How VA Responds to Fraudulent Lenders

 

VA Lender’s Handbook Chapter 17 Summary

Lenders Handbook

Chapter 17 covers all “program participants”, and also covers actions that are not considered fraudulent but are still “detrimental to the VA loan guaranty program”. We’ll be giving you a summary of the information provided in Chapter 17 so you can decide if you want to research it more thoroughly by reading through all of our articles on the chapter or by reading the chapter directly from the Handbook itself. We’ll touch on most of the information that’s important for borrowers to know here.

 

Number One: The VA Does Respond

It may come as a strong comfort to many borrowers that the VA does, in fact, have the authority to respond to any program participants that are guilty of detrimental actions against the VA loan program and impose sanctions on those parties. Program participants include lenders (of course), builders, and management brokers. As a borrower, you are not considered a program participant, so you don’t have to worry about getting slapped with VA sanctions. The types of actions that the VA is likely to respond to include fraud, significant deficiencies in performance, ongoing disregard for VA requirements, and the like. The sanctions that the VA may impose can, of course, be partial or full exclusion from participating in the VA loan program either temporarily or permanently, but they can also come in the form of civil money penalties. Either type of sanction is pretty effective in minimizing the number of cases in which sanctions must be imposed.

 

Program Participants

Sanctions can be against a company, but they can also be against specific individuals. The participants can be 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. As mentioned above, a borrower is not considered a program participant, and a VA-eligible borrowers ability to obtain a VA loan is not affected by whether that borrower is also a program participant in another capacity and has sanctions imposed on him/her. On all program participants, a full or partial exclusion from participating in the VA loan program may be used as a sanction, and they are added to a list which is available to other program participants so they can know if they are doing business with an excluded party.

 

Lender-Specific SanctionsSanctions

Since this information is coming out of the VA Lender’s Handbook, and as a borrower you do most of your interactions with the VA loan program through a lender, we are going to focus on the sanctions that might be imposed on a lender and how that affects their ability to offer VA loans and how it might affect your VA loan application process. Lenders may be sanctioned in specific ways based on what they did in order to get sanctioned. If they make a false lender certification, for example, they may be charged a civil money penalty. The lender certification is a statement that must be included on all loan applications that states the lender complied with all VA requirements and the law. Depending on the severity of the falsification or if it’s the first time, the lender may also have their automatic authority revoked or be fully or partially excluded from making VA loans.

 

How Sanctions Affect You

They affect borrowers in two main ways. First, they keep the field of lenders fairly clear of snakes so you can trust your lender. However, if you’re working with a lender that has had their automatic authority revoked for some reason, it means that your loan application is probably going to take longer to process, because it has to be sent to the VA for prior approval before it can be closed on. Depending on your lender and loan officer, you may or may not be informed that that is taking place. Lenders can also be hit with sanctions if it becomes apparent that they intentionally led the veteran to choose less-than-ideal terms by incorrectly advising that those terms were excluded by VA requirements. This sort of thing can happen in a number of ways, and if you’re interested in learning more, we would encourage you to read our detailed articles on Chapter 17.

 

VA Loan Sanctions for Violations of Equal Housing Opportunity Laws

Deciphering the VA Lender’s Handbook Chapter 17 Part 9

Much like when the VA imposes sanctions on a program participant for unfair or unethical marketing practices or contracts, sanctions can also be imposed on any VA loan program participants who do not comply with all of the laws that relate to housing.

These laws include the Equal Credit Opportunity Act, the Fair Housing Act, section 527 of the National Housing Act, and VA Regulations at 38 CFR 36.4363. We’ll talk about what these laws mean to the VA loan program, and how the VA keeps track and makes sure that program participants stay compliant with all of these laws. We’ll also touch on how these regulations affect you as a borrower.

VA Discrimination Penalties

VA Loans and Equal Opportunity Housing

The VA does not tolerate discrimination when it comes to building, selling, or approving a loan for a home under their program. The VA reserves the right to impose sanctions on any program participant who declines to build, sell, or approve a home because of the veteran’s race, color, sex, handicap, familial status, religion, or national origin.

This requirement applies to any party involved or financially interested in the construction or sale of a property and is certainly not specific to the VA; discrimination of this kind is illegal no matter what type of loan you are getting.

However, those operating under the VA loan program have an extra layer of accountability, and therefore an extra layer of penalties if they are found to be violating these laws.

Equal Housing Certification

The VA keeps track of program participants by requiring an Equal Housing Certification from any party that requests an appraisal for a house that has not been previously occupied. Sellers of homes that have been previously occupied are usually either individuals who are not heavily monitored on this issue or a corporation who is accountable via other means.

Lenders are not required to submit a special Equal Housing Certification because they already certify that they are complying with all of the VA’s rules and regulations when they submit the Lender’s Certification with each VA loan submission they make to the VA.

So the certification is required primarily of builders and other parties that are selling brand-new houses that have never been lived in. The certification states that the builder or other party will not discriminate against potential buyers based on race, color, religion, sex, or national origin.

How Does This Affect Veteran Borrowers?

