Mortgage Loans : VA LOANS

A bank may not request information about an applicant's spouse or former spouse except under which of the following circumstances?

The applicant is NOT relying on alimony, child support, or separate maintenance income as a basis for obtaining the credit.

The income is derived from a second job

The applicant is relying on the spouse’s income, at least in part, as a source of incomeYou correctly checked this.

The spouse filed bankruptcy 12 years ago

Under § 1002.5(d), a creditor may not request information about an applicant’s spouse or former spouse unless it is being relied on for the loan.
The non-applicant spouse will be a permitted user of or joint obligor on the account. (NOTE: The term “permitted user” applies only to open-end accounts.)
The non-applicant spouse will be contractually liable on the account.
The applicant is relying on the spouse’s income, at least in part, as a source of repayment.
The applicant resides in a community property state, or the property upon which the applicant is relying as a basis for repayment of the credit requested is located in such a state.
The applicant is relying on alimony, child support, or separate maintenance income as a basis for obtaining the credit.
If the credit transaction is secured, the creditor may ask the applicant’s marital status. This information may be necessary to determine what would be required to gain access to the collateral in the event of default.

Score: 100%

Question 2

When is it permissible to ask about age on a credit application?

A creditor may consider the age of an elderly applicant when such age is used to favor the elderly applicant in extending creditYou correctly checked this.

Never

When the applicant is not old enough to enter into a legal binding contract under state law

When the term of the loan exceeds the life expectency of the applicant

In any system of evaluating creditworthiness, a creditor may consider the age of an elderly applicant when such age is used to favor the elderly applicant in extending credit. In an empirically derived, demonstrably and statistically sound, credit scoring system, a creditor may use an applicant's age as a predictive variable, provided that the age of an elderly applicant is not assigned a negative factor or value. In a judgmental system of evaluating creditworthiness, a creditor may consider an applicant's age or whether an applicant's income derives from any public assistance program only for the purpose of determining a pertinent element of creditworthiness.

Score: 100%

Question 3

Within how many business days of receipt of an application that lacks info the borrower can provide, the creditor must provide a notice of incomplete application?

15 days

3 days

30 daysYou correctly checked this.

60 days

A creditor must notify the applicant of an incomplete application within 30 days.

Score: 100%

Question 4

Shakira just submitted a fully completed credit application for a loan. When must the creditor advise her of its determination?

30 daysYou correctly checked this.

60 days

3 days

It doesn't have to provide notice of rejection.

Notice is Required within: Completed Application: 30 days after receiving a completed application concerning the creditor’s approval, counteroffer, or adverse action. Adverse Action on an Incomplete Application: 30 days after taking adverse action on an incomplete application, unless notice is provided regarding incompleteness. Existing Account: 30 days after taking adverse action on an existing account.

Score: 100%

Question 5

If a loan is denied, which does not apply?

A written notice must be sent to the applicants.

The notice must contain the reason for denial or advise the applicant of his/her right to a statement of specific within 30 days.

The application must have a a second review before final denial.You correctly checked this.

The notice must contain the principal reasons for denial.

A notification given to an applicant when adverse action is taken shall be in writing and shall contain a statement of the action taken; the name and address of the creditor; a statement of the provisions of section 701(a) of the Act; the name and address of the Federal agency that administers compliance with respect to the creditor; and either: (i) A statement of specific reasons for the action taken; or (ii) A disclosure of the applicant's right to a statement of specific reasons within 30 days, if the statement is requested within 60 days of the creditor's notification. The disclosure shall include the name, address, and telephone number of the person or office from which the statement of reasons can be obtained. If the creditor chooses to provide the reasons orally, the creditor shall also disclose the applicant's right to have them confirmed in writing within 30 days of receiving the applicant's written request for confirmation.

Score: 100%

SCORE

80%

COMPLETED ON

08/01/2021

TOOK 2 MIN

USER

Caroline Gerardo Barbeau

REPEAT TEST

Question 1

Financial institutions are required to send annual privacy notices to individuals who have done what?

Maintained an account relationship.You correctly checked this.

Only if they have changed the name on the account.

Taken their accounts to another institution.

Paid off their loan.

A former customer "has obtained" a financial product or service from a financial institution but no longer has a continuing relationship with it. For purposes of a company’s obligations under the Privacy Rule, a former customer is considered to be a consumer.

Score: 100%

Question 2

How often must a customer receive a privacy notice?

No less than once every 2 years

When they inquire about refinance rates

When they lease their home

At the time of establishing a customer relationship with a consumerYou correctly checked this.

Whether or not a company shares customer NPI, it must give all its customers a privacy notice. It must provide an "initial notice" by the time the customer relationship is established. The company must also give its customers an "annual notice", which is a copy of its full privacy notice, for as long as the customer relationship lasts.

Score: 100%

Question 3

The term "nonpublic personal information" means:

Information on the internet

Non-public information collected by a creditorYou correctly checked this.

Information found in public records

Information in bankruptcy records

The Privacy Rule protects a consumer's "nonpublic personal information" (NPI). NPI is any "personally identifiable financial information" that a financial institution collects about an individual in connection with providing a financial product or service, unless that information is otherwise "publicly available."

Score: 100%

Question 4

The GLBA includes provisions to protect:

The status of consumers' financial institution accounts.

Financial institutions.

Consumers' personal financial information held by financial institutions.You correctly checked this.

Employment 401K account balances.

The Gramm-Leach-Bliley Act was enacted on November 12, 1999. The GLB Act seeks to protect consumer financial privacy.

Score: 100%

Question 5

"Customer" means;

Someone who obtains or has obtained a financial product or service from a financial institution that is to be used primarily for personal, family, or household purposes, or that person's legal representative. The term "consumer" does not apply to commercial clients, like sole proprietorships.You shouldn't have checked this.

Someone who obtains or has obtained a financial product or service from a financial institution that is to be used primarily for personal, family, or household purposes, or that person's legal representative, who have a continuing relationship with a financial institution.You should have checked this.

An individual that has not yet applied for a line of credit.

A Consumer is someone who obtains or has obtained a financial product or service from a financial institution that is to be used primarily for personal, family, or household purposes, or that person's legal representative. Customers are a subclass of consumers who have a continuing relationship with a financial institution. It's the nature of the relationship - not how long it lasts - that defines a customer.

Privacy notices can be delivered to customers electronically?

Only with consent from customer.

Any time,

Only with consent from customer and disclosure of certain terms.You correctly checked this.

Only with consent from the customer, disclosure of certain terms, and a signed waiver.

Information required by law, to be in writing, can be made available electronically to a consumer only if he or she affirmatively consents to receive the information electronically and the company clearly and conspicuously discloses specified information to the consumer before obtaining his or her consent.

Score: 100%

Question 2

Is the e-consent provided only good for initial disclosures?

No, for the life of the loanYou shouldn't have checked this.

It is based on product type chosen

The use is required is part of the lender's disclosureYou should have checked this.

It has a 5 year authorization under the law

The consent use is outlined in the lender disclosure to the consumer

Score: 0%

Question 3

Does the delivery of the LE immediately after the consumer affirmatively consents to e-consent meet the 3-business LE delivery requirement?

Yes, once consented it complies.You correctly checked this.

No the LE must be delivered electronically on the 3rd business day.

Not it must be put in the mail.

Yes but receipt acknowledgement is required by all applicants.

Electronic delivery within 3-business days is not an LE violation

Score: 100%

Question 4

What must the e-consent disclosure require?

The ability to withdraw consent.You correctly checked this.

That the consumer request it in the consumer's language.

