As the government shutdown drags on with no end in sight, Fannie Mae is tweaking its lending requirements to accommodate people who aren’t currently getting paychecks and whose bosses aren’t around to confirm their employment.
Fannie Mae issued its new lender guidance Tuesday after becoming “concerned about the impact that continued income interruption may have on borrowers’ ability to meet their mortgage payment and other monthly obligations.”
The government shutdown began on Dec. 22 and has already had a number of adverse impacts on the housing market. It has also grown into a serious challenge for government workers who collectively owe hundreds of millions of dollars ($438 million, according to Zillow) in rent and mortgage payments this month.
In response to the turmoil, Fannie Mae is waiving, in some cases, the requirement that lenders get verbal verification that a would-be borrower has a job. Lenders must still try to confirm borrowers’ employment, but if the shutdown thwarts those efforts, the verification can be replaced with a document explaining what attempts the lender made.
The new policy is aimed at government employees who might be applying for loans, but whose agencies are closed while political leaders clash over how to fund federal programs.
In addition to waiving the employment verification requirement, Fannie Mae will also let borrowers submit older paystubs. Typically, anyone trying to buy a house has to confirm their income by turning in paystubs that they received within 30 days of applying for a loan.
But that requirement now poses a potential obstacle for hundreds of thousands of government workers who haven’t been paid since late last year.
As a result, Fannie Mae will now let lenders “obtain the most current paystub that reflects year-to-date earnings and may need to obtain the final 2018 year-to-date paystub to accurately calculate income.”
Though the looser employment and income verifications will likely come as welcome relief to government-employed homebuyers, Fannie Mae’s new guidance also imposes a two-month minimum reserve requirement. That means furloughed and unpaid borrowers will need to have enough money on hand to cover two months of their mortgage.
The new reserve requirement went into effect Wednesday and applies to loans that did not previously have reserve requirements. (Some loans already required percentage-based reserves.)
In its guidance letter, Fannie Mae explains that the reserve requirement is designed to serve “as a compensating factor to offset the risk associated with the interruption of income.”