Here’s an interesting fact: borrowers have to certify that you’re not going to discriminate, too. You also have to make an Equal Housing Certification that states that if and when you sell the home sometime in the future, you will also not decline a prospective purchase based on any of the factors mentioned above. (This certification is on VA Form 26-1820, if you’re interested in reading more about it.)

Ironically, while sellers and builders face severe penalties if they discriminate against potential buyers, buyers are perfectly allowed to discriminate however they wish against potential sellers; nothing stops a prospective customer from choosing not to buy a house because of the previous owners’ skin color or religion.

In Conclusion

Compliance to the VA Rules

This concludes our articles on Chapter 17 of the VA Lender’s Handbook. This chapter covered all of the VA’s possible sanctions against program participants and their causes. It also covered talked about how you as the borrower might be affected if one of the program participants you are working with has sanctions imposed on them.

Our Low VA Rates Team

If you want to be confident in knowing that your lender and all program participants your lender works with are reputable and trustworthy participants, then work with us here at Low VA Rates to get your VA loan or refinance done.

You can contact us over the phone at 866-569-8272 or through our website, and we’ll be happy to answer any questions you may have about the VA loan program.

VA Loan Sanctions for Unethical Contracts and Marketing

Deciphering the VA Lender’s Handbook Chapter 17 Part 8

The VA is willing to impose sanctions such as Breaking down Loan SanctionsLDPs or even monetary penalties for a lender who is discovered using contracts or marketing methods that are either unfair to veteran borrowers or considered unethical.

From the Handbook: “VA may impose sanctions, such as debarment, suspension, or LDP against participants who use contracts of sale, or methods or practices in the marketing of properties, which are unfair or prejudicial to veteran-purchasers. Unethical practices based upon experience and standards generally observed by reputable homebuilders and other reputable program participants are barred by VA and grounds for sanctions.”

What Are Unfair Marketing Practices?

The Handbook offers a fairly long list of what are considered unfair marketing practices (but also states that these practices are not limited to those found on the list):

  • Enforcement of unfair contractual provisions
  • Requiring purchasers to execute so-called “contracts” which legally bind the the purchasers but do not bind the seller to deliver the property when completed to the purchasers
  • Advertising that a property or project is “VA guaranteed” or “VA approved or “VA inspected in such a way as to lead veterans to believe that VA guarantees the construction and workmanship
  • Delaying tactics on the part of the builder to postpone completion of the property or the closing of the sale after completion in an effort to induce the veteran to agree to a modification of a firm contract, such as:
    • The substitution of inferior materials
    • The omission of appliances, or
    • An increase in price
  • Failure of the seller or agent of the seller of proposed or newly constructed property to place deposits or down payments received from veteran-purchasers in a special trust account, as required by 38 U.S.C. 3706
    • Failure to place down payments or earnest money deposits in a trust fund or in escrow when required by law or by local practice on existing properties, or
    • Failure or inability of the seller to return the deposit when and if required under the contract when it is not required or not customary for these deposits to be “isolated”
  • Failure of the seller of proposed or newly constructed property to state in the sales agreement, when applicable, that the property was or will be constructed under FHA compliance inspection procedures pursuant to section 203(i) or 221(d)(2) of the National Housing Act

When This Could Affect Borrowers

As you can see, most of the practices listed above have to do with builders participating in the VA loan program. You’re going to have a hard time finding a lender that is willing to offer you a VA construction loan, which is the main way you might run into one of these unfair marketing practices.

However, if you’re making a major alteration to your home, you may need or want to hire a builder to make the addition. If you are paying for the addition through a VA cash-out refinance, then that builder is subject to all of the rules and regulations that the VA has for builders in the VA loan program.

Builders aren’t the only ones that can have unfair marketing practices, however. Lenders and home sellers can as well; home sellers particularly may advertise a house in such a way as to lead veteran borrowers to believe that the house itself is guaranteed by the VA, which is not the case. The VA only guarantees a portion of the loan amount, and the guarantee is to the lender, not the borrower.

The advantage of the VA guarantee to the borrower is that it mitigates the amount of risk the lender is taking on, allowing them to offer the veteran better terms than they would otherwise qualify for. Don’t let a home seller or a builder fool you into thinking their home or construction work is “VA-guaranteed” or somehow of a higher quality simply by virtue of their association with the VA loan program.

The most that they can truthfully say is that they accept VA financing or that the property is eligible for VA financing.

Questions?

If you have any questions, reach out to us here at Low VA Rates and we’ll be happy to help, even if you don’t get a loan through us.

VA Loan Participants Limited Denial of Participation

Deciphering the VA Lender’s Handbook: Chapter 17, Part 7

So far in Chapter 17, we’ve focused on sanctions the VA may impose on lenders, but in this article we’re going to focus on a sanction that the VA is not allowed to put on lenders.

True to the form of the last three articles, we’re going to talk about what a limited denial of participation is, who it can be applied to, and how it might affect you as the borrower if a party you are working with is sanctioned with a limited denial of participation.

What Is a Limited Denial of Participation?

