COVID-19 FAQs Selling - Power of Attorney (POA) & Notarizations
Last Updated: Jan. 14, 2021
In response to the COVID-19 national emergency, Fannie Mae and Freddie Mac have provided temporary guidance to lenders on several policy areas to support mortgage originations. These FAQs provide additional information on the temporary policies. We will be adding more FAQs, therefore we encourage you to check in frequently for updates - refer to the "NEW" or "UPDATED" notations after the question.
Can a closing agent or other affiliated party sign loan documents on the borrower’s behalf using a POA?
Yes. We have expanded the transaction types that are eligible for a party with a connection to the transaction to serve as attorney-in-fact, including an employee of the title insurance company providing the title insurance policy. In addition to limited cash-out refinances (which are currently permitted in the Selling Guide), this exception now also applies to purchase transactions.
All related requirements in B8-5-05, Requirements for Use of a Power of Attorney must be met including the online, interactive internet session, the express statements required in the POA, and the prohibition against the attorney-in-fact being an employee of the lender.
- For purchase and limited cash-out refinance transactions, when the attorney-in-fact is an employee of the insuring title insurer or is an employee of the policy-issuing agent of the insuring title insurer, such title insurer must have issued a closing protection letter (or similar contractual protection) for the transaction for such policy issuing agent.
- For purchase transactions, the attorney-in-fact or agent may not be the property seller, any relative of the property seller, or any direct or indirect employee or agent of the property seller, unless they are also a relative of the borrower. The POA Job Aid contains detailed information on additional flexibilities and new requirements outlined in LL- 2021-03, Impact of COVID-19 on Originations for loans with documents signed subject to a power of attorney.
- If applicable law requires acceptance of a power of attorney, do the provisions of the Selling Guide and LL-2021-03, Impact of COVID-19 on Originations on powers of attorney apply?
Under B8-5-05, Requirements for Use of a Power of Attorney and as noted in LL-2021-03, requirements of applicable law regarding a lender’s obligation to allow use of a power of attorney always have priority over the terms of Fannie Mae policy. If a power of attorney is used because the lender determines such use is required by applicable law, the lender must include in the mortgage loan file a written statement that explains the circumstances. Such statement must be provided to the document custodian with the power of attorney.
- It is not always possible to obtain a closing protection letter, for example, as in the state of New York. What specific documentation would a lender be required to obtain?
There are a number of states where closing protection letters are not permitted by insurance regulators. In these cases, an alternative contractual indemnity that provides equivalent protection against title agent misuse of the power of attorney or funds must be confirmed. This can include, for example, indemnity provisions in the agreement between the lender and the settlement provider, or an employee fidelity bond maintained by the title insurance agency. In some states, there are statutory protection schemes; these would also meet the requirements of the lender letter.
- The guidance in LL-2021-03, Impact of COVID-19 on Originations introduces a new requirement for purchase transactions closing subject to a power of attorney, requiring borrower confirmation of the loan terms with the borrower. When does this requirement apply?
Except for situations described in the next sentence, the requirement for borrower acknowledgement (in person or via telephone conversation or a video conference system) of his or her understanding of the loan terms applies to all purchase transactions, regardless of who is serving as attorney-in-fact. However, for purchase (as well as limited cash-out refinance transactions) where the attorney-in-fact is a person “connected to the transaction” listed in B8-5-05, Requirements for Use of a Power of Attorney, then the existing processes in B8-5-05 are mandatory, and there is no need for any further borrower acknowledgment.
The new borrower acknowledgment requirements only apply to borrowers signing by a power of attorney. If a borrower signs personally, and another borrower signs via a power of attorney, then no acknowledgement by any borrower signing personally is required by LL-2021-03.
- What, specifically, needs to be reviewed with the borrower during the borrower acknowledgement 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 acknowledgement in the loan file and make it available to us on request.
- Was there a methodology for determining the states that are acceptable in the remote online notarization (RON) grid originally published in LL-2020-03 and subsequently published in the A2-4.1-03, Electronic Records, Signatures, and Transactions in Oct. 2020?
For states without an express and currently effective RON statute, we assessed the overall likelihood of that state’s recognition of valid RON acts performed out of state, and looked at a number of factors, including governors’ executive orders, applicable state laws, and applicability of the Full Faith and Credit clause of the U.S. Constitution (and any exceptions to its application). The state list was aligned with Freddie Mac.
The passage of a federal law is also contemplated in the language and would potentially supersede the need for state-by-state analysis.
- Can a lender use RON to close loans that include wet-ink signed documents, including notes that are not eMortgages?
Yes, lenders may employ RON methods to sign and notarize loan documents in accordance with the terms and conditions in A2-4.1-03, Electronic Records, Signatures, and Transactions in transactions where the transaction includes a promissory note (and other closing documents) that are wet-ink signed. As a reminder, sellers can only deliver electronically signed eNotes if they have previously been approved by Fannie Mae.
Further, note that powers of attorney may be notarized using RON methods and the POA Job Aid contains detailed information on these requirements outlined in LL-2021-03, Impact of COVID-19 on Originations.
- Can subordination documents be remotely notarized?
Yes, subordination documents can be remotely notarized provided the lender follows the requirements in the A2-5.1-03, Electronic Records, Signatures and Transactions.
- Are lenders permitted to deliver loans where the notarizations have been performed via use of audio-video technology (for example, Zoom, Skype, or FaceTime®) to help facilitate what would otherwise be a traditional paper-based closing?
Yes. Lenders may sell loans with loan documents that have been notarized using audio-visual technology (such as Zoom, Skype, or FaceTime®) to facilitate an in-person ink-signed notarization (a remote in-person notarization or “RIN”), on the following terms and conditions:
- The RIN has been expressly authorized under applicable law.
- The RIN is performed in accordance with and is legally valid under the laws and regulations of the state in which the notarization is performed, at the time it was performed.
- The borrower or person whose signature is being notarized and the notary are physically located in the state where the notarial act is performed.
- The loan is not a Texas Section 50(a)(6) loan.
- The loan is delivered with a Special Feature Code 920 identifying the loan as a RIN.
- If the loan document is required to be recorded, then the county recorder in the state and county where the property is located must accept the RIN document for recording.
- The lender makes all selling representations and warranties per the Selling Guide, including representations and warranties related to:
- The RIN has been expressly authorized under applicable law.
- clear title and first lien enforceability;
- compliance with laws and responsible lending practices; and
- requirements regarding title insurance, including those in B7-2-04, Special Title Insurance Coverage Considerations. If the notarized document is a security instrument or an amendment to a security instrument, the RIN must comply with the title requirements in B7-2-04, Special Title Insurance Coverage Considerations and the title insurance company may not take any exception for the RIN.
Lenders may also wish to refer to the RIN Job Aid that reflects minimum standards that Fannie Mae believes represent prudent closing processes when using RIN that we encourage (but do not require) lenders to follow.