Proof of legal age.

That the consumer identify the password to be used.

The notice must inform the consumer of the right to withdraw consent given

Score: 100%

Question 5

Prior to obtaining their consent, financial institutions must provide the consumer, a clear and conspicuous statement informing the consumer of certain disclosures, which is not required?

Informing the consumer of any right or option to have the record provided or made available on paper or in a non-electronic form, and the right to withdraw consent, including any conditions, consequences, and fees in the event of such withdrawal.

Informing consumer of the procedures the consumer must use to withdraw consent and to update information needed to contact the consumer electronically.

Informing the consumer how the consumer may not request a paper copy of a record and whether a fee will be charged if they do.You correctly checked this.

Informing consumer whether the consent applies only to the particular transaction that triggered the disclosure or to identified categories of records that may be provided during the course of the parties’ relationship.

Prior to obtaining their consent, financial institutions must provide the consumer, a clear and conspicuous statement informing the consumer of the following: Any right or option to have the record provided or made available on paper or in a non-electronic form, and the right to withdraw consent, including any conditions, consequences, and fees in the event of such withdrawal. Whether the consent applies only to the particular transaction that triggered the disclosure or to identified categories of records that may be provided during the course of the parties’ relationship; Describing the procedures the consumer must use to withdraw consent and to update information needed to contact the consumer electronically; and Informing the consumer how the consumer may nonetheless request a paper copy of a record and whether any fee will be charged for that copy.

According to the Insurance Information Institute, how many individuals had their identities stolen in 2018?

18.9 Million

8.3 Million

20.2 Million

14.4 MillionYou correctly checked this.

In 2018, 14.4 million people had their identities stolen. In January 2019, 24 million mortgage and banking documents, including original documents, were exposed in a data breach of unsecured servers. Identity thieves drain accounts, damage credit, and even put medical treatment at risk. The cost to businesses left with unpaid bills racked up by scam artists has a significant impact as well.

Score: 100%

Question 2

A response to a red flag could be?

Monitoring and not opening a new account.You correctly checked this.

I know their parents.

They are new to town.

They are a past customer.

Score: 100%

Question 3

A compliant Red Flags Program will have policies and procedures to identify, detect, and ______ Red Flags

Investigate

PreventYou shouldn't have checked this.

Remove

RespondYou should have checked this.

4- Step Process to the Red Flags Rule: Identify relevant red flags, Detect red flags, Respond by preventing and mitigating identify theft, Update the program

Score: 0%

Question 4

What typically happens when a data breach occurs?

Identity theft .You correctly checked this.

Businesses begin using manual recordkeeping.

New computer sales soar.

Loss of internet.

Identity theft is a typical outcome of a data breach.

Score: 100%

Question 5

The four steps that are required as part of the Red Flags Rule are?

Find, Investigate, Suspend, Remove

Inquire, Evaluate, Act, Remove

Find, Evaluate, Respond, Remove

Identify, Detect, Respond, UpdateYou correctly checked this.

4- Step Process to the Red Flags Rule: Identify relevant red flags, Detect red flags, Respond by preventing and mitigating identify theft, Update the program

Score: 100%

Previous unit: Indentity Theft Red Flags Slides 23-31

COMPLETED. LET'S CONTINUE

John calls and speaks with Ben and applies for a loan. Does John have an established business relationship with the bank?

YesYou correctly checked this.

No, because he only applied for the loan.

No, because he does not have an account with the bank.

No, because he applied for the loan over the hone.

The second type of established business relationship is based on a consumer’s inquiry or application regarding a seller’s goods or services, and exists for three months starting from the date the consumer makes the inquiry or application. The inquiry must be of a nature that would create an expectation on the part of the consumer that a particular company will call them. For example, a call requesting information on hours or location would not trigger the established business relationship exemption. However, submitting a loan application or inquiring about the institution’s products or services would satisfy as an inquiry or application.

Score: 100%

Question 2

Which of the following are exempt from the Do Not Call List and free to Telemarket?

Business to business.

Mortgage Loan Solicitors.You should have checked this.

Calls where an established business relationship exists.

Charitable solicitors.You shouldn't have checked this.

Lenders without a business relationship are must check the DNC list routinely.

Score: 0%

Question 3

What is available to consumers to stop Telemarketing calls?

Using the zip code do not call list.

Calling 911.

The National Do Not Call Registry.You correctly checked this.

Calling local law enforcement.

National Do Not Call Registry is available.

Score: 100%

Question 4

What is the purpose of the Telemarketing Sales Rule?

To allow legitimate bill collectors access to a do not call list to locate deadbeats.

To allow a new sales staff a source of leads.

To allow failing businesses a lead source to stay in business.

Combat abuse and fraud, in calls to consumers.You correctly checked this.

Regulation N, prohibits any person from making any material misrepresentation in connection with an advertisement for any mortgage credit product. It applies to institutions under the jurisdiction of the FTC.

Score: 100%

Question 5

What Act empowered the FTC to enforce Telemarketing?

Equal credit opportunity act

Fair Credit Reporting Act

The Telemarketing and Consumer Fraud Abuse Prevention ActYou correctly checked this.

Realestate settlement procedures act

It places restrictions and provides DNC options to consumers.

AML training is required for employees of non-depository financial institutions this often.

Once

As often as the employer requires it

Annually

Annually and as changes occur to the regulationYou correctly checked this.

AML training is required annually and as regulations or company policies and procedures change.

Score: 100%

Question 2

Ima Thief paid Ida Doit $10,000 for the use of her personal information on a loan application. Ida was the borrower on a new home purchase but she had no intent to live in the home and it subsequently went into defatult. This type of mortgage fraud is called:

straw buyerYou correctly checked this.

falsified loan

Identity theft

ficticous borrower

A straw borrower is an individual who is paid for the use of their personal information on a loan application.

Score: 100%

Question 3

BSA stands for:

Bank Suspicious Act

Bank Suspicious Activity

Bank Secrecy ActYou correctly checked this.

Bank Serious Activity

Score: 100%

Question 4

The seller agrees to give the buyer $3,000 in cash after closing to replace worn carpet in the house. This was not written into the purchase contract. What type of fraud is being perpetrated?

Silent Second

Shotgunning

Identity Theft

Undisclosed kickbackYou correctly checked this.

Score: 100%

Question 5

Appraisal fraud can occur by certain lender/MLO actions. Which of the following is considered an unacceptable practice by the lender, as it relates to the appraiser?

requesting a rush for completion

requesting an addendum from the appraiser to address underwriter concerns

providing additional comparables per the request of the appraiser

applying pressure to meet a certain valueYou correctly checked this.

Mortgage fraud perpetrators fraudulently inflate property appraisals during the mortgage loan origination process to generate false equity that they will later abscond. Perpetrators will either falsify the appraisal document or employ a rogue appraiser as a conspirator in the scheme who will create and attest to the inflated value of the property. Fraudulent appraisals often include overstated comparable properties to increase the value of the subject property.

Score: 100%

Question 6

FinCEN stands for:

the Financial Crimes Enhancement Network

The Financial Crimes Enforcement NetworkYou correctly checked this.

the Financial Custodian Enforcement Network

The Federal Crimes Enforcement Network

FinCEN is housed under the US Dept. of Treasury and is not limited to financial institutions, including, depository institutions, casinos money services businesses, insurance industry, securities and futures, precious metals/jewelry industry and mortgage co/brokers.

Score: 100%

Question 7

The introduction of illegally obtained currency into the banking system and/or using the banking system to illegally hide currency that was lawfully obtained.

