GSEs Issue New Guidance on RON, Powers of Attorney
In response to the COVID-19 pandemic, Fannie Mae and Freddie Mac modified their single-family seller guides including temporary requirements for remote online notarizations (RON) and powers of attorney.
Remote Online Notarization
The new RON requirements for both the government sponsored entities go into effect immediately. The requirements between Fannie and Freddie have slight differences, but both require the system used for the remote notarization must meet the following minimum standards:
at least two-factor identity authentication, including using a government-issued photo ID that has a signature, credential analysis and identity-proofing
tamper-sealed notarized documents and system security sufficient to (A) prevent interference with the authenticity, integrity and security of the notarial ceremony or corruption or loss of the recording of the same, and (B) protect the communication technology, electronic record and backup record from unauthorized use
the remote online notary must keep a secure electronic journal of the notarial act including evidence of identity of the principal (a video and audio conference can be the basis for satisfactory evidence of identification) and maintain a backup of the electronic record
recording of the notarial ceremony with storage for the minimum period required by applicable laws or if no period is specified in the applicable law, for seven years
Fannie Mae includes a list of states where lenders may sell loans closed with RON:
Powers of Attorney
Due to COVID-19, the temporary requirements allow the use of POA to execute loan and closing documents for loans with applications dates on or before May 17, 2020.
Fannie Mae’s POA requirements include:
All powers of attorney must include the address of the mortgaged property.
The existing Selling Guide conditions allowing persons “connected to the transaction” to serve as an attorney-in-fact or agent in refinance transactions will also now apply to purchase transactions as well as limited cash-out refinances. This includes all the related current requirements applicable to limited cash-out refinance transactions involving these persons in the Selling Guide (that is, excluding lender employees, limiting by loan amount and property location, requiring a recorded Internet session after the borrower has received proposed loan documents, and mandating retention of the recording).
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 April 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.
Notwithstanding anything to the contrary in the Selling Guide or this Lender Letter, 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 in any such instance such person is also a relative of the borrower.
Whenever an attorney-in-fact or agent 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.
Whenever a power of attorney is used at closing, whether authorized under the Selling Guide or under the standards in this Lender Letter, the provisions of B1-1-01, Application Package Documentation requiring the borrower’s personal signature of the initial Form 1003 continue to apply if the initial Form 1003 can be signed personally (including through the United States Postal Service or commercial delivery service), or signed electronically as permitted by the Selling Guide. If the initial Form 1003 cannot be timely signed by the borrower in these ways, then it must be signed by the holder of such power of attorney.
Provided the power of attorney is not required to be notarized under applicable law (for example, the law governing the creation of the power of attorney, or the law of the location of the mortgaged property), the power of attorney is not required to be notarized if the transaction is a limited cash-out refinance unless
the attorney-in-fact or agent named in the power of attorney is employed by, or otherwise represents or is affiliated with, the title insurance company that will issue the lender’s title insurance policy, and
such title insurance company is affiliated with the lender.
If a power of attorney is required to be notarized, it may be remotely notarized in accordance with A2-5.1-03, Electronic Records, Signatures, and Transactions (as revised by this Lender Letter) with the additional flexibility that it may be remotely notarized in all jurisdictions, even if not expressly permitted by the Guide, as long as the power of attorney is not required to be recorded. If the power of attorney is required to be recorded, it may be remotely notarized only in the jurisdictions permitted by A2-5.1-03 (as revised by the table below).
The limitations in B8-5-05 requiring at least one borrower signature of the note and security instrument are suspended.
Under the Guide to Delivering eMortgages to Fannie Mae, powers of attorney are not permitted to be used in connection with loans with electronic notes (eNotes). Fannie Mae is revising the eMortgage Guide effective April 20, 2020 to permit eNotes to be delivered in transactions in which a printed or electronic power of attorney is used on the same conditions as those applying to paper notes, except that the power of attorney must accompany the eNote through MERS® eDelivery. In anticipation of the change in the eMortgage Guide, lenders that are authorized to deliver eNotes may begin permitting the use of powers of attorney consistent with B8-5-05 and this Lender Letter immediately, provided that the eNote and related power of attorney may not be delivered to Fannie Mae through MERS eDelivery or submitted to Loan Delivery until after April 20, 2020.
According to Freddie Mac, sellers may allow use of a POA to close a mortgage or e-mortgage, except for cash-out refinance mortgages and Texas Equity Section 50(a)(6) mortgages, in accordance with the temporary flexibilities listed in the following chart: