As the new year begins, originators will have access to several waivers as the Government Sponsored Enterprises (GSEs) prepare for enhanced cost structures, less risk and continued relief efforts. Although this guidance comes from multiple areas of focus, the overall takeaway illustrates that the enterprises are in a confident position for the forthcoming year. The GSE cost framework is being revised to build up capital reserves. Additionally, the GSEs are managing to the ongoing rise in home prices by embracing the corresponding improvement in valuation risk, as well as continuing to incorporate other industry relief guidance as it’s announced. So, as you start your new year, here’s the latest on origination waivers.
The GSEs are poised to introduce appraisal leniency out of the gate. As the housing market continues its robust course and credit begins to ease on the heels of the pandemic clamp down, adding more flexibility in the collateral valuation realm makes more sense. To help meet this area of reduced risk, both Fannie Mae and Freddie Mac have made recent announcements around desktop appraisals.
Desktop Appraisals
Beginning in March 2022 desktop appraisals will have an expanded option for lenders and appraisers. Fannie Mae’s Desktop Underwriter® (DU®) will render eligibility scenarios giving the lender and borrower the option for an appraisal waiver, or to order an appraisal that doesn’t require a
physical inspection. Both options are contingent upon meeting other eligibility criteria, including that the mortgage must be a purchase, single unit primary residence, with a loan-to-value (LTV) that does not exceed 90 percent. Freddie Mac’s Loan Product Advisor® (LPASM) announcement referenced the inclusion of updated feedback messages that support desktop appraisals, with more information to follow in a forthcoming Bulletin.
The Federal Housing Finance Agency (FHFA) kicked off the new year with expansion to the GSE pricing framework, announcing increases in Loan Level Price Adjustments (LLPA) for both high balance loans and second homes. In an effort to strike a balance between enhancing their capital position, as well as supporting affordable housing, first-time homebuyers that fall under area median income limits will be exempt from these added fees.
High-balance LLPA Waiver
Good news for first-time homebuyers, both Fannie Mae and Freddie Mac announced that effective April 2022, loan level adjustments tied to high-balance, or super conforming mortgages, will go into effect, but will not apply to first-time homebuyers, as well as many GSE affordable housing programs. Fannie Mae includes second homes in their announcement. First-time homebuyers must have a qualifying income that is less than or equal to 100% of the corresponding median income limit to meet eligibility requirements.
Last April the Internal Revenue Service announced temporary relief provisions under the Taxpayer Certainty and Disaster Relief Act of 2020. This comes in the form of the option for businesses to temporarily claim 100 percent of food and beverage expenses.
Self-Employed Logic Update
Fannie Mae has updated the validation logic to assist lenders in their self-employed income documentation. This is in response to the IRS’s temporary improvement allowing 100 percent deductions for business meal expenses, available on expenses incurred in 2021 and 2022.
Ensuring waivers are properly documented and delivery codes align is an essential stopgap in avoiding repurchase requests. This is important as your origination areas continue to be stretched by record level production. And with the rumblings of inflation and rising interest rates, origination activity will continue to remain high as we delve into 2022. Ensuring your team is available to service ongoing production increases means your operational team could use a proven partner to assist with the details. At QC Verify, we understand the importance of not simply incorporating change but understanding its impact on your operational and quality control efforts. We are here to provide our industry knowledge, quality control expertise and genuine support to your business. As a boutique provider of quality control and audit solutions, we remain uniquely positioned to help you meet and understand the challenges of compliance and risk management amidst ongoing volatility. Whether it’s pandemic influence, record volume, inflation, rising interest rates, or other industry obstacles, QC Verify is here to help.
Contact us today to see how our team can assist you and your teams in meeting the challenges of the year ahead.