Legal Alert

VA Updates Lender Guidance for Borrowers Affected by COVID-19

by Richard J. Andreano, Jr.
June 30, 2021

In Change 2 to Circular 26-20-10 dated June 29, 2021, the U.S. Department of Veterans Affairs (VA) updated guidance to lenders assisting VA mortgage loan applicants affected by the COVID-19 national emergency.

With regard to income verification, the VA advises that lenders should continue to use good judgment and flexibility when verifying a borrower’s income and determining whether that income is stable and reliable, and should make every effort to satisfy the VA’s longstanding requirements concerning verification of employment as outlined in VA Pamphlet 26-7, Chapter 4 Credit Underwriting.

With regard to income analysis, the VA advises that while it generally requires the borrower’s income to be stable and reliable for two years, if the COVID-19 pandemic affected the stability or reliability of the income (for example, due to furlough, curtailment of income, etc.), the lender should not consider the adverse effects as a break in employment or income, as long as the borrower has returned, or is anticipated to return, to work in the same capacity and income level. The VA notes that as part of the income verification documentation, the borrower should provide a furlough letter, if applicable. The VA also advises that it continues to encourage lenders to document their analyses and justifications for all borrowers, especially “borderline” cases and to upload the supporting documentation to WebLGY.

The VA states that it encourages the use of eMortgages and is actively working with other federal housing agencies and the Government National Mortgage Association (GNMA) to increase access to eMortgages. Although the VA has not issued VA-specific requirements regarding electronic notarization of loan closing documents, it advises that if an electronic notarization, including in-person electronic notarization (IPEN) or remote online notarization (RON), is otherwise valid and effective, the VA will not consider an electronic notarization as a deficiency with regard to the VA’s loan processing standards.

The VA reminds lenders that when the veteran is required to pay a funding fee, the loan cannot be guaranteed until the fee has been remitted to the VA. The VA advises that if the effects of the COVID-19 national emergency impair a lender’s ability to timely remit the funding fee to the VA, the lender should, as soon as possible, contact a Regional Loan Center by calling 1-877-827-3702.

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