Suspicious activity

Money LaunderingYou correctly checked this.

AML

Red flag rule

Money Laundering is the participation in any transaction that seeks to conceal or disguise the nature or origin of funds derived from illegal activities such as fraud, corruption, organized crime, or terrorism etc. Offences for money laundering are defined by local law.

Score: 100%

Question 8

An employee of ABC Mortgage appears to be living beyond their means, buying luxury vehicles, taking tropical vacations, buying a new home, etc. The appropriate action to take when this occurs is to:

Write up a warning on the employee and put in their employee file

Fire the employee immediately

Notify the Compliance Officer of suspicious activityYou correctly checked this.

Do nothing

This may indicate a "red flag" and be reported to FinCEN as a SAR.

Score: 100%

Question 9

A borrower closes on 2 separate cash-out refinances on the same home on the same day and neither lender is aware of the other. What type of fraud is the borrower committing?

Straw borrower

ShotgunningYou correctly checked this.

Undisclosed kickback

Identity theft

Loan origination fraud schemes remain a constant fraud scheme. These schemes involve falsifying a borrower's financial informationââ‚¬"ââ‚¬"such as income, assets, liabilities, employment, rent, and occupancy statusââ‚¬"ââ‚¬"to qualify the buyer, who otherwise would be ineligible, for a mortgage loan. This is done by supplying fictitious bank statements, W-2 forms, and tax return documents to the borrower's favor. Perpetrators may also employ the use of stolen identities.

Score: 100%

Question 10

This Act is also known as the Currency and Foreign Transactions Reporting Act of 1970:

FinCEN

BSAYou correctly checked this.

CFPB

AML

The Currency and Foreign Transactions Reporting Act of 1970 is also known as The Bank Secrecy Act (BSA).

A borrower is not eligible for FHA financing if the Minimum Decision Credit Score (MDCS) is below what level?

600

450

550

500You correctly checked this.

500 is the absolute floor.

Score: 100%

Question 2

What is the minimum required credit score to obtain 96.5% financing on an FHA loan?

500

580You correctly checked this.

700

600

Borrowers with credit scores of at least 580 can obtain maximum financing.

Score: 100%

Question 3

FHA is a division of which of the following?

Homeland Security.

Federal Bureau of Investigation.

Veterans Administration.

Department of Housing & Urban Development (HUD).You correctly checked this.

1n 1965 FHA became a division of HUD.

Score: 100%

Question 4

What is the FHA minimum required investment in downpayment and closing costs?

3.50%You correctly checked this.

12.50%

10%

At least 3.5% is required

Score: 100%

Question 5

On an FHA cash out refinance what is the maximum loan-t-value percent?

90%

80%You correctly checked this.

96.50%

Cash-out refinances are limited to 80% LTV.

OAN LIMITS

About VA home limits

What’s a VA home loan limit?

A VA home loan limit is the maximum amount of money you can borrow using a VA-backed home loan, without paying a portion of the home’s total sale price up front (called a down payment). It’s not a cap on the maximum amount you can borrow.

Here’s how it works:

If you qualify for a VA-backed home loan, you’ll receive a home loan entitlement. This is the maximum amount we’ll guarantee the lender that we’ll pay if you default on your loan.

As long as you qualify for a loan based on your income and credit history, and the property’s value matches its asking price, your lender will likely agree to loan you up to 4 times the amount of your entitlement without a down payment. This is your loan limit.

You may still be able to borrow more than this amount if you’re able and willing to pay a down payment. Most lenders require that your entitlement, down payment, or a combination of both cover at least 25% of your total loan amount.

What will my loan limit be?

This will depend on your entitlement, and on the location of the property for which you want the loan. Loan limits vary by county because a property’s location affects its value. For example, the same home in or near a major city will likely cost much more than it would in a more rural location.

You may qualify for 2 types of entitlement:

Basic entitlement: As your basic entitlement, we’ll guarantee to your lender that we’ll pay up to at least $36,000 or 25% of your loan amount, whichever is less, if you default on your loan. So, your loan limit would be $36,000 X 4 = $144,000.
Bonus entitlement: You may want to buy a home that costs more than $144,000. To help you do this, VA offers what’s called bonus (or Tier 2) entitlement.

Entitlement Percentage Calculation Impacted by the Adoption of The Blue Water Navy Vietnam Veterans Affairs Act of 2019 (The Act)[1]

On June 25th, 2019 the President signed the Act to become effective with loans closed after January 1, 2020. The Act impacts bonus entitlement on loans greater than $144,000 as follows:

Adjustment of Loan Limit:

The Act expands the maximum guaranty amounts for purchase, construction, and cash-out refinance loans greater than the Freddie Mac conforming loan limit (CLL) in certain circumstances. However, the Act does not change the maximum amount of guaranty entitlement available to Veterans for loans equal to or less than $144,000 regardless of the Freddie Mac CLL.

(1) Freddie Mac CLLs are no longer a factor for Veterans with full entitlement. For Veterans with full entitlement, the maximum amount of guaranty for a loan above $144,000 is 25 percent of the loan amount, regardless of the Freddie Mac CLL.

[1] VA Circular 26-19-30 November 15, 2019
Example A1: Veteran has full entitlement available and the loan amount is $1,200,000.

$1,200,000 x 25% = $300,000 [Maximum Guaranty and Entitlement Available]

What if the Veteran doesn’t use all of his/her entitlement on their first home loan?

They’ll have what’s called “remaining entitlement.” He/ she can use this remaining amount, either on its own or in combination with a down payment, to take out another home loan in the future. [1]

Example A2: Veteran is looking to complete a cash-out refinance of an existing VA-guaranteed loan in which the Veteran has used $80,000 of entitlement. The amount of the refinance loan is $600,000. The entitlement used for the existing VA-guaranteed loan can be restored for purposes of the refinance, resulting in full entitlement available to the Veteran.

$600,000 x 25% = $150,000 [Maximum Guaranty and Entitlement Available]

(2) For Veterans who have previously used entitlement and such entitlement has not been restored, the maximum amount of guaranty is the lesser of 25 percent of the loan amount OR the maximum amount of guaranty entitlement available. The maximum amount of guaranty entitlement is 25 percent of the Freddie Mac CLL, reduced by the amount of entitlement previously used (not restored) by the Veteran.

[1] https://www.benefits.va.gov/homeloans/documents/circulars/26_19_2

xample B: Loan amount is $765,000; Entitlement used (not restored) is $70,000; Freddie Mac CLL is $724,000.

$765,000 x 25% = $191,250 [25% of Loan Amount]
($724,000 x 25%) – $70,000 = $111,000 [Guaranty Entitlement Available]
$111,000 / $765,000 = 14.51% [Maximum Guaranty]

Example C: Loan amount is $200,000; Entitlement used (not restored) is $36,000; Freddie Mac CLL is $500,000.

$200,000 x 25% = $50,000 [25% of Loan Amount]
($500,000 x 25%) – $36,000 = $89,000 [Guaranty Entitlement Available]
$50,000 / $200,000 = 25.00% [Maximum Guaranty]

Example D: Loan amount is $400,000; Entitlement used (not restored) is $161,000; Freddie Mac CLL is $600,000. The Veteran does not have entitlement available for this purchase.

