FHA Relaxes Appraisal, Documentation Requirements During Coronavirus Crisis

The Federal Housing Administration (FHA) on Friday evening released a new Mortgagee Letter (ML) announcing guidance for property appraisals in light of concerns related to the outbreak of the COVID-19 coronavirus. The ML also announces a modification to the re-verification of employment requirements due to the COVID-19 national emergency as declared by the president.

Appraisals for properties on most new traditional forward mortgages and Home Equity Conversion Mortgages (HECMs) can now be conducted through either exterior-only inspections or through desktop-only appraisals in an effort to minimize contact and potential transmission of the virus between people, allowing for appraisals to still take place while observing social distancing guidelines and other COVID-19 mitigation efforts as recommended by the Centers for Disease Control and Prevention (CDC).

“In recognition of the current situation throughout the country, and in support of initiatives to combat the spread of COVID-19, the Department of Housing and Urban Development (HUD) is making modifications to the re-verification of employment and Acceptable Appraisal Reporting Forms and Protocols (Appraisal Protocols) by allowing exceptions for Exterior-Only and Desktop Appraisal inspections in certain transactions,” the ML reads in part.

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The new appraisal rules are designed in order to, “limit face-to-face contact for certain transactions affected by the Presidentially-Declared COVID-19 National Emergency Declaration,” and is effective immediately for appraisal inspections completed on or before May 17, 2020. The ML also clarifies that these policy updates will not be incorporated into the HUD Single-Family Housing Policy Handbook 4000.1.

The specific changes to the FHA Appraisal Protocols include that in terms of reverse mortgages, most HECM for Purchase transactions will now be able to utilize either the exterior-only or desktop-only appraisal options, while traditional HECMs and HECM-to-HECM refinances will qualify for exterior-only inspections alone. All appraisals made in connection with FHA’s forward or reverse mortgage portfolios can utilize either the exterior-only or desktop-only appraisal options, the ML reads.

For the re-verification of employment on the reverse mortgage side, a year-to-date pay stub 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 will be accepted.

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 either of the described documents.

Read Mortgagee Letter 2020-05 at the HUD website.

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