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VA announces new reporting code for Covid-19 forbearance requests
On April 29, the Department of Veterans Affairs announced a new reason for default which will assist the VA in identifying borrowers impacted by Covid-19. The VA replaced the reason “Energy/Environmental Cost” with “National Emergency Declaration” in the Electronic Default Notice (EDN). Servicers should use this new reason for default when reporting the EDN. Effective June 1, 2020, this new reason for default will be accepted prior to the 61st day of delinquency.
VA revises lender guidance for borrowers impacted by Covid-19
On April 27, the Department of Veterans Affairs revised Circular 26-20-10, Lending Guidance for Borrowers Affected by Covid-19. The revisions provide that the VA may delegate responsibility to an approved lender to close loans automatically, and that any loan closed under this authority is guaranteed from the date of loan closing. The circular otherwise provides guidance for VA home loan borrowers impacted by Covid-19 and creates temporary measures for loan originating, closing and guarantee. Among other measures, the circular provides that furloughs and other income curtailments as a result of Covid-19 should not be considered a break in employment for underwriting purposes. The circular is effective until July 1, 2023.
Department of Veterans Affairs issues updated circular on valuation practices during Covid-19
On April 10, the Department of Veterans Affairs (VA) issued Circular 26-20-13, which rescinds Circular 26-20-11 and updates guidance and instructions for valuations and appraisals for all VA home loan purposes. In light of the Covid-19 pandemic, valuations may be constituted by an Exterior-Only appraisal with enhanced assignment conditions or in limited instances, a Desktop Appraisal. While broader use of exterior inspections is permitted, appraisals must still follow the same procedures of the VA appraisal process and are still required to meet Uniform Standards of Appraisal Practice and state requirements for delivering an appraisal that meets those qualifications. The circular provides specific guidance on, among other topics, exterior-only appraisals, Reconsideration of Values for certain transactions, the issuance of Memorandums of Values, termite inspections, and the VA’s expectations regarding communication between the Veteran, lender, appraiser, and other stakeholders. Additionally, the circular includes Exhibit A, which contains a modified appraisal report for Desktop Appraisals. The circular is effective for all loans where the application date was made on, or after, the date of the circular and until further notice or the rescission of the circular on April 1, 2021.
On May 8, the VA updated provisions of Circular 26-20-13 to provide further clarification on the effective date of the temporary guidance as well as additional valuation information. As stated, the temporary guidance is "effective for all loans closed on, or after March 13, 2020, and until further notice or the rescission of this Circular."
Department of Veterans Affairs issues Circular on CARES Act requirements
On April 9, the Department of Veterans Affairs issued Circular 26-20-12 regarding extending relief for VA loans pursuant to the Coronavirus Aid, Relief, and Economic Safety Act (CARES Act). The circular provides information regarding borrower eligibility, offering borrowers forbearance, the accrual of fees, penalties, and interest, credit reporting of a borrower’s account, exiting forbearance, and the foreclosure moratorium. The circular is effective until April 1, 2021, and preempts section 3 of Circular 26-20-7 (“Special Relief for Those Potentially Impacted by COVID-19”).
VA, FHA issue valuation and appraisal guidance
On March 27, the Department of Veterans Affairs (VA) issued guidance on valuation and appraisal practices during the Covid-19 crisis. Effective on March 27 and until modified or rescinded, VA home loan appraisers may utilize exterior-only appraisals and, in certain limited situations, desktop appraisals, for purchase and refinance transactions. When the appraiser does not inspect the interior of the property, additional sources may be used to inform the appraisal, including public records, MLS listing information, and other reliable third-party sources. The VA also issued Exhibit A to the valuation and appraisal practices circular. This document provides a statement of assumptions and limiting conditions and certifications for Desktop-only appraisals, in addition to instructions and a scope of work to be used by the appraiser.
On the same day, the FHA issued similar guidance in Mortgagee Letter 2020-05 regarding appraisals and employment reverifications. Modifications to FHA single-family employment reverifications requirements include allowing verbal employment reverifications. The modifications also remove employment reverification requirements in certain situations, such as when certain criteria are met in forward purchase transactions, including, among other things: (i) where the mortgagee is not aware of loss of employment by the borrower; (ii) the mortgagee has year-to-date paystubs or electronic income verification for the borrower; (iii) the mortgagee has the borrower’s bank statement from immediately prior to the note date showing a direct deposit from an employer; and (iv) the mortgagee has evidence that the borrower has the equivalent of at least two months of the new payment amount, inclusive of principal, interest, taxes, and insurance. Modifications to appraisal protocols allow for exterior or desktop-only appraisals, and appraisers may utilize additional reliable information. Also, the FHA will require appraisals to include a signed certification that no interior appraisal was performed. FHA model certification forms can be found here and here.
