Continuing on from Part 1, we’re going to cover what exactly is meant by “automatic authority”. Automatic authority means that the lender in question has the authority to approve most VA loan applications without first submitting the application to the VA for approval. Automatic authority is granted to all supervised lenders, primarily because they are closely monitored to make sure that they are complying with all requirements and guidelines for their business practices. A nonsupervised lender must go through an application process in order to be granted automatic authority, and any lender, regardless of whether they actually have automatic authority, can close on an IRRRL without prior approval from the VA as long as the loan that’s being refinanced is not delinquent. The Handbook encourages lenders with automatic authority to use it as much as possible.
The reasons for this are simple; the process goes much faster for the borrower if the application doesn’t have to be sent to the VA for approval first, it lowers the cost of the VA loan program for the VA if they don’t have to employ as many people to do prior approvals, and it helps prevent any information and subjectivity from getting lost in the paperwork. There are further differences between supervised lenders and nonsupervised automatic lenders, which the Handbook goes into, so we will as well. The following chart is taken directly out of the Handbook and clearly shows the differences between the two lender types.
|Authority||Supervised Lender||Nonsupervised Automatic Lender|
|To close loans on the automatic basis||No VA approval needed.||Must submit application and be authorized by VA to close loans on an automatic basis|
|To use certain underwriters||No VA approval needed. Any of the lender’s underwriters may underwrite loans processed on the automatic basis.||Must submit application and obtain VA approval for each person to underwrite VA loans processed on the automatic basis.|
|To close loans in particular states||No VA approval needed. Lender may close loans in any state.||No VA approval needed. Lender may close loans in any state.|
|To use agents to process VA loans||Must submit request and obtain VA recognition of each agent with whom the lender has an ongoing relationship.||Must submit request and obtain VA recognition of each agent with whom the lender has an ongoing relationship.|
Directly beneath the chart, the Lender’s handbook once again mentions the exception of the IRRRL to the automatic authority rule. IRRRL’s can be automatically approved without prior VA approval by any lender as long as the IRRRL is not refinancing a delinquent loan.
At this point, the Handbook is finished providing definitions for this chapter. It now starts outlining the process that lender’s must go through before beginning to offer VA loans. No matter what type of lender is applying (supervised, nonsupervised, etc.), if they are first-time VA lenders, they must send a list of documents to the VA office that has jurisdiction over the lender’s main office. The documents that the lender must provide in the application include a document with specimen signatures (a signature written for the purpose of comparing it to future signatures to detect forgeries) of any and all “officers, underwriters, or other personnel authorized to sign documents related to VA-guaranteed loan activities”.
The lender must also provide VA Form 26-8812, which is the VA Equal Opportunity Lender Certification, and a letter that clearly identifies the lender’s business address, the names of the lender’s owners, any personnel working for the lender that has ever had a run-in with the VA or HUD, including being debarred or any other adverse action, and a list of all the branch offices of the lender that will be involved in VA loans. In addition to these required documents, the VA may also order a credit report on the lender and even interview principal officers from the lender. These things are up to the VA to determine whether they are necessary to supplement the information provided in the required application process.
After submitting the initial paperwork, there may be some follow-up required by the VA before approval is granted. Once approval is granted, there are things that the lender must still do before beginning to offer VA loans.