Fannie, Freddie Issue Guidance on Temporary Flexibilities for Closings

Due to disruption related to the COVID-19 pandemic, Fannie Mae and Freddie Mac have issued temporary guidelines for getting documents signed remotely to help get mortgage transactions closed.

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UPDATE: The Federal Housing Finance Agency (FHFA) on Nov. 13 announced it would extend Fannie Mae and Freddie Mac loan origination flexibilities through Dec. 31. The government sponsored entities (GSEs) have been extending these policies on a month-to-month basis.

The extended flexibilities include temporary policies that avoid person-to-person contact whenever possible.

Specific to the title and settlement industry, this includes the use of remote ink-signed notarizations (RIN) and expanded powers of attorney.

In conversations with ALTA's Digital Closing Work Group, both GSEs have indicated they see the allowance for RIN to end when the pandemic subsides. Both companies report few loans being sold and marked as having the mortgage executed via RIN. Under both GSEs' guidelines, lenders are supposed to denote if a mortgage is closed via RIN.

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Both government sponsored entities will now allow the use of services such as Zoom, Skype or FaceTime to help facilitate what would otherwise be a traditional, in-person paper-based closing.

Many state governors and other state bodies have issued temporary executive orders or other temporary authorizations allowing for the use of real-time audio video technology to satisfy the physical presence requirements under applicable law for notarial acts. The orders also remove the requirements for physical presence under applicable law for notarial acts (each a remote ink-signed notarization or RIN).

In general, the orders permit the use of audio-video technologies to help facilitate the transaction. Fannie Mae does expect the temporary governors’ executive orders and authorizations related to RIN to extend beyond the COVID-19 crisis.

A RIN can be distinguished from a remote online notarization (RON) in which notarial documents are signed and tamper-sealed electronically, with the notarial seal applied electronically. Fannie Mae encourages the use of RON, but if not available to then consider RIN in jurisdictions that that recognize the availability of such notarization methods.

In its updated FAQs, Freddie Mac said it does not restrict the use of services such as Zoom or Skype to witness the borrower wet-ink signing loan documents remotely. Freddie Mac says the notary can receive the borrower’s signed documents via a delivery service to complete the notarization. Specifically, Freddie Mac’s Q&A says:

• Does Freddie Mac permit loan closings in which the notary public a) witnesses the borrower wet-ink signing of loan documents remotely (via Zoom, Skype, etc.) and b) receives the borrower's signed documents via FedEx/UPS/USPS to complete the notarization? Freddie Mac does not restrict sellers from using this process as long as the notary licensed in that state is comfortable notarizing documents signed through such process, consistent with applicable state law and the title insurance company provides title insurance on such loans without any caveats/restrictions. If the process is only enabled pursuant to a temporary executive order of a state's governor, the process would not be acceptable upon expiration of that Executive Order. Note: This process should not be confused with RON, as RON is electronic notarization of electronically signed documents using two-way secure audio/video live connection in compliance with applicable state laws and Freddie Mac minimum standards published in Guide Bulletin 2020-8.

Fannie said following minimum standards should be implemented when facilitating notarization using RIN:

• Review of a government-issued photo ID that has a signature via two-way audio video technology and capture of such photo ID via a photocopy or other electronic image
• System measures to 1) prevent interference with the authenticity, integrity and security of the portions of the notarial ceremony that are conducted via the audio-video technology, and 2) protect the electronic record and backup record from unauthorized use
• The notary performing the RIN should keep a backup of the electronic record
• Recording of the portion of the notarial ceremony conducted via the audio-video technology with storage for the minimum period required by applicable laws or if no period is specified in the applicable law, for seven years
• The lender should maintain (or cause to be maintained) the recording of the portions of the notarial ceremony conducted via the audio-video technology for the life of the loan

Freddie Mac also addressed additional questions regarding RON. The GSE said loans closed with RON can include either wet-ink signed promissory notes or electronically signed notes (i.e. eMortgages). However, the borrower may not electronically sign a promissory note that is not an eMortgage. "A 'paper' promissory note may only be wet-ink signed due to restrictions of applicable law.  Only eMortgage related notes may be electronically signed," Freddie Mac said in its Q&A.

Freddie Mac also addresses the storage of the notarial act when using RON:

• Freddie Mac Guide Bulletin 2020-8 requires Sellers to maintain the recording of the notarial ceremony for the life of the loan. Does this mean that the Sellers are responsible to obtain a copy of the recorded notarization session and retain it in their files for the life of the loan? Freddie Mac is not prescribing whether the Seller must obtain a copy and store it or if the Seller can have a Remote Online Notary technology provider store it for them and provide access to the Seller. Regardless of the storage method chosen, the Seller is responsible to ensure they can obtain the recording of the notarial ceremony, upon our request, for the life of loan.