$400,000 x 25% = $100,000 [25% of Loan Amount] ($600,000 x 25%) – $161,000 = ($11,000) [No Guaranty Entitlement Available]

(3) Interest Rate Reduction Refinance Loans (IRRRLs). VA will continue to guarantee 25 percent of the loan amount without regards to the Veteran’s available entitlement and/or Freddie Mac CLLs. See Lenders Handbook, M26-7, Chapter 6 for additional information.[1]

Popular VA Home Loan Programs[2]

PURCHASE PROGRAM

Lenders offer competitive interest rates on VA-backed purchase loans. This can help you buy, build, or improve a home—especially if you don’t want to make a down payment.

Eligibility

All of these must be true. You:

Qualify for a VA-backed home loan Certificate of Eligibility (COE), and
Meet the VA—and your lender’s—standards for credit, income, and any other requirements, and
Will live in the home you’re buying with the loan

A VA-backed purchase loan often offers:

No down payment as long as the sales price isn’t higher than the home’s appraised value (the value set for the home after an expert inspects the property)
Better terms and interest rates than other loans from private banks, mortgage companies, or credit unions (also called lenders)
No need for private mortgage insurance (PMI) or mortgage insurance premiums (MIP)

PMI is a type of insurance that protects the lender if you end up not being able to pay your mortgage. It’s usually required on conventional loans if you make a down payment of less than 20% of the total mortgage amount.
MIP is what the Federal Housing Administration (FHA) requires you to pay to self-insure an FHA loan against future loss.

Fewer closing costs, which may be paid by the seller
No pre-payment penalty fee if you pay the loan off early

If you qualify for a VA-backed purchase loan, you can use the loan to:

Buy a single-family home, up to 4 units
Buy a condo in a VA-approved project
Buy a home and improve it
Buy a manufactured home or lot
Build a new home
Make changes or add new features (like solar power) to make your home more energy efficient

You can also:

Get a VA-backed home loan to buy your first home
Use your VA loan benefit again if you sell or refinance a home you bought with a VA-backed home loan
Assume a VA-backed home loan (which means that instead of opening a new mortgage loan, the buyer takes over the seller’s loan)

Interest Rate Reduction Refinance (IRRRL)

Lenders must include with every Interest Rate Reduction Refinance loan, a statement signed by the borrowers showing they understand the effects of the refinance. In most cases this statement must also show the effects of the refinance through a summary of how long it will take the veteran to recoup the costs associated with the refinance. Lenders may use this sample document. This statement should be on the lender’s letterhead. See VA Lenders Handbook, Chapter 6, Section 1. d.

Exhibit A – Frequently Asked Questions (FAQs) The FAQs, information and examples provided are solely to assist lenders in implementing noncompliant IRRRL cure plans. Nothing in this document supplements, overrides, or supersedes any provisions of law, applicable statutes, regulations, or VA policies and by no means are comprehensive.

Question 1: Must we cure loans that did not meet recoupment because the IRRRL either resulted in an increased principal and interest payment due to a lower term or refinanced from an adjustable rate to a fixed rate?

Yes, all refinancing loans originated on or after May 25, 2018, must comply with requirements of Public Law (PL) 115-174. The law does not allow VA to guaranty IRRRLs that do not meet the recoupment requirement. IRRRLs with a term reduction, or that refinanced from an adjustable rate to a fixed rate, in which the principal and interest payment is not reduced, can only be made if the Veteran has incurred no fees, closing costs, or expenses that must be recouped under the law. Lenders should be following the requirements outlined in the statute and VA Circular 26-19-22, dated August 8, 2019. Some lenders have incorrectly cited VA Circular 26-18-1 (which pre-dates PL 115-174) suggesting that certain IRRRLs do not need to meet recoupment. Circular 26-18-1, however, only discusses when lenders have to present recoupment disclosure information to the Veteran. Neither this Circular, nor VA Circular 26-18- 13, state that such loans are exempt from recoupment under PL 115-174.

Question 2: If we choose to cure with a no cost refinance, does the loan have to meet the seasoning requirements of PL 115-174?

Any new refinance loan must meet loan seasoning requirements. For IRRRLs and Type I Cash Out Refinance loans, lenders should follow the loan seasoning requirements outlined in Public Law 116-33 (This bill modifies this date to (1) when the borrower has made six consecutive monthly payments, or (2) 210 days after the first payment is due.), Protecting Affordable Mortgages for Veterans Act of 2019 (formerly S.1749). For Type II Cash-Out Refinance loans, lenders should follow VA regulatory requirements outlined at 38 CFR 36.4306.

Question 3: If the loan was previously reviewed by VA, how should it be handled if we discover that it is not compliant with PL 115-174?

While some loans may have been previously selected for review by VA, the scope of this project is specifically focused on ensuring overall compliance with the requirements of PL 115-174. As such, lenders must provide evidence that all IRRRL loan applications taken on or after May 25, 2018, are fully compliant with the requirements of the statute. Lenders are required to self-report all non-compliant IRRRLs, in accordance with the attached Circular, via email to the Regional Loan Center (RLC) of jurisdiction for your corporate office. The email addresses for each of the RLCs are located at: https://www.benefits.va.gov/HOMELOANS/contact_rlc_info.asp.

WebLGY & IRRRSs: WebLGY is a VA Portal web-based application that allows the lender to input loan data and have WebLGY immediately issue the actual guaranty for IRRRLs. Additionally, WebLGY will check to ensure compliance with the following rules prior to the creation of the LGC:

If the prior loan has a fixed interest rate and the IRRRL has a fixed interest rate, the IRRRL interest rate must be at least 0.50 percent less than the prior loan. (fixed-to-fixed)
If the prior loan has a fixed interest rate and the IRRRL has an adjustable interest rate, the current IRRRL interest rate must be at least 2 percent less than the prior loan. (fixed-to-ARM)
Validation of prior loan seasoning.[1]

Question 4: We reviewed the files in question, and it appears that there was an error when entering loan data into WebLGY. Specifically, we incorrectly entered all fees paid by the borrower and/or the closing costs and failed to exclude certain fees, expenses and closing costs, as outlined in VA Circular 26-19-22. How do we go about fixing this error?

Lenders should review WebLGY and their internal systems to determine if an error was made. Lenders are required to provide supporting documentation as evidence that any loans identified as being potentially noncompliant meet all requirements of the law. VA will review all documents submitted and provide a final determination of compliance to close out the case. Corrective action and supporting documentation must be uploaded into WebLGY “Correspondence” as Document Association “IRRRL” > Document Type “IRRRL Disclosure Compliance”. [2]

[1] https://content.govdelivery.com/accounts/USVAVBA/bulletins/288e5a3
[2] https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_20_16.pdf

THE IMPACT OF PUBLIC LAWS 115-174 & 116-33 ON IRRRLS.

Let’s review the impact and guidance from the 2018 Public Law 115-74, Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) and the 2019 Public Law 116-33, Protecting Affordable Mortgages for Veterans Act of 2019

The Acts address the following:

Fee recoupment
Net tangible benefits
Loan seasoning requirements
Disclosure standards

VA Circular 26-19-22 Dated August 8, 2019[1] mandates that a lender or broker issuing an IRRRL refinance loan that it must certify to the following:

Recoup Fees. Certify that certain fees and costs of the loan will be recouped on or before 3 years after the loan note date. The recoupment standard applies to all IRRRLs. This includes, but is not limited to, IRRRLs where the principal balance is increasing, the term of the loan is decreasing, or where the loan being refinanced is an adjustable-rate mortgage (ARM).
For an IRRRL that results in the same or higher monthly PI payment, the Veteran has incurred no fees, closing costs, or expenses (other than taxes, amounts held in escrow, and any Funding Fees paid.
Net Tangible Benefit (NTB). Establish that when the previous loan had a fixed interest rate

the new fixed interest rate is at least .5% lower
(Example: the loan being refinanced has a 3.75% note rate. The new loan must be no higher than 3.25%)
if the new loan has an adjustable rate, that the rate is at least 2% lower than the previous loan. In each instance, the lower rate cannot be produced solely from discount points except in certain circumstances;
A loan with an NTB means that it is in the financial interest of the Veteran. The NTB outlined in 38 U.S. Code § 3709. Refinancing of housing loans are required.

