Updated 04.28.20
The U.S. Department of Veterans Affairs (VA) issued Circular 26-20-10 to provide guidance to lenders assisting loan applicants affected by the COVID-19 national emergency, and issued Circular 26-20-11 and Exhibit A to provide guidance on valuation and appraisal requirements in view of the emergency. Both Circulars are dated March 27, 2020.
Circular 26-20-10
The guidance in the circular is effective for all loans closed on or after the date of the circular and until further notice or the rescission of the circular, which is scheduled for April 1, 2021.
Income and Employment Verification. VA advises that lenders should continue to use good judgment and flexibility when verifying stable and reliable income, and that lenders should make every effort to satisfy VA’s longstanding verification of employment (VOE) standards. The standards are set forth in Chapter 4 of the VA’s Lenders Handbook (VA Pamphlet 26-7). However, the VA states that if a lender’s “proprietary method [of income and employment verification] is impacted due to temporary business closures, the lender should use guidelines” set forth in the Circular. The Circular addresses the use of a third-party service, and the use of bank statements along with paystubs. If the required VOE documentation cannot be obtained with these methods and the borrower has cash reserves that are at least equal to the sum of two months of mortgage payments (principal, interest, taxes, and insurance), the loan is eligible for guaranty.
Underwriting. VA advises that if the applicant was impacted by COVID-19, such as a furlough, curtailment of income, etc., the applicable period should not be considered a break in employment or income, provided that the applicant has returned, or is anticipated to return, to work in the same capacity and income level. VA notes that applicants should provide furlough letters when applicable.
Electronic Documents. VA addresses its acceptance of both electronic notes and electronic mortgages, and indicates that a transaction with an electronic mortgage may or may not involve an electronic note. However, if an allonge to the note will be used, the transaction must be closed using traditional paper-based closing procedures.
VA also advises that in-person electronic notarization and remote online notarization are both permitted for VA loans, provided that the notarization is valid and effective under applicable law and regulations.
Lien Position. VA notes the requirement that loans must be in a first lien position, and acknowledges that lenders may not be able to timely record security instruments as recording offices may be closed. VA advises that when “the VA loan was not initially in first lien position, and the holder was subsequently able to secure first lien position, the loan may later be submitted for guaranty” and that “VA will exercise all discretion under existing authorities to provide every opportunity to the lender to secure guaranty.”
Timeline to Request Loan Guaranty Certificate. VA acknowledges that because of operational delays caused by COVID-19, a lender may not be able to request the Loan Guaranty Certificate within 60 days of closing, as provided for in VA rules. VA advises that a justification for a delay must be provided when requesting the Loan Guaranty Certificate, and that lenders should state when the delay was due to COVID-19 so that their good standing is not adversely effected. The VA also reminds lenders of the need to remit funding fees within 15 days of closing. In Change 1 to the Circular, the VA adds that when a lender approved by the VA to close loans on automatic basis closes a loan under such authority, the loan is considered guaranteed at the time of closing.
Circular 26-20-11
The guidance in the circular is effective for all loans closed on or after the date of the circular and until further notice or the rescission of the circular, which is scheduled for April 1, 2021.
Exterior-Only and Desktop Appraisals. The VA announces that it will permit the use of an exterior-only appraisal or a desktop appraisal with certain transactions under certain conditions, as outlined in the circular. The VA also addresses cases in which an appraisal based on an interior review of the property will still be required
Various Topics. The VA advises that:
- With purchase transactions, Reconsiderations of Value (ROV) will be restricted to no greater than five percent from the appraiser’s opinion of value. For cash-out refinance transactions and liquidation transactions, VA is suspending ROV requests until further notice.
- “In extreme cases when an appraiser is not available to complete an appraisal assignment for a purchase, VA has the authority and ability to issue a Memorandum of Value” and that “[t]his will be completed on a case-by-case basis.”
- Appraisers are to suspend any renovation and repair assignments until further notice. Lenders have two options with regard to repairs. They have the authority and “are encouraged” to certify repairs, especially repairs performed by licensed personnel (although certifications that may involve lead-based paint repairs still must be completed by an appraiser). Lenders also can use the completion escrow approach. With the latter approach, all repairs must be completed and escrowed funds disbursed before the loan may be guaranteed, and there must be adequate assurance that the work will be completed timely (up to 180 days) and satisfactorily.
- For the safety of the veteran and appraiser, certain communications among the veteran, lender, and appraiser must occur when an interior review of the property will be performed.
- Desktop valuations will not be used for liquidation transactions.
Termite Inspections. If there is known or visible evidence of termite infestation present, the seller and real estate broker/agent must provide a certification to that fact. If there is no known or visible evidence of termite infestation, a clear termite report must be provided within one year of the close of escrow.
NOV Conditions. Any additional items that need to be met on the Notice of Value (NOV) to comply with VA requirements must be met within 180 days from the date of the NOV issuance.
Exhibit A. Exhibit A to the circular sets forth a Modified Set of Instructions, Scope of Work, Statement of Assumptions, and Limiting Conditions and Certification.
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