It seems that Freddie and Fannie have been too busy with loan originations to make many changes to their guides this year; we have only minor updates to report. Summarized below are a few points that may have slipped under your radar.
FREDDIE MAC MOLD/MOISTURE INSPECTIONS
In February, Freddie Mac added new language to section 8.3 of their Seller/Servicer Guide regarding Moisture/Mold Inspections. The changes affect when a special inspection is required, who may perform it, and the content of the inspection report. Essentially, Freddie Mac may require a special inspection or increased scrutiny for moisture or mold when there is history of moisture or mold identified at underwriting; significant moisture or mold identified during the mortgage term; or pervasive moisture or mold issues listed as require repairs in the loan docs. In addition to existing qualifications required by previous editions of the Guide, the third-party consultant who performs the special inspection is now required to have specific expertise with water intrusion and mold issues. Where the Guide previously identified requirements for inspection and reporting on moisture and mold issues, it now also requires that the inspection report include recommendations to correct all issues.
NEW FANNIE MAE GUIDE ONLINE
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Fannie Mae’s new Seller Servicer Guide with new third-party guide update is available here on the Fannie Mae website. The guide was previously available only through the Allregs® subscription service. The new guide, effective as of August 1, does not include any pertinent changes to the requirements for your third-party due diligence reports. Freddie Mac, on the other hand, continues to deliver their seller/servicer guide via Allregs.
ENVIRONMENTAL REPORTS FOR FANNIE MAE LOANS
Make sure that you’re ordering the correct environmental site assessment (ESA) for the loan product you’re using. We’ve recently become aware that some lenders believe database environmental reviews suffice for Fannie Mae small loans. This erroneous belief may be attributed to the old Delegated Underwriting and Servicing Guide, which has since been updated by the Multifamily Selling Servicing Guide. According to the current guide, the lowest acceptable level of environmental review for small loans is a Transaction Screen Assessment (TSA), which includes a database review, a site visit, key personnel interviews and limited historical research. Database reviews will suffice for certain refinance products including the Supplemental Refi. Conventional loans still require full Phase I ESAs. Note that Freddie Mac loans require a TSA for the Physical Risk Reports (SBL, Conventional/TAH) but require a full Phase I for the standard transaction product as required by Section 61 of the Seller/Servicer Guide.
KEEP AN EYE ON STATE STANDARDS
If you’re lending in a region that is unfamiliar to you, remember that state standards often exceed the due diligence requirements issued by Fannie Mae and Freddie Mac. This is perhaps most noticeable with radon and asbestos screening, for which protocols vary widely by state. For example, Pennsylvania recently adopted high-scrutiny standards similar to those in Ohio, where 100% sampling of ground floor units is required. Furthermore, some states have radon certification requirements for the screening providers. This is also true of asbestos surveys; each state has an asbestos survey program that dictates screening protocols and the minimum qualifications of the service provider. Some states require only the national AHERA certification whereas others, require additional certifications. For instance, in Nevada, anyone collecting asbestos samples must have a state-issued Abatement Consultant license. This is in addition to the national AHERA certification. The State of Colorado also has a designated license required beyond the national AHERA certification. To avoid potential fines and delays in the due diligence process, be sure your consultant is aware of and adhering to the requirements of each state in which they work.
Understanding the respective due diligence requirements of Fannie Mae and Freddie Mac, in additional to state and local requirements, is critical to timely and successful loan closure. Be sure you’re using a due diligence provider with the resources and expertise to provide accurate, compliant reports–regardless of the location of your collateral.