Deciphering the VA Lender’s Handbook Chapter 17 Part 2
One of the more common sanctions the VA will impose on a program participant is either a full or partial exclusion from participating in the VA loan program. We’ll be covering all the details the Handbook has on excluding participants from the VA loan program. If the VA imposes a full exclusion, the participant is no longer permitted to conduct any type of VA loan guaranty business, or have another party conduct such business on his or her behalf; the participant is not allowed to interact with the VA loan program whether directly or indirectly. Full exclusion is exactly like it sounds: complete. Partial exclusion is more forgiving, as the name implies. Partial exclusion may involve limitations on the role the participant may play, or how the participant conducts VA loan guaranty business. These vary widely depending on what role the participant plays in the process and the reason why they are being partially excluded.
If the type of transaction involved is prohibited by the terms of the party’s exclusion, or allow an employed excluded party to perform prohibited duties. For you as the borrower, this will not usually be a concern; the lender you’re working with will know what parties they can work with and what ones they cannot. However, as you’re selecting a lender, it might come up, so you can look at the List of Parties Excluded here. The VA doesn’t mess around when it comes to making sure that excluded parties remain excluded; if a program participant does VA loan-related business with an excluded party, it might result in the VA imposing sanctions against that participant as well. It’s the responsibility of each program participant to make sure that they aren’t doing business with or employing any sanctioned individuals or entities, so you shouldn’t have to worry too much about it except for making sure to select a lender that is not excluded. Even with selecting a lender, your chances of connecting with a lender who is willing to offer a VA loan even though they are excluded are slim to none, so I wouldn’t worry too much about it.
If you decide to take a look at the list, you’ll see that it’s not just a list of entities excluded from the VA; it includes parties excluded from participating in programs of all federal agencies including the VA, or only for a specific program of a specific federal agency. However, to use the list, you’ll usually start by searching for an entity or individual name, and you’ll probably be wanting to know if a specific lender or other participant is excluded or not. If you do find an entity that has been excluded, there will be some cause and treatment codes in their file that will describe why they were excluded and the nature of the exclusion. If you are interested in getting more details on an excluded party, you can call the VA to ask. The appropriate number to call should be included in the information on the excluded party. You can call the VA to get more detail to confirm the identity of a party on the list, or to clarify the nature or length of the sanction.
Lenders are advised to check the excluded parties list before they hire a program participant or participate in a VA loan guaranty-related transaction, if the program participant is also a party to the transaction. This does not apply to a veteran simply using his or her entitlement to obtain a VA loan. The VA advises lenders to do so because the lender can be held responsible if they hire or do business with an excluded party and have sanctions imposed on them as well. This can happen if a lender hires an underwriter for VA loans that is excluded, or if they work with a builder, management broker, or contractors on a VA loan. While the lender may not feasibly be able to check every single party involved with the VA loan(s) they are doing, particularly if they do hundreds of VA loans every year, it’s usually best for you as the borrower if they do what they can to make sure they are only working with non-sanctioned parties.