Agency Verbal Verification of Employment Requirements

May 19, 2020rashtonBulletin

Overview

Carrington Mortgage Services, LLC (CMS) is actively monitoring the spread of COVID-19 (coronavirus) throughout the United States and we understand there may be concerns about its potential impact to our borrowers and loan originations. Our ability to continue to serve our customers is a top priority. This bulletin has updated effective dates. Updates are shown in red.

Conventional VVOE Requirements:

Effective Date: These temporary employment and income verification flexibilities are effective immediately for all Conventional product only loans in process and remain in place for loan applications until further notice. Note that the Guidelines/ Matrices and AUS messages will not be updated to reflect these temporary policies.

Verbal Verification of Employment

In cases where there is difficulty in obtaining the verbal verification of employment (VVOE) due to disruption to operations of the borrower’s employer, the following temporary process applies:

  • Written VOE: Obtain an email directly from the employer’s work email address that identifies the name and title of the verifier and the borrower’s name and current employment date within 5 business days of the note date.
  • The Work Number: We will continue to accept automated verifications such as those from The Work Number, although the last date of employment verified must be within 5 business days of the note date. In situations where the automatic database upload has not been refreshed within the last 5 business days, we will have to wait for the next refresh period.
  • Paystub: Provide a year-to-date paystub dated within 5 business days of the note date.
  • Bank statements: Provide a bank statement evidencing the automatic payroll deposit reflecting the employer’s name within 5 business days of the note date. (The 5 business days is calculated from the date of the payroll deposit, not the bank statement date.)
  • Self-Employment: Verification of self-employment will follow existing guidance, but must be dated within 5 business days of the note date.

Continuity of Income

It is important to remind our Associates of ensuring sustainable homeownership for our borrowers in light of recent events.

Given the current economic climate associated with the COVID-19 pandemic and its impact on employment and income, our Underwriting team will practice additional due diligence to verify the most recent information is obtained. This will ensure any disruption to borrowers’ employment (or self-employment) and/or income due to the COVID-19 pandemic is not expected to negatively impact their ability to repay the loan.

Borrowers on Furlough

If a company verifies the borrower is still employee but is on furlough, we won’t be able to close the loan. If they are not receiving income, we can’t meet continuity of income requirements.

Verification of Self-Employment

Effective Dates: Lenders are encouraged to apply these updates to existing loans in process; however, they must be applied to loans with application dates on or after Apr. 14, 2020 and until further notice.

Currently, when a Borrower is using self-employment income to qualify, the Lender must verify the existence of the Borrower’s business no more than 120 days prior to the Note Date. Due to the impact the COVID-19 pandemic and the various social distancing measures implemented by different jurisdictions are having on many businesses across the country, Lenders must take additional steps to confirm that the borrower’s business is open and operating. The Lender must confirm this within 5 business days of the note date (or after closing but prior to delivery).

Below are examples of methods the Lender may use to confirm the borrower’s business is currently operating:

  • Evidence of current work (executed contracts or signed invoices that indicate the business is operating on the day the lender verifies self-employment);
  • Evidence of current business receipts within 5 business days of the note date (payment for services performed);
  • Lender certification the business is open and operating (lender confirmed through a phone call or other means); or
  • Business website demonstrating activity supporting current business operations (timely appointments for estimates or service can be scheduled).

FNMA Age of Documentation

Effective Dates: Lenders are encouraged to apply these updates to existing loans in process; however, they must be applied to loans with application dates on or after Apr. 14, 2020 and until further notice.

In order to ensure that the most up-to-date information is being considered to support the borrower’s ability to repay, FNMA is updating their age of documentation requirements for all loans (existing and new construction) as follows:

  • FNMA is modifying age of document requirements from four months (120 days) to two months (60 days) for most income and asset documentation. If an asset account is reported on a quarterly basis, the lender must obtain the most recently issued quarterly statement.
  • When the Lender receives employment and income verification directly from a third-party employment verification vendor, FNMA is are now requiring that the information in the vendor’s database be no more than 60 days old as of the note date.
  • There are no changes to the age of documentation requirements for military income documented using a Leave and Earnings Statement, Social Security, retirement income, long-term disability, mortgage credit certificates, public assistance, foster care, or royalty payments, and the Lender can continue to apply standard age of document requirements as stated in the Selling Guide.
  • Due to the federal income tax filing extension granted through Jul. 15, 2020, FNMA is eliminating the following documentation requirements. These normally apply for income types that require copies of federal income tax returns when the mortgage has an application or disbursement date between Apr. 15th and Jul. 15th:

o   A copy of the IRS Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Tax Return), and

o   IRS Form 4506-T (Request for Transcript of Tax Return) transcript confirming “No Transcript Available” for the 2019 tax year.

All other requirements contained in FNMA Seller Guide B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns, continue to apply.

FHLMC Age of Documentation

FHLMC is implementing the following temporary requirements for age of income and assets documentation.

All income and asset documentation must be dated no more than 60 days prior to the Note Date, except as follows:

  • If an asset account is reported on a quarterly basis, the Lender must obtain the most recently issued quarterly statement
  • For electronic income verifications obtained from third-party verification service providers, the information from the electronic data base reflected on the third-party verification must now be dated no more than 60 days prior to the Note Date
  • The FHLMC standard Guide requirements for age of documentation continue to apply to the following income types:

o   Military income documented on Leave and Earnings Statements

o   Retirement income

o   Survivor and dependent benefit income

o   Long-term disability income

o   Social Security Supplemental Security Income (SSI)

o   Public assistance income

o   Homeownership Voucher Program payments

o   Foster-care income

o   Trust income (fixed)

o   Royalty payments

o   Mortgage Credit Certificates (MCC)

FNMA Market-Based Assets

Effective Dates: Lenders are encouraged to apply these updates to existing loans in process; however, they must be applied to loans with application dates on or after Apr. 14, 2020 and until further notice.

