Picking up from the last article, there are many lenders that are not supervised by one of the entities required in order to consider officially “supervised”. However, being classified as a supervised lender is advantageous for many reasons, so the VA Lender’s Handbook offers instructions on how a lender can be specifically recognized as a supervised lender. These instructions pertain to any lender that wants to be considered supervised but is not overseen by any of the required federal agencies. In order to be considered, the lender has to fit into one of two categories: either they need to be a wholly-owned subsidiary or affiliate of a VA-recognized supervised lender (independently owned franchise), or the lender is supervised by a state or federal agency other than the ones that warrant automatic classification of “supervised”.
For a lender to apply for “supervised” status, they will need to submit a variety of information to their regional VA office. They must first describe the “nature and extent” of the examinations and supervision that they are subject to from the agency that supervises them. They must also include a letter or statement from the agency (whether it be federal or state) that states clearly that the lender in question is periodically examined and supervised by their agency. The Handbook clearly mentions that a general outline of the agency’s regulatory requirements for lenders is not sufficient, nor is a lender voluntarily submitting to an examination, nor is a lender’s receipt of a license from the state.
For lenders who are relying on their affiliation with a VA-recognized supervised lender for their recognition, they will need to provide official documentation that outlines the “…structure, capitalization, and ownership” of the franchise and organization as a whole, as well as clarification of the legal and financial relationship between the individual franchise and the main office of the supervised lender. This is valuable information for borrower’s to be aware of because they can know that either the VA is personally evaluating the loan application to approve the arrangement, or the lender has gone through fairly onerous steps to gain permission from the VA to approve them themselves. This is one way that the VA ensures safety and protection for those taking advantage of the VA loan program.
Once a lender is supervised, and for as long as it is considered supervised, they must provide documentation for any ongoing agency relationships to the VA. The Handbook specifies “ongoing” as the use of a specific agent more than four times per year. For any of these agents, the lender must provide two things to the VA no later than January 31st of each year. First, the lender must provide a list of the VA-recognized agency relationships it wishes to renew, along with the annual renewal fee for each and every agent that is acting on behalf of the lender on an ongoing basis and has been recognized by the VA as the lender’s agent as of September 30th. The VA may also request additional information alongside the list of agents being renewed and the renewal fee. The Handbook is clear in putting the burden on the lenders to remember to send in the list and the renewal fees, rather than assuring them that the VA will issue annual reminders to do so.
We’ve covered a lot here. Now we’re going to cover how a nonsupervised lender applies for the automatic authority with the VA. A nonsupervised lender that intends to remain nonsupervised but would like automatic authority to approve loans without having to submit to the VA for prior approval needs to fill out VA Form 26-8736, called the Application for Authority to Close Loans on an Automatic Basis-Nonsupervised Lenders, and send it to their regional VA office. The lender must also submit the documentation specified below, any fees, and any updates to the information provided in the original application.
The Procedures and Criteria for Qualification section are quite long but is organized in tables, so I’ve simply pasted them below:
|(Note: For purposes of determining whether the experience criteria are met, IRRRLs do not count as VA loans originated since no underwriting is involved.)
For all lenders:
CompletedVA Form 26-8736
Additional documentation for lenders qualifying based on experience as agent
– the number of VA loans submitted by the agent each year, and
that the loans have been documented and submitted in compliance with VA requirements and procedures.
A senior officer of the lender must nominate at least one full-time qualified employee to act as an underwriter who has either:
All VA-approved underwriters must be familiar with VA’s credit underwriting standards and this Lender’s Handbook.
|For all underwriters
VA Form 26-8736a,Nonsupervised Lender’s Nomination and Recommendation of Credit Underwriter, completed by a senior officer if the underwriter is not located in the lender’s corporate office, a senior officer’s certification that the underwriter reports to and is supervised by an individual who is not a branch manager or other person with production responsibilities.
Additional documentation for underwriters qualifying based on 3 years’ experience
Underwriter’s resume, outlining the underwriter’s specific experience with VA loans.
(Note: For purposes of determining whether the experience criteria are met, IRRRLs do not count as processing, pre-underwriting or underwriting.)
Additional documentation for underwriters qualifying based on ARU designation
Evidence that he or she is a current ARU as designated by the MBA.
See “Underwriter Approval” in section 6 of this chapter for mandatory training requirements for newly approved underwriters and underwriters who have not underwritten VA loans in the past 24 months.
|Minimum Working Capital Or Net Worth
The lender must maintain either:
working capital is the excess of current assets over current liabilities. (Current assets are defined as cash or other liquid assets convertible into cash within 1 year. Current liabilities are debts that must be paid within one year), or
Reference: See section 14 of this chapter for VA’s calculation requirements.
|For all lenders
Lender’s most recent annual financial statements audited and certified by a CPA if the date of the financial statements precedes the application date by more than six months, attach a copy of the latest internal financial statement.
Additional requirement if qualifying based on working capital
Additional requirement if qualifying based on net worth. Adjusted net worth must be calculated by a CPA in accordance with the requirements in section 14 of this chapter.
|Lines Of Credit
The lender must have one or more unrestricted lines of credit totaling at least $1 million.
Unrestricted means funds are available upon demand to close loans and are not dependent on prior investor approval.
|Letter(s) from the company(ies) verifying the amount(s) and unrestricted nature of the warehouse lines of credit.|
If the lender customarily sells loans it originates, it must have a minimum of two permanent investors .
|Names, addresses and telephone numbers of two or more permanent investors.|
|Quality Control Plan
The lender must implement a written quality control plan which ensures compliance with VA requirements and meets the criteria outlined in section 15 of this chapter.
|Copy of quality control plan which meets the criteria outlined in section 15 of this chapter|
The lender must designate one qualified employee and an alternate to be the primary liaison with VA.
The liaison officers should be thoroughly familiar with the lender’s operation and be able to respond to any query from VA concerning a particular VA loan or the firm’s automatic authority.
|VA Form 26-8736 contains a space in which to indicate liaison selections.|
|Sanctions For Prior Acts
There must be no factors indicating the lender would not exercise the necessary care and diligence.
|A statement of facts is required in any case where:
the lender had a servicing contract with an investor terminated for cause.