Deciphering the VA Lender’s Handbook Chapter 17 Part 4
In a post long-distant, we discussed “automatic authority” in the context of the VA loan program; what it is, why it’s great, and how lenders get it. In this article, we’re going to revisit automatic authority, refresh our memories of what it is and why it’s great, then talk aboutYou may be inclined to avoid a lender that has had their automatic authority withdrawn, but the truth is you probably won’t even know whether that’s the case unless you ask. Having automatic authority withdrawn is extremely rare (as are most of the penalties we’re talking about in this chapter), and probably 99% of VA loan lenders have automatic authority.
Alright, so what is an automatic authority? Automatic authority is the ability for a lender to approve and close on a VA loan without first submitting the loan application to the VA for approval. If a lender does not have automatic authority, then they must submit each and every VA loan application to the VA to approved before they can close on it. Obviously, this adds unnecessary time and trouble to the loan processing and is better to avoid if possible. When a lender has automatic authority, they can skip the step of submitting the loan to the VA for approval in most cases. There are some loan situations that require VA approval even if the lender has automatic authority, but, for the most part, the lender is permitted to approve them on their own. Lenders have to apply for automatic authority, and the VA approves each lender individually.
Sometimes, as a result of a lender falsifying the Lender Certification that was submitted to the VA with the packet for a closed VA loan, the VA might revoke the lender’s automatic authority. If the VA does this, they’ll give the lender 30 days notice, and as soon as the lender no longer has automatic authority, they are responsible for submitting every VA loan to the VA for prior approval. The lender can continue processing VA loans, of course, they will just take a little longer and be a little more trouble than they were before. If the lender’s automatic authority has been revoked, they still will not appear on the government’s list of excluded parties that are not allowed to participate in the VA loan program, unless there is another sanction imposed in addition to the removal of automatic authority.
Usually, if a lender’s automatic authority is withdrawn, it is only withdrawn for a specified period of time, and as soon as that time is over, the lender can once again close loans on an automatic basis. However, there are cases when a lender’s automatic authority can be withdrawn indefinitely. When this happens, it usually is based on:
- failure to continue meeting basic qualifying criteria
- for supervised lenders this includes loss of status as an entity subject to examination and supervision by a federal or state regulatory agency
- for nonsupervised lenders this includes no approved underwriter, failure to maintain $50,000 working capital, and/or failure to file the required financial statements
- any of the causes for debarment set forth in 38 CFR 44.305, or
- poor underwriting or consistently careless processing during the probationary period for newly-approved nonsupervised automatic lenders.
The normal withdrawal period can be 60 days, 180 days, or 1-3 years. A definite withdrawal period can be based on any of the following:
- loan submissions show deficiencies in credit underwriting after repeatedly being called to the lender’s attention.
- use of unstable sources of income to qualify borrower or ignoring significant adverse credit items affecting applicant’s creditworthiness.
- employment or deposit verifications are hand-carried by applicants or otherwise improperly permitted to pass through the hands of a third party.
- loan submissions are consistently incomplete after repeatedly being called to the lender’s attention
- there are continued instances of disregard of VA requirements after repeatedly being called to the lender’s attention.
So how does it affect you if the lender loses their automatic authority? Well, your VA loan is going to take longer to get approved for sure. Also, the lender will probably be working extra-hard to do thorough underwriting and processing, so they may err on the side of caution and require more information and documentation from you than they really need. If you’re interested in getting your VA loan done as quickly as possible, it’s probably worth asking the loan officer if their lending organization has automatic approval.