Stocks, Stock Options, and Mutual Funds

In light of current market volatility, FNMA is making the following updates when the borrower is using stocks, stock options, or mutual funds for assets:

  • When used for down payment or closing costs, evidence of the borrower’s actual receipt of funds realized from the sale or liquidation must be documented in all cases.
  • When used for reserves, only 70% of the value of the asset must be considered, and liquidation is not required.

See FNMA Seller Guide B3-4.3-01, Stocks, Stock Options, Bonds and Mutual Funds for existing FNMA requirements.

FHLMC Market-Based Assets

Stocks, Stock Options and Mutual Funds

Due to the continuing market volatility of certain asset types, FHLMC is implementing the following temporary requirements applicable to accounts with stocks, stock options and mutual funds:

  • Evidence of liquidation, including Borrower receipt of funds, is required when using any funds from these accounts for Down Payment and/or Closing Cost
  • The Lender must use no more than 70% of the balance in the accounts in order to meet the reserves requirements in Seller Guide Section 5501.2

FHA VVOE Requirements

Effective Date: The re-verification of employment guidance in Mortgagee Letter 2020-05 is effective immediately for all cases closed until further notice. Please note: the Policy updates outlined in the Mortgagee Letter are temporary and will not be incorporated into the HUD Single-Family Housing Policy Handbook 4000.1.

Verification of Employment

FHA will allow flexibilities related to the Lender’s process of completing re-verification of employment, which includes verbal verification of employment. This is applicable for all FHA programs, where re-verification of employment is required.

CMS will follow the Conventional VVOE requirements described above to document and verify the borrower’s employment and annual and repayment income.

Please note: CMS requires VVOEs for Streamline loan refinance transactions; however, CMS to CMS Streamline loan refinances are exempt.

VA VVOE Requirements

The VA Guidance for Borrowers affected by the COVID-19 pandemic is as follows:

Effective Date. The policy outlined is effective for all loans closed on, or after, 3/27/2020 and until further notice or the rescission of VA Circular 26-20-10.

VA may only guarantee a loan when it is possible to determine that the Veteran is a satisfactory credit risk and has present or verified anticipated income that bears a proper relation to the anticipated terms of repayment as outlined in the VA Pamphlet 26-7, Chapter 4 Credit Underwriting.

Verification of Employment

Lenders should continue to use good judgment and flexibility when verifying stable and reliable income. Lenders should make every effort to satisfy VA’s longstanding requirements concerning verification of employment as outlined in the VA Pamphlet 26-7, Chapter 4 Credit Underwriting.

CMS will follow the same guidance for VVOE’s, pay stubs and bank statement payrolldeposits within 5 business days of the note date, as described above in the Conventional VVOE requirements.

If the verification method is impacted due to temporary business closures, the lender should use the guidelines listed below

(1) The lender may utilize employment and income verification third-party services. Additional fees associated with these services cannot be charged to the Veteran, as stated in VA Pamphlet 26-7, Chapter 8, Section 2 Fees and Charges the Veteran-Borrower Can Pay.

(2) If the lender is not able to utilize a third-party service to verify employment and income, a VOE can be met with evidence of direct deposit from a bank statement and paystubs covering at least one full month of employment within 5 business days of the note date. Lenders should reconcile payment amounts between the paystubs and direct deposit listed on the bank statement.

In the event lenders utilize option (2) as verification, they must document in box 47 of the remarks section on VA Form 26-6393, Loan Analysis, the option they selected and the supporting documentation.

Underwriting Loans

For income analysis purposes, as outlined in VA Pamphlet 26-7, Chapter 4 Credit Underwriting, VA guidelines generally require income to be stable and reliable for 2 years.

  1. If the applicant was impacted by COVID-19 (i.e. furlough, curtailment of income, etc.),that period should not be considered a break in employment or income provided they have returned, or are anticipated to return, to work in the same capacity and income levels. In addition to standard verification documentation, applicants should provide furlough letters where applicable.
  2. VA continues to encourage lenders to take proactive measures in documenting and uploading evidence of their analysis and justifications for all borrowers, especially for “borderline” cases. This may proactively address questions that VA may otherwise ask and prevent a loan level audit of that loan.

USDA VVOE Requirements

The USDA Single Family Housing Guaranteed Loan Program (SFHGLP) temporary exceptions to VVOE in relation to COVID-19 Pandemic are as follows:

Effective immediately, the following temporary exceptions to HB-1-3555 are in effect for a period of 60-days.

Verification of Employment

Lenders must document and verify the borrower’s annual and repayment income in accordance with Agency regulations. Lenders should use due diligence in obtaining the most recent income documentation to re-verify the borrowers repayment ability prior to closing. When the lender is unable to obtain a VVOE within 5 business days of loan closing due to a temporary closure of the borrower’s employment, alternatives should be explored. In the case of a reduction of income, the borrower’s reduced income must be sufficient to support the new loan payment and other non-housing obligations. Borrowers with no income at the time of closing are not eligible for SFHGLP loans regardless of available cash reserves.

CMS will follow the Conventional VVOE requirements described above to document and verify the borrower’s employment and annual and repayment income.

Expiration of Temporary Exceptions

These temporary exceptions will expire 60 days from the date of this notice.