So far we’ve covered pretty comprehensively the differences between supervised lenders and nonsupervised lenders, and also the criteria for a nonsupervised lender to get approved for automatic authority to approve VA loans without having to go through the VA first. As a borrower, you should ask any prospective lenders whether they are supervised or nonsupervised and if they are nonsupervised, whether they have the automatic authority or not. Firstly, the person you’re talking to should be able to answer those questions, and their answer will be an indicator of how serious the lender is about the VA loan program. A lender who just offers VA loans to broaden their reach may not go through the effort to receive automatic authority from the VA, and consequently, there may be other things they don’t bother to go through the effort to do – learn the complex ins and outs of the VA loan program, for example. This is obviously not a perfect test; there are great, knowledgeable lenders out there that simply do not do enough VA loan business to make it worth getting qualified for automatic authority, but it can be a good indicator of the caliber of lender that you’re working with.
There are a few more important details regarding nonsupervised lenders applying for automatic authority that the Handbook covers, and, therefore, will be covered here. Consider this your ‘insider information’ that will give you the edge when you’re applying for a VA loan. Firstly, a lender that has been granted automatic authority can use that authority anywhere in the country; they are not limited to the state in which their main office resides. The lender will be notified of the VA decision whether to grant the automatic authority after the regional VA office that has jurisdiction over the main office of the lender has reviewed the application materials, notes any concerns, and makes a decision regarding the lender’s application. The lender is then notified via mail on the decision. The Handbook also reiterates that lenders approved for automatic authority are expected to use it as much as they possibly can, and that any loans submitted for prior approval that aren’t required to be must be accompanied by a written explanation from the underwriter as to why it’s being submitted.
After getting approved, the lender begins a probationary period of one year. The lender is closely monitored by the regional VA office during this time, and are carefully checked to ensure quality underwriting, complete loan applications, and full compliance with all VA requirements and procedures. During this probationary period, the VA can withdraw automatic authority at any time if they see poor underwriting or “consistently careless processing”. At the end of the initial year of probation, the VA will send the lender another letter that does one of three things. The letter may terminate the probationary period and the lender will be in the green to continue offering VA loans with automatic authority, it may extend the probationary period to give the lender time to bring itself up to par with VA requirements, or it may revoke the automatic authority and the lender will be back to submitting everything to the VA for prior approval.
A nonsupervised lender has some regulations that they must comply with in order to stay in good standing with the VA and maintain their automatic authority. Firstly, they are not allowed to close loans on behalf of other lenders who do not have automatic authority. They are also not allowed to close on loans for a builder or any other entity that the lender has a financial interest in without first getting approval from the VA. The lender must also keep the VA updated on any significant changes to the organization. The primary concerns here are mergers and acquisitions. These cases of merging and acquisitions are all variable in nature and have a lot of details associated with specific situations, but the important thing for a borrower to know is that the VA requires that they are notified of these events, and that the lender is only permitted to continue to close on VA loans with automatic authority if the lender and the underwriter involved are the ones that have been approved to do so.