Loan Seasoning. Follow a seasoning requirement for all VA-guaranteed loans. A loan cannot be refinanced until

the date on which the borrower has made at least six (6) consecutive monthly payments on the loan being refinanced, and
the date that is 210 days (6 months) after the first payment due date of the loan being refinanced; and

Disclosure. Lenders should twice present a comparison of the refinance loan and the loan being refinanced to the Veteran. Once within 3 business days from the initial loan application and again at closing that includes information about the overall cost of refinance.

QUALIFICATION AND ABILITY TO REPAY/ RESIDUAL INCOME/ TOTAL DEBT TO INCOME DTI

A determination must be made on all mortgage loans as to the borrower(s) Ability to Repay or ATR. Many factors go into the calculation especially as it pertains to useable and effective income as well as debts and obligations. VA Pamphlet Chapter 4: Credit Underwriting outlines one such VA requirement for ATR.[1]

It operates on the mathematical assumption that on a VA loan the entitled veteran and or spouse must have enough money to live on after calculated expenses are deducted from calculated income.

The evaluation takes into consideration:

Income
Expenses (including shelter expenses)
The loan sizes
The family sizes
The geographic region (higher cost areas require higher residual income)

The process is as follows:

The lender compares the Veteran’s appropriate residual family income to the amount from the following tables in the “guideline” box. Residual income is the amount of net income remaining (after deduction of debts and obligations and monthly shelter expenses) to cover family living expenses.

The numbers are based on data supplied in the Consumer Expenditures Survey (CES) published by the Department of Labor’s Bureau of Labor Statistics. They vary according to loan size, family size, and region of the country.

[1] https://www.benefits.va.gov/WARMS/docs/admin26/pamphlet/pam26_7/ch04.pdf

[1] https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_19_22.pdf

A key to the geographic regions is listed in the following tables:

Based on loan amounts of $79,999 and below

Examples:

A Veteran has a family size of 3 purchasing a home in Arizona with a loan amount of $400,000. The residual figure will be $990.

A Veteran has a family size of 8 purchasing a home in Georgia with a loan amount of $150,000. The residual figure will be $1,199 (family size of 5 which is $1,039 adding $80 for each additional family member up to a family size of 7). The eighth person will not be considered in the calculation.

Special Instructions:

Count all members of the household (without regard to the nature of the relationship) when determining “family size,” including:

A borrower’s spouse who is not joining in title or on the note, and
Any other individuals who depend on the borrower for support. If a dependent is claimed on the Federal Tax Returns, then the dependent must be considered as a member of the household, to calculate residual income.

Examples

Children from a spouse’s prior marriage who are not the borrower’s legal dependents.
A dependent parent. Exceptions for Considering All Members of the Household The lender may omit any individuals from “family size” who are fully supported from a source of verified income which, for whatever reason, is not included in effective income in the loan analysis.

Examples

a spouse not obligated on the title or on the note that has stable and reliable income sufficient to support his or her living expenses.
a child for whom sufficient foster care payments or child support is received regularly, or
a parent who has sufficient stable and reliable non-taxable income.

VA’s minimum residual incomes (balance available for family support) are a guide. They should not automatically trigger approval or rejection of a loan. Instead, consider residual income in conjunction with all other credit factors.

However, an inadequate residual income alone can be a basis for disapproving a loan.

If residual income is marginal, look to other indicators such as the borrower’s credit history, and in particular, whether and how the borrower has previously handled similar housing expense.

Consider the ages of the borrower’s dependents in determining the adequacy of residual income.

Examples:

A Veteran has a family size of 3 purchasing a home in Arizona with a loan amount of $400,000. The residual figure will be $990.

Special Instructions:

Count all members of the household (without regard to the nature of the relationship) when determining “family size,” including:

A borrower’s spouse who is not joining in title or on the note, and
Any other individuals who depend on the borrower for support. If a dependent is claimed on the Federal Tax Returns, then the dependent must be considered as a member of the household, to calculate residual income.

Examples

Children from a spouse’s prior marriage who are not the borrower’s legal dependents.
A dependent parent. Exceptions for Considering All Members of the Household The lender may omit any individuals from “family size” who are fully supported from a source of verified income which, for whatever reason, is not included in effective income in the loan analysis.

Examples

a spouse not obligated on the title or on the note that has stable and reliable income sufficient to support his or her living expenses.
a child for whom sufficient foster care payments or child support is received regularly, or
a parent who has sufficient stable and reliable non-taxable income.

However, an inadequate residual income alone can be a basis for disapproving a loan.

If residual income is marginal, look to other indicators such as the borrower’s credit history, and in particular, whether and how the borrower has previously handled similar housing expense.

Consider the ages of the borrower’s dependents in determining the adequacy of residual income.

DEBT-TO INCOME RATIO:

VA’s debt-to-income ratio is a ratio of total monthly debt payments (housing expense, installment debts, and other obligations listed in section D of VA Form 26-6393, Loan Analysis, to gross monthly income. It is a guide and, as an underwriting factor, it is secondary to the residual income. It should not automatically trigger approval or rejection of a loan. Instead, consider the ratio in conjunction with all other credit factors.

A ratio greater than 41 percent requires close scrutiny.

THE BLUE WATER NAVY VIETNAM VETERANS AFFAIRS ACT OF 2019 (THE ACT) ADJUSTMENT OF LOAN FUNDING FEES

What is the VA funding fee?

The VA funding fee is a one-time payment that the Veteran, service member, or survivor pays on a VA-backed or VA direct home loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance.[1]

Adjustment of Loan Fees:

The Act amends 38 U.S.C. § 3729(b)(2) by replacing the loan fee / funding fee table. The below table summarizes funding fee rates for the most common types of loans for all Veterans (Regular Military, Reserves, and National Guard) for loans closed on or after January 1, 2020, and before January 1, 2022.

Type of Loan	Downpayment	Percentage for First Time Use	Percentage for Subsequent Use
Purchase and Construction Loans	None 5% but less than 10% 10% or more	2.30% 1.65% 1.40%	3.60% 1.65% 1.40%
Cash-Out Refinance Loans	N/A	2.30%	3.60%
IRRRLs	N/A	.50%	.50%
Loan Assumptions	N/A	.50%	.50%

You won’t have to pay a VA funding fee if any of the below descriptions is true. You’re:

Receiving VA compensation for a service-connected disability, or
Eligible to receive VA compensation for a service-connected disability, but you’re receiving retirement or active-duty pay instead, or
The surviving spouse of a Veteran who died in service or from a service-connected disability, or who was totally disabled, and you’re receiving Dependency and Indemnity Compensation (DIC), or
A service member with a proposed or memorandum rating, before the loan closing date, saying you’re eligible to get compensation because of a pre-discharge claim or

A service member on active duty who before or on the loan closing date provides evidence of having received the Purple Heart
[1] https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/

ALLOWABLE AND UNAUTHORIZED CHARGES BY A LENDER

Veterans Benefits Administration

Circular 26-14-10 Department of Veterans Affairs [1]

