VA Issues Lender Guidance for Borrowers Affected by COVID-19

The VA issued Circular 26-20-10, dated June 29, 2021, to announce temporary measures for the review of borrower qualifications for a VA-guaranteed home loan when the borrower’s income and the lender’s processing of the home loan have been affected by the COVID-19 national emergency.  This circular is effective immediately.

With respect to income verification, the VA provides that lenders should continue to use good judgment and flexibility when verifying a borrower’s income and determining whether that income is stable and reliable.  The VA also advises lenders to make every effort to satisfy the VA’s longstanding requirements concerning verification of employment as outlined in VA Pamphlet 26-7, Chapter 4 Credit Underwriting.

With respect to income analysis, the VA advises that while it generally requires the borrower’s income to be stable and reliable for two years, if the COVID-19 pandemic affected the stability or reliability of the income (for example, due to furlough, curtailment of income, etc.), the lender should not consider the adverse effects as a break in employment or income, as long as the borrower has returned, or is anticipated to return, to work in the same capacity and income level.  The VA states that as part of the income verification documentation, the borrower should provide a furlough letter, if applicable.  The VA also adds that it encourages lenders to document their analysis and justifications for all borrowers, especially “borderline” cases and to upload the supporting documentation to WebLGY.

The VA also states that it encourages the use of eMortgages and is actively working with other federal housing agencies and Ginnie Mae to increase access to eMortgages.  The VA notes that although it has not issued VA-specific requirements regarding electronic notarization of loan closing documents, if an electronic notarization, including in-person electronic notarization (i.e., IPEN) or remote online notarization (i.e., RON), is otherwise valid and effective, the VA will not consider an electronic notarization as a deficiency of the VA’s loan processing standards.

In regards to lien position, the VA advises that while a lender remains responsible for ensuring that a VA-guaranteed loan is secured by a first lien on the property being used as collateral, it will not penalize lenders that, due solely to recording office delays, experience difficulties in timely perfecting such lien position.

Finally, the VA reminds lenders that, if a loan fee (i.e., a VA funding fee) is payable, the loan cannot be guaranteed until the fee has been remitted to the VA.  The VA further advises that if the effects of the COVID-19 national emergency impair a lender’s ability to timely remit the funding fee to VA, the lender should contact a Regional Loan Center as soon as possible.