In Mortgagee Letter 2020-05, dated March 27, 2020, the U.S. Department of Housing and Urban Development (HUD) provides guidance on the modifications to re-verification of employment requirements for certain FHA loans and the option to use exterior-only or desktop-only appraisals for certain FHA loans, as a result of the COVID-19 national emergency. HUD welcomes feedback on the Mortgagee Letter for a period of 30 calendar days from March 27, 2020.

Re-Verification of Employment. The re-verification of employment guidance is effective for cases closed on or before May 17, 2020, and applies to all FHA Title II forward mortgage and home equity conversion (i.e., reverse) mortgage (HECM) programs for which re-verification of employment is required. FHA states that it “is allowing flexibilities related to the Mortgagee’s process of completing re-verification of employment, which includes verbal verification of employment.”

For forward mortgage loans, lenders do not have to provide a re-verification of employment within 10 days of the mortgage note (as described in HUD Handbook 4000.1 sections II.A.4.c.ii(C)(1)-(2) and II.A.5.b.ii(c)(1)-(2)), provided that the lender is not aware of any loss of employment by the borrower and has obtained:

  • For purchase transactions, evidence that the borrower has a minimum of two months of principal, interest, taxes, and insurance in reserves; and
  • A year-to-date paystub 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.

For HECM loans, lenders do not have to provide a re-verification of employment within 10 days of disbursement (as described in sections 3.8 and 3.9 of the Property Assessment and Property Charge Guide), provided that the lender is not aware of any loss of employment by the borrower and has obtained:

  • A year-to-date paystub 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

Exterior-Only and Desktop-Only Appraisals. The appraisal guidance is effective for appraisal inspections completed on or before May 17, 2020, and applies to all FHA Title II forward mortgage and HECM loan programs. In accordance with the guidance set forth in the Mortgagee Letter, the changes to FHA appraisal requirements are as follows:

  • Most single family forward mortgage and HECM loans for purchase transactions may utilize an optional exterior-only or desktop-only appraisal inspection scope of work.
  • Traditional HECM loans, HECM-to-HECM refinance loans, rate and term refinance loans, and simple refinance loans may utilize an optional exterior-only inspection scope of work.
  • All appraisals made in connection with the servicing of FHA’s forward mortgage or HECM portfolios may utilize either the exterior-only or desktop-only appraisal inspection scope of work.
  • No changes are made to streamline refinance transactions, which do not require appraisals, or to the appraisal requirements for FHA’s cash-out refinance, 203(k), and certain purchase loan transactions. (Exterior-only and desktop-only appraisals will not be permitted for new construction, construction-to-permanent, building on own lands and 203(k) purchase transactions.)

Required Repairs. When an Appraisal Update and/or Completion Report (Form 1004D) Part B is required to evidence the completion of required repairs, FHA will permit a letter signed by the borrower affirming that the work was completed with further evidence of completion. The further evidence may include photographs of the completed work, paid invoices indicating completion, occupancy permits, or other substantially similar documentation. All completion documentation must be retained in the case binder. This approach is not permitted on new construction, construction-to-permanent, building on own lands, and 203(k) transactions.


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