May 7, 2014 Washington, D.C. 20420

Policy Clarification on Unallowable Fees

Purpose.
The purpose of this Circular is to clarify the Department of Veterans Affairs (VA) policy on the treatment of unallowable fees when lenders charge a loan origination fee that is less than one percent (1%) of the loan amount on purchase and cash-out transactions, and less than one percent (1%) of the payoff amount on interest rate reduction refinance loans (IRRRLs).
Background.
Lenders may charge a flat fee, referred to as a loan origination fee, not to exceed one percent (1%) of the loan amount (for IRRRLs, the one percent (1%) flat charge is based on the payoff amount). This flat charge is intended to cover all of the lender’s costs which are not reimbursable as itemized fees. Non-reimbursable fees that are not included in the flat fee are considered unallowable.
Policy.
If the lender charges the full one percent (1%) loan origination fee, they cannot charge unallowable fees. Unallowable fees are those that are not expressly specified in 38 CFR 36.4313. Note: VA treats pest inspection fees the same as any other unallowable fee. Examples of unallowable itemized fees can be found in Chapter 8, Section 2d of the VA Lenders Handbook: https://www.benefits.va.gov/WARMS/docs/admin26/handbook/ChapterLendersHanbookChapter8.pdf

Example: If the lender charges a $1,000 loan origination fee on a $100,000 loan, they have charged the maximum allowable origination fee, and cannot charge additional unallowable fees, such as a document preparation fee or pest inspection fee. However, if the lender charged an $800 loan origination fee on a $100,000 loan, the lender may charge up to $200 in additional fees, such as a document preparation fee or pest inspection fee. In all cases, the aggregate of the loan origination fee and unallowable fees cannot exceed the one percent (1%) threshold.

Clarification.
Third-party overcharges are not treated the same as unallowable fees for purposes of determining the aggregate one percent limit; third-party charges are limited to the invoice charge, regardless of the amount charged for the loan origination fee. In the case of appraisals, the amount charged cannot exceed VA’s published rates.

Example 1: The lender charged an origination fee of $800 on a $100,000 loan. The credit report charges on the Closing Disclosure (CD) Settlement Statement is $50. The credit report invoice reflects $20. In this case, the lender must refund the $30 overcharge to the Veteran.
Example 2: The lender charged an $800 origination fee on a $100,000 loan. The appraisal charge on the Closing Disclosure, Settlement Statement is $500. VA’s maximum published appraisal rate for the state is $425. In this case, the lender must refund the $75 overcharge to the Veteran.

Subordination Fees.
Subordination fees are treated differently than unallowable and third-party fees. Subordination fees cannot be financed into the loan, regardless of the amount charged for the loan origination fee. A subordination fee may be charged on the HUD-1, Settlement Statement (Now Closing Disclosure or CD); however, the Veteran must either pay this fee in cash or have a premium pricing credit large enough to cover the subordination charge.

REHABILITATION LOAN PROGRAMS

FHA Rehab Mortgage Insurance

203(K) REHAB MORTGAGE INSURANCE[2]

Summary:

Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.

The Section 203(k) program is FHA’s primary program for the rehabilitation and repair of single-family properties. As such, it is an important tool for community and neighborhood revitalization, as well as to expand homeownership opportunities.

Purpose:

Section 203(k) fills a unique and important need for homebuyers. When buying a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. The interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment. However, Section 203(k) offers a solution that helps both borrowers and lenders, insuring a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property. Section 203(k) insured loans save borrowers time and money. They also protect the lender by allowing them to have the loan insured even before the condition and value of the property may offer adequate security.

For less extensive repairs/improvements, see Limited 203(k). For housing rehabilitation activities that do not also require buying or refinancing the property, borrowers may also consider HUD’s Title I Property Improvement Loan program.

Type of Assistance:

Section 203(k) insures mortgages covering the purchase or refinancing and rehabilitation of a home that is at least a year old. A portion of the loan proceeds is used to pay the seller, or, if a refinance, to pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as rehabilitation is completed. The cost of the rehabilitation must be at least $5,000, but the total value of the property must still fall within the FHA mortgage limit for the area. The value of the property is determined by either

the value of the property before rehabilitation plus the cost of rehabilitation, or
110 % of the appraised value of the property after rehabilitation, whichever is less.

Many of the rules and restrictions that make FHA’s basic single-family mortgage insurance product (Section 203(b)) relatively convenient for lower income borrowers apply here. But lenders may charge some additional fees, such as a supplemental origination fee, fees to cover the preparation of architectural documents and review of the rehabilitation plan, and a higher appraisal fee.

Eligible Activities:

The extent of the rehabilitation covered by Section 203(k) insurance may range from relatively minor (though exceeding $5000 in cost) to virtual reconstruction: a home that has been demolished or will be razed as part of rehabilitation is eligible, for example, provided that the existing foundation system remains in place. Section 203(k) insured loans can finance the rehabilitation of the residential portion of a property that also has non-residential uses; they can also cover the conversion of a property of any size to a one- to four- unit structure. The types of improvements that borrowers may make using Section 203(k) financing include:

structural alterations and reconstruction
modernization and improvements to the home’s function
elimination of health and safety hazards
changes that improve appearance and eliminate obsolescence
reconditioning or replacing plumbing; installing a well and/or septic system
adding or replacing roofing, gutters, and downspouts
adding or replacing floors and/or floor treatments
major landscape work and site improvements
enhancing accessibility for a disabled person
making energy conservation improvements

HUD requires that properties financed under this program meet certain basic energy efficiency and structural standards.

Application:

Applications must be submitted through an FHA approved lender.

VA Loans for Alteration and Repair/ Supplemental Loans

Loans for Alterations and Repairs[3]

VA may guarantee a loan for alteration and repair:

Of a residence already owned by the Veteran and occupied as a home, or
Made in conjunction with a purchase loan on the property.

The alterations and repairs must be those ordinarily found on similar property of comparable value in the community.

The cost of alterations and repairs to structures may be included in a loan for:

the purchase or
regular “Cash-Out” refinance of improved property to the extent that their value supports the loan amount.

Alterations/ Repairs with a VA Supplemental Loan

A supplemental loan is a loan for the alteration, improvement, or repair of a residential property. The residential property must secure an existing VA-guaranteed loan, and be owned and occupied by the Veteran, or the Veteran will reoccupy upon completion of major alterations, repairs, or improvements.

The alterations, improvements, or repairs must:

Be for the purpose of substantially protecting or improving the basic livability, or utility of the property, and
Be restricted primarily to the maintenance, replacement, improvement or acquisition of real property, including fixtures.

Installation of features such as barbecue pits, swimming pools, etc., does not meet this requirement.

No more than 30 % of the loan proceeds may be used for the maintenance, replacement, improvement, repair, or acquisition of non-fixtures or quasi-fixtures such as refrigeration, cooking, washing, and heating equipment. The equipment must be related to or supplement the principal alteration for which the loan is proposed.

Change in Rate

The existing loan must be current with respect to taxes, insurance, and amortized payments, and must not otherwise be in default unless a primary purpose of the supplemental loan is to improve the ability of the borrower to maintain the loan obligation.

The making of a supplemental loan can never result in any increase in the rate of interest on the existing loan.

A supplemental loan to be written at a higher rate of interest than that payable on the existing loan must be evidenced by a separate note from the existing loan

Procedures

Submit a statement describing the alterations, improvements, or repairs made or to be made with the prior approval application (or loan closing package, if closed automatically). In addition, report the amount outstanding on the existing loan as of the date of closing of the supplemental loan in the loan closing package.

If the cost of the repairs, alterations, or improvements exceeds $3,500: an NOV and compliance inspections are required.

