VA Issues Additional Lender Guidance In View of COVID-19

Ballard Spahr LLP

Ballard Spahr LLP

On May 20, 2020, the U.S. Department of Veterans Affairs (VA) issued Loan Guaranty Circular 26-20-19, dated May 19, 2020, to provide additional guidance to lenders regarding VA policies during the COVID-19 emergency.

Renewal Applications. The VA reminds lenders to timely submit their annual renewal applications and fees. For the period from March 13, 2020 through June 13, 2020, deadlines for applications, renewals, and fees are automatically extended by 60 days. For example, if a lender’s renewal fees and financial documents were due on May 1, 2020, the due date is extended to June 30, 2020 without penalty. The VA cautions that, if there is a lapse in VA approval/registration of any company or individual because of the failure to submit timely annual renewal applications and fees, this may result in life of loan indemnification for applicable loans.

VA-Approved Underwriter. VA notes that while non-supervised automatic lenders must have a VA-approved underwriter, it recently has observed a number of loans underwritten by (1) individuals who are not registered with the VA, or (2) individuals who were registered with the VA for a former employer but not for their current employer (VA underwriter approval does not carry over from the old employer to the new employer). VA advises that loans underwritten by underwriters not registered with VA as an employee of their current lender, or by underwriters whose approval has lapsed, as of the date of loan closing are subject to indemnification for the life of the loan.

IRS Form 4506-T. The VA advises that the use of IRS Form 4506-T, which is for requesting a transcript of a tax return, is not required by VA guidelines. The VA acknowledges that the VA Lenders Handbook references IRS Form 4506-T in documentation guidelines that apply when using automated underwriting under certain conditions. Nevertheless, the VA states that “[i]t is important to note that even if this condition exists, it would be considered an investor or lender overlay exceeding the guidelines established by VA.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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