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Fannie Issues Guidance on VVOEs and Appraisals in response to COVID-19

Quickly responding to industry concerns about how to social distance in the practical world of mortgage origination, Fannie issues Lender Letter (LL-2020-03) addressing many of the issues facing the industry.

Of specific concern are Verbal Verifications of Employment (VVOE) and the requirement to confirm that a borrower is still employed within 10 days of funding. Why do you do this? Because you underwrote the loan with the borrower employed and using that income to pay. So, you can't chuck that step out the window. But you do need to actually have a company open to receive the request. So now a written VOE or recent paystub or bank statement is an option. Don't rely on those guidelines to be the last we hear about VVOE. The second bullet emphasized the lender's obligation to ensure the borrower's continuity of income. In the wake of 2008, lenders aren't willing to roll the dice with their reps and warrants based on fuzzy guidelines that still require you to confirm the borrower is still actually employed.

Fannie offers little guidance on the debate swirling about RON, but does remind lenders of their existing policies regarding possession of the original promissory note prior to loan purchase. More to follow in a separate blog on this.

Fannie issues a separate Lender Letter (LL-2020-04) offering much-needed guidance on appraisals. Evidencing a distinct preference for

Effective immediately, we are allowing temporary flexibilities to our appraisal inspection and reporting requirements. ...we will accept an alternative to the traditional appraisal ... when an interior inspection is not feasible because of COVID-19 concerns. We will allow either a desktop appraisal or an exterior-only inspection appraisal in lieu of the interior and exterior inspection appraisal (i.e., traditional appraisal). If a traditional appraisal is not obtained and there is insufficient information about the property for an appraiser to be able to complete an appraisal assignment with a desktop or exterior-only inspection appraisal, the loan will not be eligible for delivery to us. ...For purchase money transactions when an interior and exterior appraisal is not available, lenders are encouraged to obtain a desktop appraisal rather than an exterior-only appraisal.

Right now this might not seem as much of an issue... but when depreciation begins, anticipate further guidance on how to tighten up appraisals in the wake of COVID-19.

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