Under $3,500 requires a statement from an appraiser

If the cost of the repairs, alterations, or improvements does not exceed $3,500: an NOV (Notice of value) and compliance inspections are not required. Instead, a statement of reasonable value may be submitted. The statement must be completed and signed by a VA-designated appraiser. A VA-designated appraiser is an individual nominated by the lender (who may be an officer, trustee, or employee of the lender or its agent) who has been approved by the local VA office.

The statement must specify the:

work done or to be done,
purchase price or cost of the work and material, and
purchase price or cost does not exceed the reasonable value.

In lieu of VA compliance inspections, the lender must submit a certification as follows:

“The undersigned lender certifies to the Department of Veterans Affairs that the property as repaired, altered, or improved has been inspected by a qualified individual designated by the undersigned, and based on the inspection report, the undersigned has determined that the repairs, alterations, or improvements financed with the proceeds of the loan described in the attached VA Form 26-1820, appear to have been completed in substantial conformance with related contracts.”

COLLATERAL/ PORTFOLIO LOANS

Hindsight often gives us different perspectives and allows us to see things in the past more clearly. Much is written in hindsight about the cause(s) of the financial crisis of 2007/2008. There are many theories that it’s cause was the extensive use by lenders of subprime financing.

Subprime lending carries many definitions. Investopedia defines subprime lending as the practice of lending to borrowers with low credit ratings and higher interest rates due to relatively high default rates. Subprime lending also was chalked full of predatory features like teaser rates and prepayment penalties.

Subprime lending is viewed as having contributed to the 2007–2008 financial crisis, due in part to the phenomenon of securitization. [4]

But there also existed a non-traditional lending practice that carried a significant impact on the financial crisis that was not considered a subprime product. That was the practice of lenders making available collateral loans to all risk ranges of borrowers.

Collateral loans were loans in which the traditional practice of determining a borrower’s ability to repay (ATR) was deemed to not be necessary because properties (collateral) were appreciating very rapidly in many areas of the country. From a risk management perspective, lenders did not determine ATR because in the event of foreclosure the appreciation of the collateral for the mortgage (the property) would protect the lender from loss.

Collateral loans allowed lenders to relax their strict lending policies and offer customer friendly mortgages that in come cases were no-doc (no documentation) and low-doc (very little documentation) thus allowing customers to get loans without the burden of proof of ATR.

The financial crisis caused housing prices to fall and, in many instances, borrowers simply walked away from their homes because collateral loans, based on expected appreciation, left borrowers owing more then the value of their homes.

Nevada experienced the biggest drop during the recession, with a 60 percent decline in home prices.[5]

Portfolio Loans

A portfolio lender uses its own money to grant loans and does not sell its loans to institutional investors. The two largest investors in mortgages, Fannie Mae and Freddie Mac, buy only loans that meet their strict underwriting standards because they want to minimize risk for their investors. Borrowers who don’t meet Fannie and Freddie guidelines may want to turn to a portfolio lender.

Portfolio lenders are likely to be smaller, community banks with more flexible lending standards than conventional banks. They invest in communities and relationships, so they can make decisions based on more than the answers on a borrower’s application. They can consider intangible factors, too, and may grant mortgages to people with blemished credit with whom they’ve had long-standing relationships.

But portfolio lenders do not offer all the loan programs that large commercial banks do. Some may not offer the 30-year fixed-rate mortgage but can grant a 15-year fixed-rate mortgage or an adjustable-rate mortgage that matches up well with the investment strategy of the institution. Also, a portfolio lender will often require that the borrower have his money and accounts with them.[6]

Portfolio lenders use their portfolios for different types of lending such as commercial as well as residential loans. They also may use it to comply with the Federal Community Reinvestment Act (CRA) which since 1977 encourages lenders to meet low-income neighborhood needs.

SELLER FINANCING

Seller financing is best thought of as the seller acting as a lender instead of a buyer seeking financing through traditional sources such as a bank, credit union, mortgage broker or mortgage banker. There are a number of circumstances that might dictate this type of rare sale.

From the buyer’s side

The buyer may not be able to get regular financing from a lender because they are unqualified
The buyer may want a lower cost option where the closing costs are less than a bank
There may be a need for a quicker transaction to provide access to the property in a shorter timeframe then the lender process
The property may not meet property standards required by lenders but the buyer still wants the property
The property may be in a geographic area where traditional financing is not readily or competitively available

From the seller’s side

The seller may not need the proceeds or cash right away in the home sale
The seller may not want to do the repairs required by a traditional lender (As Is)
The seller may not want to remove an outbuilding such as a mobile home on the site
The seller can get a higher rate of interest providing seller financing making the note a good investment
Like the buyer, the seller may want a quick transaction
Seller financing may give the seller a competitive edge in selling the property

General considerations

Both parties should have legal or real estate representation
Financing terms typically favor the seller
Financing is not typically long term (a couple of years) with a balloon feature that require buyers to refinance and pay the seller off
Buyers must ensure that documentation provides credit for downpayment and built up equity
Buyers must ensure themselves that the seller can legally provide seller financing and that the property isn’t encumbered by a mortgage prohibiting seller financing sale
Seller transactions typically require a downpayment just like a traditional lender

These listed examples are just a few of the many motivations of the buyer and the seller electing the use of seller financing. This financing method typically accommodates a method of sale and is not a preferred long-term financing option due to higher rates and balloon options.[7]

AFFORDABLE HOUSING PROGRAMS

USDA: AKA Rural Development

The US Department of Agriculture provides government assistance in rural areas throughout the US. Its objective is helping improve the economy and quality of life in rural America. Through their programs, it helps rural Americans in many ways:

It offers loans, grants and loan guarantees to help create jobs and support economic development and essential services such as housing; health care; first responder services and equipment; and water, electric and communications infrastructure.
It promotes economic development by supporting loans to businesses through banks, credit unions and community-managed lending pools. It offers technical assistance and information to help agricultural producers and cooperatives get started and improve the effectiveness of their operations.
It provides technical assistance to help communities undertake community empowerment programs and from a housing perspective it helps rural residents buy or rent safe, affordable housing and make health and safety repairs to their homes.[8]

Rural Development (RD) programs give individuals the opportunity to buy, build, repair or own safe affordable housing. Eligibility for these loans, loan guarantees and grants are based on income and the average median income for each area.

Rural Development loans are made directly through the USDA. They are also made by USDA approved lenders through loan guarantee programs. (This course will highlight these two programs which can vary by state.) [9]

Single Family (Direct Housing Program) Loans: AKA Section 502 Loan Program

Safe, well built affordable homes for “very-Low and low-income rural Americans”
For families or individuals
Purpose: to buy, build, improve, repair or rehabilitate a rural home as a permanent residence
Population: up to 35,000
Loan made directly to the borrower
LTV up to 100% of market value or cost
Loan terms of 33/38 years
Applicant may be eligible for a payment assistance subsidy on the loan

Direct Program Applicants must:

Be without decent, safe, and sanitary housing
Be unable to obtain a loan from other resources on terms and conditions that can reasonably be expected to meet
Agree to occupy the property as your primary residence
Have the legal capacity to incur a loan obligation
Meet citizenship or eligible noncitizen requirements
Not be suspended or debarred from participation in federal programs

Single-Family Housing Guarantee Program for Approved Lenders

To assist low- to moderate-income applicants/household buy their homes by guaranteeing loans made by private lenders
For Families or individuals
For the purchase of a new or existing home or refinance an existing Rural Development guaranteed or direct loan
Rural area also defined with population limits up to 35,000
The loan is guaranteed to an approved lender and not a direct loan with Rural Development
Terms: 30-year fixed. The interest rate is negotiated between lender and borrower. Loans up to 100% of market value plus the amount of the up-front guarantee fee being financed.

