FHFA extends relaxed rules on employment verification and home appraisals

The relaxation of lending and appraisal standards for loans backed by Fannie Mae and Freddie Mac has been extended for another month, the Federal Housing Finance Agency announced last week.

The FHFA put its eased standards in place due to the COVID-19 pandemic to help lenders and appraisers keep loans on track amid social distancing measures and the subsequent delays in verifications they caused.

The relaxed rules, which include alternative verification of employment and alternative appraisal methods, have been extended until April 30, having been set to expire at the end of this month.

The extended measures allow for alternative appraisals on purchase and rate term refinance loans; alternative methods of documenting a borrowers’ income and verifying their employment; and expanded use of power of attorney to assist with closing loans

The FHFA explained that it temporarily eased standards for lending and appraisals because the rise of remote work has mad employment verification more challenging for lenders. Any delays in that process mean it takes longer to close on a loan. As such, Fannie Mae and Freddie Mac now accept employer verification using alternative methods such as an email from the borrower’s employer, a recent year-to-date pay stub, or a bank statement showing a recent payroll deposit.

The extended policies over employee verification and expanded power of attorney are now set to expire on April 30, the FHFA said. However, it has hinted before that the alternative appraisal policies could be here to stay for the long term. In January, it issued a request for public input on policies and practices regarding home appraisals, and that could mean alternative appraisal methods such as the use of software algorithms instead of a human assessor are here to stay.

The relaxed appraisal rules were introduced last year after lenders reported difficulties in being able to obtain appraisals based on a full interior and exterior inspection of a property. As such, Fannie Mae and Freddie Mac were permitted to allow drive-up appraisals or desktop appraisals in certain situations so as not to delay loan applications.

“As health and safety conditions improve, FHFA will actively monitor mortgage market participants’ use of all temporary measures and retire those that are no longer needed or not extensively used,” the FHFA said in a statement.