA encourages servicers to consider the impacts of COVID-19 on borrowers’ financial situations and any flexibilities a servicer may have under the FCRA when taking negative credit reporting actions.
Q17. (REVISED 3.27.20) Is FHA continuing to require appraisals with interior property inspections for Single Family programs?
A17. (REVISED 3.27.20) In accordance with Mortgagee Letter 2020-05, exceptions for two additional appraisal inspection scope of work options may be used for certain cases. The exterior-only appraisal and the desktop-only appraisal options are permitted when circumstances warrant. The FHA roster appraiser must complete all required appraisals in accordance with acceptable Appraisal Reporting Forms and Protocols. See ML 2020-05 for more program specific details.
Q18. Are face-to-face interviews still required under FHA’s Default Servicing early default intervention requirements?
A18. FHA has published a regulatory waiver and an accompanying SF Handbook waiver to allow mortgagees to utilize alternative methods for contacting borrowers, in lieu of face-to-face interviews, to meet the requirements of SF Handbook, Section III.A.2.h.xii. For more information, please see Regulatory Waiver and Handbook Waiver.
Q&As (3.18.2020)
Q19. Will lenders be penalized if they are unable to submit case binders to FHA within 10 business days of the binder request as a result of temporary lender office closures or reductions in on-site staff?
A19: No. Lenders should make every effort to submit case binders to FHA as quickly as possible, but they will not be penalized for overdue binder requests caused by their temporary office closures or staff reductions related to Coronavirus disease 2019 (COVID-19).
Q20. Will FHA suspend foreclosures and evictions on single family properties now that a Presidentially-Declared COVID-19 National Emergency has been declared? A20. Yes. FHA published Mortgagee Letter (ML) 2020-04, “Foreclosure and Eviction Moratorium in connection with the Presidentially-Declared COVID-19 National Emergency,” on March 18, 2020. This ML announced an immediate foreclosure and eviction moratorium for all FHA-insured single family mortgages for a 60-day period.
Q21: Is FHA providing an automatic extension to foreclosure deadlines following the expiration of this moratorium? A21: Yes. FHA is providing mortgagees an automatic 60-day extension following the moratorium expiration date to commence or recommence foreclosure action or evaluate the borrower under HUD’s Loss Mitigation Program.
Q22. Why is FHA granting a foreclosure moratorium for HECMs instead of an extension to the HECM foreclosure timelines?
A22. FHA is authorizing a foreclosure moratorium for Home Equity Conversion Mortgages (HECMs) through guidance in ML 2020-04, which is being provided in response to the unprecedented national emergency and the exigent circumstances surrounding the COVID-19 crisis. HUD’s
Presidentially-declared major disaster rea (PDMDA) guidance concerning extensions of HECM foreclosure timelines as provided in FHA INFO 18-40 is unaffected by the guidance.
New Q&As (3.27.2020)
Q24. When are exceptions to the appraisal inspection protocols for the use of exterior-only and desktop-only scope of work permitted?
A24. An exception for the exterior-only option is limited to purchase cases, rate and term refinances, simple refinances, and HECMs. An exception for the desktop-only option is limited to purchase cases.
Q25. What precautions should appraisers take while conducting a property appraisal report with inspection?
A25. Appraisers are advised to establish safety policies and procedures for their clients per the current guidance and recommendations provided by the Centers for Disease Control (CDC) as well as local, state, and federal resources. When scheduling property inspections, appraisers should discuss established protocols to reduce the risk of COVID-19 exposure.
Q26. Does the appraiser have to perform an interior inspection of the subject property?
A26. Certain FHA cases may now be completed with exterior-only or desktop-only scope of work. The appraiser should monitor the client’s engagement letters and instructions. For cases requiring the standard protocols of a complete interior and exterior viewing, the appraiser should follow safe practices and keep the client informed.
Q27. When performing an exterior-only or desktop-only scope of work, should the appraisal subject to inspection be completed at a later date?
A27. The appraisal does not need to be subject to an inspection at a later date solely because an interior or physical inspection was not performed. The appraiser must identify any necessary extraordinary assumptions based on the limited inspection scope of work and complete the appraisal based upon these assumptions. The appraisal will be completed “AS IS” unless deficiencies in Minimum Property Requirements (MPR) are observed or known to the appraiser based on the scope of inspection.
Q28. Which appraisal forms will be used for the exterior-only and desktop-only appraisals?
A28. The current acceptable appraisal reporting forms based on property/assignment type will continue to be used for all appraisals, including those with limited inspection scope of work. The appraiser must include the amended model certification and scope of work with the appraisal form. See acceptable reporting forms below:
Q29. Where should the appraiser get the subject property data necessary to complete the appraisal form for an exterior-only or desktop-only scope of work?
A29. To identify the property characteristics necessary to develop the appraisal, the appraiser may rely on third party data from the following sources: prior appraisals, tax assessor’s property record, and the Multiple Listing Service (MLS). The Appraiser may also obtain and rely on information from the homeowner with disclosures. Extraordinary assumptions are permitted when necessary in the development of a credible appraisal and should be clearly stated.
Q30. Are there any additional changes to the appraisal form data requirements to clearly communicate that a modified scope of work was completed?
A30. Yes. To better identify a modified scope of work appraisal, the Map Reference text field within the subject section of the form should be used to state “desktop” or “exterior,” when applicable.
Q31. Is the appraiser still responsible for identification of property deficiencies and minimum property requirements?
A31. While the FHA minimum property requirements (MPR) has not changed, the appraiser is required to observe, analyze, and report only what is evident based on the assignment scope of work.
Property/Assignment
Type
Acceptable Reporting Form
Single Family, Detached, Attached or Semi-Detached Residential Property
Fannie Mae Form 1004/Freddie Mac Form 70, Uniform Residential Appraisal Report (URAR); Mortgage Industry Standards Maintenance Organization (MISMO) 2.6 Government-Sponsored Enterprise (GSE) format
Single Unit Condominium
Fannie Mae Form 1073/Freddie Mac Form 465, Individual Condominium Unit Appraisal Report; MISMO 2.6 GSE format
Manufactured (HUD Code) Housing
Fannie Mae Form 1004C/Freddie Mac Form 70B, Manufactured Home Appraisal Report; MISMO 2.6 Errata 1 format
Small Residential Income Properties(Two to Four Units)
Fannie Mae Form 1025/Freddie Mac Form 72, Small Residential Income Property Appraisal Report; MISMO 2.6 Errata 1 format
Update of Appraisal(All Property Types)
Summary Appraisal Update Report Section of Fannie Mae Form 1004D/Freddie Mac Form 442, Appraisal Update and/or Completion Report; MISMO 2.6 Errata 1 format
Compliance or Final Inspection for New Construction or Manufactured Housing
Form HUD-92051, Compliance Inspection Report, in Portable Document Format (PDF)
Compliance or Final Inspection for Existing Property
Certification of Completion Section of Fannie Mae Form 1004D/Freddie Mac Form 442, Appraisal Update and/or Completion Report; MISMO 2.6 Errata 1 format
Kentucky FHA Mortgage Lender 