WHO MAY APPLY FOR THE GUARANTEE PROGRAM?

Guarantee Applicants must:

Meet income-eligibility.
Agree to personally occupy the dwelling as their primary residence.
Be a U.S. Citizen, U.S. non-citizen national, or Qualified Alien.
Have the legal capacity to incur the loan obligation.
Have not been suspended or debarred from participation in federal programs.
Demonstrate the willingness to meet credit obligations in a timely manner.
Purchase a property that meets all program criteria[10]

HUD Revitalization Program[11]

Good Neighbor Next Door

Law enforcement officers, pre-Kindergarten through 12th grade teachers, firefighters and emergency medical technicians can contribute to community revitalization while becoming homeowners through HUD’s Good Neighbor Next Door Sales Program.

HUD offers a substantial incentive in the form of a discount of 50% from the list price of the home. In return you must commit to live in the property for 36 months as your sole residence.

How the program works:

Eligible Single-Family homes located in revitalization areas are listed exclusively for sale through the Good Neighbor Next Door Sales program. Properties are available for purchase through the program for seven days.

Revitalization Areas are HUD-designated geographic areas authorized by Congress under provisions of the National Housing Act. Revitalization Areas are intended to promote “the revitalization, through expanded homeownership opportunities, of revitalization areas.”

The criteria for designating an area as a Revitalization Area relate to:

Household Income,
Homeownership Rate, and
FHA-insured mortgage foreclosure activity.

HUD-owned single-family properties located in a Revitalization Area are eligible for discounted sale through special programs, including:

Asset Control Area (ACA): Foreclosed properties conveyed back to FHA that are located in a designated ACA are first offered for sale to an ACA participant. Under the ACA Program, state, county and local units of government, as well as approved nonprofit organizations may enter into a two-year contract with HUD requiring HUD to first make FHA properties located in an ACA exclusively available for sale to the ACA participant. ACA properties with an appraised value of $25,000 or less may be purchased for $100; all other properties sold under the ACA Program are offered for sale at a minimum discount of 50 percent of the appraised property value.
Good Neighbor Next Door (GNND): Under GNND, HUD offers certain single-family properties for sale to police officers, teachers, fire fighters, and emergency medical technicians at 50 percent off of the list price.
HUD’s Single Family Home Locator displays maps of REO properties and special programs such as Revitalization Areas and Block Grants. There are many revitalization areas across the country. HUD is always working with localities to designate new areas.[12]

[1] https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_14_10.pdf

[2] https://www.hud.gov/program_offices/housing/sfh/203k/203k–df

[3] https://www.benefits.va.gov/WARMS/docs/admin26/handbook/ChapterLendersHanbookChapter7.pdf

[4] https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp

[5] https://www.corelogic.com/downloadable-docs/corelogic-peak-totrough-final-030118.pdf

[6] https://www.bankrate.com/glossary/p/portfolio-lender/

[7] https://www.investopedia.com/articles/mortgages-real-estate/10/should-you-use-seller-financing.asp

[8] https://www.rd.usda.gov/about-rd

[9] https://www.rd.usda.gov/files/RD_ProgramMatrix.pdf

[10] https://www.rd.usda.gov/resources/publications/fact-sheets

[11] https://www.hud.gov/program_offices/housing/sfh/reo/abtrevt

[12] https://www.hud.gov/program_offices/housing/sfh/reo/abtrevt

· Lesson

· What is the minimum guarantee percent required on a VA loan?

· 12.50%

· 36%

· 50%

· 25%You correctly checked this.

· VA loans with no down payment require a 25% minimum entitlement.

· Question 2

· Eligibility of the surviving spouse will be deemed invalid in the event of which of the following?

· Having a baby fathered by the deceased veteran.

· One of the children turns 18.

· Change in marital status.You correctly checked this.

· Moving in with in-laws.

· Eligibility of the surviving spouse and the validity of guaranty entitlement hereby evidenced will be null and void if any change in marital status occurs.

· Question 3

· What document is requested from a veteran to make a eligibility determination?

· Most recent Paycheck.

· Job record.

· House location.

· DD214.You correctly checked this.

· A DD214 generally contains all information necessary for VA to make an eligibility determination.

· Question 4

· A lender must make what determination before a VA appraisal is ordered?

· Marital status.

· Credit qualification.

· Available downpayment.

· The veteran's eligibility.You correctly checked this.

· The lender must ensure the applicant is an eligible Veteran before an appraisal is ordered.

· Question 5

· Subsequent use of entitlement means the veteran will typically pay higher what?

· Credit report fees.

· Appraisal fees.

· Funding fee.You correctly checked this.

· Homeowner premiums.

· Subsequent use costs a veteran a higher funding fee.

8/04/2021

VA LOANS

OAN LIMITS

What’s a VA home loan limit?

Here’s how it works:

What will my loan limit be?

You may qualify for 2 types of entitlement:

Adjustment of Loan Limit:

Popular VA Home Loan Programs[2]

PURCHASE PROGRAM

Eligibility

A VA-backed purchase loan often offers:

Interest Rate Reduction Refinance (IRRRL)

Question 1: Must we cure loans that did not meet recoupment because the IRRRL either resulted in an increased principal and interest payment due to a lower term or refinanced from an adjustable rate to a fixed rate?

Question 2: If we choose to cure with a no cost refinance, does the loan have to meet the seasoning requirements of PL 115-174?

Question 3: If the loan was previously reviewed by VA, how should it be handled if we discover that it is not compliant with PL 115-174?

THE IMPACT OF PUBLIC LAWS 115-174 & 116-33 ON IRRRLS.

QUALIFICATION AND ABILITY TO REPAY/ RESIDUAL INCOME/ TOTAL DEBT TO INCOME DTI

The evaluation takes into consideration:

The process is as follows:

Special Instructions:

Special Instructions:

DEBT-TO INCOME RATIO:

THE BLUE WATER NAVY VIETNAM VETERANS AFFAIRS ACT OF 2019 (THE ACT) ADJUSTMENT OF LOAN FUNDING FEES

What is the VA funding fee?

Adjustment of Loan Fees:

You won’t have to pay a VA funding fee if any of the below descriptions is true. You’re:

ALLOWABLE AND UNAUTHORIZED CHARGES BY A LENDER

REHABILITATION LOAN PROGRAMS

203(K) REHAB MORTGAGE INSURANCE[2]

Summary:

Purpose:

Type of Assistance:

Eligible Activities:

Application:

Loans for Alterations and Repairs[3]

Alterations/ Repairs with a VA Supplemental Loan

Change in Rate

Procedures

Under $3,500 requires a statement from an appraiser

COLLATERAL/ PORTFOLIO LOANS

Portfolio Loans

SELLER FINANCING

From the buyer’s side

From the seller’s side

General considerations

AFFORDABLE HOUSING PROGRAMS

USDA: AKA Rural Development

Single Family (Direct Housing Program) Loans: AKA Section 502 Loan Program

Direct Program Applicants must:

Single-Family Housing Guarantee Program for Approved Lenders

WHO MAY APPLY FOR THE GUARANTEE PROGRAM?

Guarantee Applicants must:

HUD Revitalization Program[11]

Good Neighbor Next Door

How the program works:

· Question 2

· Question 3

· Question 4

· Question 5