COVID-19 underwriting flexibilities: What's changing?

Over the past 14 months, there have been numerous announcements made jointly by Fannie Mae and Freddie Mac regarding file documentation and evaluation during the COVID 19 pandemic. Recently we’ve started to see these flexibilities shifting back, but some are not and will remain in place until further notice. Let’s hear from MGIC’s National Trainer on what is changing and what’s not.

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Transcript

Stephanie Budnik (00:03):
Welcome to Mortgage Connects by M G I C, bringing you the latest insights from top mortgage professionals around the industry. I'm your host, Stephanie Budnick, and today we'll be talking about a buzz phrase that we're hearing in the industry C flexibilities. Over the past 14 months, there have been numerous announcements made jointly by Fannie Mae and Freddie Mack regarding file, documentation and evaluation during Covid 19 pandemic. Recently we started to see some of those flexibilities shifting back, but some are not and some will remain in place. Until further notice, we're joined by Rebecca Chase, customer trainer, to sort out all of this that sits today. Hey Rebecca.

Rebecca Chase (00:42):
Hey Stephanie. Thanks for having me join M G I C Connects. I'm excited to be

Stephanie Budnik (00:47):
Here. We are so excited to have you. So I have a question. Let's start about flexibilities. Okay. I know that that's a big word. Can you just tell me a little bit more specifically what we're talking about when we reference flexibilities?

Rebecca Chase (00:59):
Sure. During the past year or during the last 14 months when we've all been dealing with the impact of the pandemic, not only on our personal lives but in our work environment, we've seen really three areas that have been the focus of most of the flexibilities, the age of documentation within the file, the types of documentation that we're required to get, and then from there how we analyze that. So when we talk about those covid flexibilities, that's really what we're putting under that umbrella. Umbrella.

Stephanie Budnik (01:30):
Okay, that makes sense. Let's start with the good news. What's reverting to standard guidelines now?

Rebecca Chase (01:37):
Okay, now this one's gonna be a little bit more complicated because it's based on the date of the application and that the timeframe for the different changes is not necessarily just one date of application. So I'll remind everybody that's listening, always check your guidelines, but just be aware that with loan applications dated May 1st or later, the flexibility about how we could document the verbal verifications of employment that we do right near closing will be changing and returning to standard guidelines.

Stephanie Budnik (02:11):
Okay.

Rebecca Chase (02:12):
Along with the changes around appraisals, that's actually gonna revert back to standard appraisal documentation with applications dated June 1st or later. And when we talk about appraisal flexibilities, we're really referencing the ability to use an external only appraisal or a desk evaluation. Um, the, the usage of appraisal waivers is going to remain as it has, as it has been and as many of our listeners will know, there's been a good increase in the number of files receiving those appraisal waivers. Ok. In the middle of all of that are some changes around use of the power of attorney and some of the flexibilities will remain in place. So just make note to yourself that if you encounter the need to use the power of attorney to make sure you double check, uh, what's in play at this particular point in time. So that's what's reverting back to the standard guidelines, Stephanie.

Stephanie Budnik (03:11):
Okay. Well then I guess the same question holds to what's remaining at this current time in regards to covid.

Rebecca Chase (03:19):
A couple things that that folks may wish would revert are going to remain the same until further notice. And again, I'm gonna put it in terms of three. The first is that doc expiration dates will remain at 60 days from the note date until further notice. So again, for those of you that are originators and interacting with borrowers, you may wanna prep your borrowers that you may need to update some of the documents in the file before you actually get to closing, given that the doc expiration date is staying at 60 days. Another area, the second one is the treatment of market based assets. So if you have borrowers using stocks, stock options, mutual funds for closing and down payment purposes, then again, they're still going to continue to document receipt of those funds and they will have to show proof of liquidation. If you're using market based assets for reserve purposes, you don't have to liquidate, but you will be used a limited to only using 70% of what the current value is.

Rebecca Chase (04:23):
So again, keep that in mind as you're working with verifying assets for closing and reserve purposes. And then the last area, Stephanie, that is gonna be the same until further notice is how we're documenting and evaluating our self-employed borrowers. We're gonna need to continue to gather one or two years personal and business returns based upon the program guidelines and big and there at minimum, we're going need to gather the current profit and loss along with three months of business bank statements when that p and l is unaudited. So the three areas just real quick, is doc expiration dates, how we're dealing with market based assets, and then continuing to document self-employed borrowers with additional information.

Stephanie Budnik (05:08):
I can see how you some may want those to revert back to standard guidelines. I was not in the home buying process all too long ago and knowing that I would need to pull all those docs again would not be something that would be fun for me.

Rebecca Chase (05:22):
<laugh>, you are correct. On that point,

Stephanie Budnik (05:25):
Since here's another one for you, since it's difficult to keep the Aus message current, what would you recommend the best way to keep it all straight?

Rebecca Chase (05:34):
And that's a, that's a great point. You know, the agencies, Fanny and Fred were diligently to keep the automated underwriting systems current, but with the flexibility changes, it takes a little bit of time for that to get programmed into desktop underwriter and loan product advisors. So I always recommend that if nothing else, you read the subject line of incoming emails that are updates on what's happening, and you may not have time to read it in depth, but find some way to organize it so that when you start to work with a file and you're thinking, Wow, I wonder if if that's changed, you have a reference place to go back and gather that information. Also, uh, I'm a big believer in utilizing what the agency resources are. So Fanny and Freddie both have dedicated webpages to all things Covid and they post all their different announcements there.

Rebecca Chase (06:28):
And anybody, whether you're a direct seller, servicer or not, can sign up to receive the updates from Fanny and Freddie as they make those announcements. So those are a couple ways that I would, would try to keep things straight because you certainly can't put anything into memory More. More today is about being able to find the resources that give you that current UpToDate information. And, and before we, before we move on, Steph, now, just remind everybody that even the conversation that we're having today about what's changing and what's remaining the same is always subject to change. So when you're working with live files, please always re-verify your guidelines.

Stephanie Budnik (07:08):
I think that you summed it up very great there. I think that that's a really good reminder as a takeaway that things are always subject to change, and so to make sure everything is current, checking those guidelines and verifying your work on all of those active files is gonna be pretty important.

Rebecca Chase (07:25):
Well, I really appreciate the opportunity to kind of lay some of that out and hope that you and your listeners found it helpful.

Stephanie Budnik (07:32):
Thank you so much, Rebecca. And thank you everyone for listening. For all of the latest industry insights, subscribe to Mortgage Connects on Apple, Stitcher, or Spotify, or check out mortgageconnects.com. Thanks.