Deciphering the VA Lender’s Handbook Chapter 17 Part 1
Scams are everywhere. Fraud is everywhere, and people who are interested in scamming others can be attracted to the VA loan program because since it’s already such a beneficial program, they can make a too-good-to-be-true offer and have a good chance of being taken seriously. The VA has the authority to impose sanctions on any person or entity who takes actions that “are detrimental to the VA loan guaranty program”. That’s a broad statement that essentially means someone who detracts from the value the VA is offering either intentionally or because of incompetence. How severe the sanction imposed on the person or entity depends on two different factors:
- the type of participant (for example, lender, builder, management broker, etc.), and
- the nature of the actions (for example, fraud, significant deficiencies in performance, ongoing disregard for VA requirements, and so on).
These sanctions can be imposed in a couple of different ways. The VA may charge civil money penalties, or they might fully or partially exclude the participant from participation in the VA loan program for a certain period of time. In more serious cases, the VA will impose both sanctions, and the exclusion from the program may be permanent. Because these sanctions provide real and lasting consequences to those being sanctioned, the VA does provide an appeals process for participants who have had sanctions imposed on them. We won’t cover the process in-depth here, because the notice the participant receives alerting them of sanctions also details what the participant must do to appeal the VA’s decision.
The VA considers any person or entity that conducts business that has anything to do with the VA loan guaranty program as a program participant, except for a veteran borrower who simply obtains a VA loan. The Handbook says that participants include, but are not limited to: lenders, employees of lenders, loan holders, loan servicers, builders, real estate brokers or agents, management brokers, repair contractors, compliance inspectors, fee appraisers, salespersons, and manufactured home manufacturers, dealers or park operators. An important note on this topic – in some cases, a participant may receive sanctions from the VA, but is also a veteran with a VA loan entitlement. The Handbook clearly specifies that if a VA-eligible borrower who is also a participant in some other capacity (e.g. builder, salesperson, etc.) has sanctions imposed on them, it does not affect their ability to use his or her VA loan entitlement to obtain a VA-guaranteed loan of their own. It simply affects their ability to participate in the process of other veterans obtaining VA loans.
As an informed borrower, it’s important for you to understand the different types of sanctions the VA might impose, the effect they might have, and whether you can or should do business with a participant that has had sanctions imposed on them. Over the next few articles, we’ll be covering in-depth the different type of sanctions the VA might impose. If you are a VA loan program participant, this is obviously good information, but even if you are just a VA borrower, this information can be good to know as you look at getting a VA loan. Parties that have been excluded from the VA loan program because of fraud may still try to continue their fraud in some capacity, and those that have been excluded from the VA loan program because of deficiencies in their work are probably going to exhibit the same deficiencies in their other work.
As mentioned above, VA sanctions might be full exclusion from the program, partial exclusion from the program, and even fines that can go as high as $10,000. The next article is going to cover participants being excluded from the program.