FNMA and FHLMC have issued temporary amendments to their rules regarding the use of a power of attorney (“POA”) in certain transactions; in particular, they are allowing the attorney-in-fact to be an employee of a party to the transaction, under certain circumstances (albeit the seller in a purchase transaction cannot act as an attorney-in-fact for the borrower). Among several of the amendments are the following:
“Unless a recorded Internet session described in the paragraph above is required, a power of attorney may only be used in a purchase transaction with a note date on or after Apr. 7, 2020, if, after the Closing Disclosure or other closing statement, as applicable, has been delivered to the borrower before closing, an employee of the lender or settlement agent explains the terms of the loan to the borrower(s) to confirm that each borrower understands them. This discussion must take place in person, telephonically, or using a video conference system, and must be memorialized by an acknowledgment by the borrowers of his or her understanding of the terms of the loan. The acknowledgment may be in writing or in a recording of the telephonic or video discussion.” (FNMA LL-2020-03)
“For purchase transactions, regardless of the relationship of the attorney-in-fact to the borrower (i.e., borrower’s relative, attorney-at-law, or other interested or uninterested party) a discussion must take place with the borrower. This discussion must:
- take place after the closing documents have been delivered to the borrower
- take place between the borrower and an employee of the originating lender or the settlement agent
- confirm that the borrower understands the transaction and the closing documents
This discussion is not required if the online, interactive session described in B8 5-05 is followed instead” (FNMA POA Job Aid)
“Purchase transaction Mortgages . . . After the Closing Disclosure has been delivered to the Borrower but prior to closing, an employee of the originating lender or settlement agent must explain and discuss the terms of the loan and use of the POA with the Borrower to confirm that the Borrower understands them. This discussion must take place in person, telephonically or using a video conference system and must be memorialized by an acknowledgment by the Borrower of his or her understanding of the terms of the loan. The acknowledgment may be in writing or in a recording of the telephonic or video discussion. . . .
However, whenever the attorney-in-fact under the POA is an individual employed by the title insurer or the title agent, then the discussion above is always required, regardless of loan type. . . .
These temporary requirements do not apply to cash-out refinance Mortgages and Texas Equity Section 50(a)(6) Mortgages.” (FHLMC Bulletin 2020-8; emphasis in the original)
Altogether, these requirements mandate that a written acknowledgment be used (under certain circumstances) for:
- Purchase transactions, regardless of whether the attorney-in-fact has a relationship with the borrower; and
- “No cash out” refinance transactions, if the attorney-in-fact has a relationship with the borrower (albeit this requirement only applies to transactions sold to FHLMC).
FNMA’s “COVID-19 Frequently Asked Questions – Selling” provides further guidance on what the written acknowledgment should be:
“Q15. What, specifically, needs to be reviewed with the borrower during the borrower acknowledgment conversation, and what is meant by the acknowledgment being ‘memorialized’?
The purpose of the borrower acknowledgement provision is to confirm orally after receiving the Closing Disclosure that the borrower understands both the key features of the loan and that the attorney-in-fact has the ability to contractually bind the borrower to the transaction – including the purchase of a home – on the same basis as if they had signed themselves.
Key features of the loan would include such things as principal amount, interest rate and adjustment provisions (if applicable), first payment date, loan term, and initial loan payment (P&I and PITIA).
The conversation reflecting the acknowledgment by the borrower(s) must be documented either in a written record created by the lender or settlement agent or in a recording capturing the conversation with the borrower. If documented in writing, there is no expectation that the borrower sign the memorialization. In either case, the lender must retain the acknowledgment in the loan file, and make it available to us on request.”
This guidance comes short of requiring a written transcript of the conversation; therefore, we will be providing new Cx23852 for these requirements. Within the document, the borrower acknowledges the following:
- That they have received either the Closing Disclosure or HUD-1 Settlement Statement before closing. Field “Integrated Disclosure Loan Indicator” (FI 82233) will be used to switch between referencing to the CD or the HUD-1;
- That an employee of the lender or the settlement agent has explained the terms of the loan and, if new field “Date Loan Terms Explained” (FI 138895) has a value, a disclosure of the date of the conversation; and
- That they understand the terms discussed.
Despite FNMA’s statement that the memorialization does not need to be signed, we have included a signature area for recordkeeping and auditing purposes (as well as the fact that while FNMA does not require a signature, FHLMC’s guidance is currently silent on this matter).
This document will print under two separate conditions:
Condition # 1
- Base Type = Conventional
- Document Package Type = Closing
- Loan Purpose = ConstructionOnly
- Loan Purpose = ConstructiontoPerm
- Loan Purpose = Purchase
- Power of Attorney (POA) on Loan = Yes
Condition # 2
- Base Type = Conventional
- Document Package Type = Closing
- Loan Purpose = NoCashOutOther
- Is this a Texas Home Equity Section 50(a)(6) loan? = No
- Settlement Agent Limited POA for Note Indicator = Yes
Please note the following:
- We are including construction loans due to the “purchase transaction mortgage” requirements, because the glossary term “purchase money transaction” is broad enough to cover a construction transaction which involves the purchase of the land upon which the structure will be built (see FNMA 2020 Selling Guide E-3-16 Glossary of Fannie Mae Terms: P).
- For the time being, new field “Settlement Agent Limited POA for Note Indicator” (FI 138894) will need to be manually set (or mapped) to “Yes”, as we are still working on functionality to set this indicator.
This document will be in Production on April 14, 2020. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.