VA issues foreclosure moratorium for Covid-19-affected borrowers
On March 18, the Department of Veterans Affairs (VA) released Circular-26-20-8, “Foreclosure Moratorium for Borrowers Affected by Covid-19,” to strongly encourage mortgage servicers to observe the following actions regarding home loan borrowers affected or potentially affected by Covid-19: (i) establish a 60-day moratorium starting March 18 on completing pending foreclosures or initiating new foreclosures; and (ii) consider the impact of eviction when choosing to retain property instead of conveying to the VA. The VA requests that loan holders not expose veterans and their families to additional risks through evictions, and states that VA regulation 38 C.F.R. 36.4324(a)(3)(ii) “allows additional interest on a guaranty claim when eventual termination has been delayed due to circumstances beyond the control of the holder, such as VA-requested forbearance.”
VA issues Covid-19 guidance
On March 16, the Department of Veterans Affairs (VA) released Circular 26-20-7, “Special Relief for those Potentially Impacted by COVID-19,” which provides guidance for veterans, lenders, servicers, and appraisers on the VA Home Loan Program in connection with the spread of Covid-19. Veterans are encouraged to call ahead for any in-person appointments with VA staff or with a lender, appraiser, or servicer regarding a home loan if the veteran may present a Covid-19 transmission risk. Additionally, the VA will permit lenders and servicers to offer relief to veterans impacted by the virus through (i) forbearance on guaranteed loan payments; (ii) waiver of late charges; and (iii) suspending credit bureau reporting. Appraisers are encouraged to continue business in accordance with Chapter 10 of the M26-7 Lender’s Handbook. As with the guidance for veterans, appraisers are also encouraged to determine if they present a Covid-19 transmission risk prior to face-to-face appointments, and then, as appropriate, to reschedule appointments or transfer the assignment to another appraiser. The announcement also urges appraisers to follow the Centers for Disease Control and Prevention’s recommendations to prevent the spread of Covid-19 when performing appraisals. The circular notes that the VA “is continuing with normal program operations” and will update information on the VA Home Loan Program as it is available.
Financial regulators provide supervisory relief, and VA encourages mortgage relief to veterans after Tennessee tornadoes
On March 12, the OCC, Federal Reserve Board, FDIC, NCUA, and the Tennessee Department of Financial Institutions issued an interagency statement on supervisory practices for financial institutions affected by the recent tornadoes in Tennessee. Among other things, the agencies called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should also contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas. In FIL-16-2020, the FDIC further encouraged supervised institutions to consider, among other things, (i) extending repayment terms; (ii) restructuring existing loans; or (iii) easing terms for new loans to affected borrowers, if done in a manner consistent with sound banking practices. The FDIC stated it will also consider regulatory relief from certain filing and publishing requirements.
Separately, on March 10, the Department of Veterans Affairs (VA) issued Circular 26-20-5 to encourage mortgagees to provide relief for VA borrowers affected by the recent tornadoes in Tennessee. The Circular encourages loan holders and servicers to (i) extend forbearance to distressed borrowers and to members of the National Guard assisting in the recovery efforts; (ii) establish a 90-day moratorium on initiating new foreclosures; (iii) waive late charges; and (iv) suspend credit reporting on affected loans. The Circular will be rescinded April 1, 2021. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief guidance here.
VA encourages relief for Tropical Storm Imelda-affected borrowers
On November 8, the Department of Veterans Affairs (VA) issued Circular 26-19-29, encouraging mortgagees to provide relief for VA borrowers affected by Tropical Storm Imelda. Among other forms of assistance, the Circular encourages loan holders and servicers to (i) extend forbearances to borrowers in distress because of the disaster; (ii) establish a 90-day moratorium from the disaster declaration date on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend credit reporting related to affected loans. The Circular is effective until January 1, 2021. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief guidance here.
VA completes funding fee refund initiative
On October 8, the Department of Veterans Affairs (VA) announced that it completed its home loan funding fee refund initiative, returning more than $400 million to VA borrowers. As previously covered by InfoBytes, in June the VA Office of the Inspector General (OIG) issued a report concluding that the VA improperly charged exempt veterans VA home loan funding fees. The OIG recommended that the VA develop a plan to, among other things, identify exempt veterans who were inappropriately charged funding fees and issue refunds. The VA reviewed nearly 20 years of loan originations, and identified 130,000 loans for potential refunds. VA notes that most fees were charged correctly, except for veterans whose exemption status changed after the closing of their loan. VA also announced changes to its program, in order to provide veterans with “the most up-to-date information possible on a Veteran’s funding fee exemption status,” including (i) enhancements to communications to veterans regarding the loan funding fee; (ii) new policy guidance directing lenders to inquire about a veteran’s disability claim status during the underwriting process; (iii) instructing lenders to obtain an updated Certificate of Eligibility for a veteran within three days of closing, if there was a disability claim pending; (iv) and procedural changes to ensure regulator internal oversight of funding fee activities.