Workplace shutdowns make it hard (or impossible) to verify employment
If you applied for a mortgage recently, you probably supplied documents like W2s and bank statements to prove your job and salary.
Lenders also double check that you’re still working right before closing — something called a “verification of employment.”
If you’re no longer employed at that time, it’s usually grounds to cancel the loan.
Bus COVID-19 has thrown all sorts of roadblocks into the loan process.
With companies shut down or cutting back on staff, it’s difficult for lenders to verify employment. And it’s hard for recently-laid-off borrowers to prove they’ll have a job once this is all over.
If you find yourself temporarily or indefinitely out of work due to coronavirus, here’s what you should know about your home loan.
Lenders relax standards amidst coronavirus
Federal agencies loosened some key rules on mortgage lending on Monday.
Specifically, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac will temporarily relax standards for verification of employment (VOE) and property appraisals.
The VOE change will directly impact many borrowers.
It means home buyers and refinancers might be able to move forward with new loans, even if their workplace has temporarily shut down due to coronavirus.
Usually, no employment means no mortgage
Typically, mortgage lenders conduct a “verbal verification of employment” (VVOE) within 10 days of your loan closing — meaning they call your current employer to verify you’re still working for them.
But as coronavirus continues to disrupt businesses, getting a verification of employment has become more and more challenging.
Businesses have become less responsive as they temporarily close down or reduce staffing. And many workers have been laid off or put on reduced hours to compensate.
Thankfully, regulators and lenders have been flexible in responding to the coronavirus crisis.
Workplace shut down? You have options
As a partial solution for homebuyers affected by COVID-19, many lenders are now accepting alternative forms of employment verification to move forward with loans.
These new rules apply to “conventional loans,” those backed by Fannie Mae and Freddie Mac.
In lieu of a verbal verification of employment, borrowers might now get by with one of the following:
- An email from the employer
- A recent year-to-date paystub
- A bank statement showing a recent payroll deposit
FHFA says lenders should still “attempt” to get a verification of employment directly from the lender if possible.
But the alternative VOE options — sending in a paystub or bank statement — suggest that it might be possible to close the loan even without your employer’s immediate go-ahead.
If a lender has reason to believe you won’t be employed after coronavirus troubles have passed, they’re not likely to sign off on your loan.
That said, the rules haven’t completely relaxed. Lenders still have to make sure you’ll be able to repay your mortgage.
And if a lender has reason to believe you won’t be employed after coronavirus, they’re not likely to sign off on your loan.
As FHFA said in a press release: “Lenders should continue to utilize sound underwriting judgment to ensure these alternatives are appropriate to the borrower’s circumstance.”
What to know if you’ve been laid off due to coronavirus
The above rules primarily apply to people who are still employed, but whose offices are shut down or who might be on temporarily reduced hours.
But as the pandemic continues to spread across the country, there will no doubt be additional layoffs for those with mortgage applications in process.
If you’re in the restaurant industry or the school systems, or you’re a nonessential government worker, you’re most likely feeling the layoff squeeze.
As of now, the housing agencies have not put out guidelines to help folks who’ve completely lost their jobs.
If you’ve been given a leave of absence or a temporary layoff, contact your lender to discuss your options.
At least for the time being, you’ll likely have to postpone your loan closing until you’re back on your job.
But if you’ve been given a leave of absence or a temporary layoff, contact your lender to discuss your options. It might have some flexibility to help you.
Appraisal requirements are changing, too
Appraisers needing to inspect homes as part of the mortgage application process has been a growing concern as the virus has continued to spread throughout the U.S.
According to the FHFA, both Fannie and Freddie will use “appraisal alternatives to reduce the need for appraisers to inspect the interior of a home for eligible mortgages.”
According to the bulletin, the preferred method for appraisals is still the traditional appraisal.
But if that is not possible, a desktop appraisal is preferred.
Desktop appraisals are where the appraiser doesn’t inspect the property or comparable sales. Instead, the appraiser relies on public records, multiple listing service information, and other third-party data sources to identify the property characteristics.
If a traditional or desktop appraisal is unable to be performed, an exterior-only inspection, aka a “drive-by appraisal”, is allowed in certain circumstances.
In all cases, the use of appraisal alternatives is available only on certain loans.
Both the adjusted appraisal and employment verification standards are in effect through May 17, 2020, according to the FHFA.
What are mortgage rates right now?
There is a silver lining for those who are gainfully employed, even if you’re working from home.
Mortgage rates have continued to come back down to near-record lows.
As rates continue to fall, along with new relaxed underwriting rules, would-be homeowners and those looking to refinance can still take advantage of mega-savings.Verify your new rate (Sep 17th, 2020)