As you are probably aware, the US Government has been partially shutdown for over two weeks. On December 26, Fannie Mae issued temporary guidance related to loan origination and loan servicing during the government shut down in Lender Letter LL-2018-06, available here. On January 3, Freddie Mac also released guidance regarding loan origination and loan servicing during the government shutdown, available here.
Borrowers Employment Impacted by the Shutdown. According to the Fannie Mae, loans are not rendered ineligible for purchase solely because a borrower’s employment is directly impacted by the shutdown. Lenders must still, however, obtain a verbal verification of employment prior to the time of loan delivery in order for the loan to be eligible for sale to Fannie Mae. For military borrowers, the lender can use a Leave and Earnings Statement dated within 30 calendar days prior to the note date in lieu of a verbal verification. Additionally, among other things, if a borrower is furloughed on or after closing, the loan remains eligible for sale to Fannie so long as the lender has obtained all required documentation, including the verbal verification.
According to Freddie Mac, loans made to borrowers directly impacted by the government shutdown are still eligible for sale to Freddie Mac, even if the borrower is not receiving pay when the loan is delivered, so long as (i) all income and employment documentation requirements are met; (ii) the seller has no knowledge that the borrower will not return to work after the shutdown ends; and (iii) all other requirements of the “Seller’s Purchase Documents” are met.
Verifications of Information Impacted by the Shutdown. The letter also addresses government verifications of certain information. For IRS transcripts, Fannie Mae notes that Desktop Underwriter will continue to process tax transcript verification reports received prior to the shutdown, but will not able to access new verification reports for validation. As a result, requests for verification reports may remain in pending status until normal government operations resume. Further, Fannie Mae is temporarily allowing lenders to obtain verification of a borrower’s social security number, if needed, prior to the delivery of the loan. If the number cannot be verified prior to delivery, however, the loan will not be eligible for sale. Regarding flood insurance, Fannie Mae states that it will purchase loans secured by properties located in Special Flood Hazard Areas as long as the loans meet certain conditions, including proof the borrower has completed an application for the insurance and paid the initial premium. Lenders are obligated to have a process in place to identify any mortgaged properties that do not have proper evidence of active flood insurance, or where an increase in coverage or renewal of existing policies would have occurred during the shutdown, and to make sure coverage is obtained once the shutdown ends.
Freddie Mac also stated that Form 4506-T will continue to be signed by borrowers at closing, but these forms do not need to be processed by the IRS prior to closing. The Form 4506-T information should, however, be obtained as part of Sellers’ in-house control program. Freddie Mac flood insurance requirements will remain unchanged during the shutdown.
Loan Servicing. Finally, with respect to loan servicing, both Fannie and Freddie authorize servicers to offer forbearance plans to assist borrowers who cannot make their regular monthly payment as a result of the shutdown.
Lenders should look for additional guidance from Fannie and Freddie as the shutdown continues.