On June 22, 2020, the Federal Housing Administration (FHA) announced several policy changes to provide mortgagees greater flexibility during the COVID-19 pandemic. These policy adjustments include: (i) a temporary waiver of quality control (QC) requirements for early payment defaults (EPDs); (ii) a temporary partial waiver of QC requirements for field reviews of appraisals; and (iii) consideration of COVID-19’s impact on a mortgagee’s Compare Ratios.
FHA requires mortgagees to select and review EPDs (i.e., mortgages that become 60-days delinquent within the first six payments) on a monthly basis. According to the announcement, because of COVID-19, FHA is temporarily suspending its requirement that mortgagees select and review all EPDs on a monthly basis. As a result of this waiver, mortgagees will not be required to conduct QC reviews of EPDs that would have been selected as part of a mortgagee’s May, June, or July 2020 QC selections. Notwithstanding the waiver, mortgagees must continue to meet the loan file selection requirements in the Single Family Housing Policy Handbook 4000.1 (SF Handbook 4000.1), Section V.A.3.
FHA also is granting a temporary waiver from the requirement to conduct a targeted appraisal field review to evaluate the appraisal for 10 percent of all FHA-insured mortgages chosen for a QC review. Pursuant to the waiver, mortgagees will be permitted to use third-party tools as an alternative to field reviews of appraisals. However, mortgagees are still required to meet all other appraisal QC requirements in SF Handbook 4000.1, Section V.A.3.c.ii(C). For instance, mortgagees must still conduct desk reviews of appraisals following the regular standards. This waiver applies to QC reviews currently in process and for cases selected as part of a mortgagee’s May, June, or July 2020 QC selections. Finally, FHA announced that it will take into account the impact of COVID-19 as a relevant mitigating factor when a mortgagee’s Compare Ratio is reported above the designated threshold in the Neighborhood Watch Early Warning System.