A Limited Denial of Participation (LDP) is a sanction imposed by a local VA office (as opposed to the VA headquarters) limiting a program participant’s activities within that local VA office’s jurisdiction.

An LDP can limit a participant from any VA loan activities in the area or just certain types of VA loan activities in the area. LDPs might be the only sanction brought onto the participant, or they may be imposed to solve an immediate problem and allow time for the VA to investigate further and impose more sanctions as necessary.

Understand the Handbook

Who Can Receive an LDP Sanction?

The Handbook is clear that lenders, employees of lenders, and manufactured home manufacturers are exempt from LDPs and cannot have them imposed on them. This makes sense since there are already so many other types of sanctions that lenders are not shielded from.

If all those parties can’t have LDP sanctions on them, who can?

Most often, a builder or an appraiser will receive the sanction, but any program participant other than the three mentioned above can be sanctioned with an LDP.

What Causes an LDP Sanction?

An LDP can be imposed based on any of “a multitude of causes outlined in VA regulations 38 CFR 44.705,” but most of the causes fall under one of these:

  • Irregularities in a participant’s or contractor’s performance in the VA loan guaranty program
  • Failure to satisfy contractual obligations or to proceed in accordance with contract specifications
  • Construction deficiencies deemed by VA to be the participant’s responsibility
  • Failure to proceed in accordance with VA requirements or to comply with VA regulations

All of those above reasons are justification for the original LDP by the initial office of jurisdiction, but other VA offices may also impose an LDP as a “reciprocal action” for no other reason than because another office imposed an LDP.

Additionally, a reciprocal LDP can be imposed based on an LDP issued by an office of a different federal agency like HUD or the USDA.

DPs are not a good thing for whoever they’re being imposed on; the sanctioned participant is not permitted to participate in any VA loan activities in any of the jurisdictions in which they have an LDP imposed on them. Participants can appeal the original LDP but not reciprocals. This helps avoid duplicate investigations. Additionally, since reciprocal LDPs are based on the existence of the original LDP, if the original LDP is lifted, the reciprocal ones will be as well.

How Long Can LDPs Be Imposed?

12 Months

LDPs can only be imposed for a specified period of up to 12 months, or, in the case of a builder with “unresolved deficiencies”, the LDP may be for an indefinite period until the deficiencies are corrected.

How Are Borrowers Affected by LDPs?

For the most part, builders and appraisers being imposed with an LDP won’t affect you unless you’re in the process of working with one of them when the LDP is imposed.

Since nary a VA lender is willing to offer a VA construction loan, you probably won’t be working with a builder on building a house with a VA loan, but you may be working with a builder on making a major addition or improvement to your house with VA cash-out refinance, which amounts to the same thing.

Also, you’ll be working with a VA appraiser on any VA loan except for a streamline. If the builder or appraiser has an LDP imposed on them mid-process, it can be fairly annoying for you because you’ll either have to find another builder or schedule another appraisal with a different appraiser.

If the LDP is imposed after your loan is already closed, chances are it won’t affect you unless it is the work the builder or appraiser did on your loan that precipitated the LDP, and even then it’s not likely to affect you much.

 

VA Loan Lender Debarment and Suspension

Deciphering the VA Lender’s Handbook Chapter 17 Part 6

In rare cases, a lender is debarred and suspended from the VA loan program.

This situation (along with those in the two previous handbook articles) does not happen very often. It is almost a guarantee that you won’t have to worry about your lender being in this sort of situation, especially if you’re working with a lender that does primarily VA loans or focuses on serving veterans.

However, in the case that you are working with a lender who has been debarred, it’s good to understand what that means and how it can affect the borrower both before the loan application process has begun and after.

What Is Lender Debarment?

According to the handbook, lender debarment is the following: “Debarment is a sanction that in most cases excludes the program participant (lender) from any participation in the procurement programs of any Federal agency, including VA’s loan guaranty program.”

Sometimes, the debarment may only exclude the lender from certain types of transactions. For the most part, debarment will land a lender on the government’s list of excluded parties that are not allowed to participate in government programs. Debarment is generally only applied for a period that is appropriate to the seriousness of the cause. This usually means 3 years.

Debarment

A suspension is basically the same thing as debarment, except that it’s temporary. Think about it like this: suspension is to debarment as probation is to jail.

Suspension may or may not become longer-term, depending on the results of an investigation or legal proceedings. Debarment can follow suspension if the results of the proceedings warrant it.

Suspensions will not usually exceed 18 months, but it all depends on how long the investigation or legal proceedings take. Lenders that are suspended or debarred are no longer allowed to do any VA loans in any location and are prohibited from participating in other government programs (likely FHA loans).

For you as the borrower, if you haven’t started your loan with this lender yet, it just means that they are now off the market. If you have started your loan with them, chances are you’ll need to cut your losses and find a different lender.

Why Are Lenders Debarred?

Generally, debarment and suspension are reserved for entities that are intentionally doing unethical or illegal things, rather than for those who are simply incompetent. The VA is allowed to debar or suspend a lender for:

  • Conviction of, or civil judgment for, fraud, embezzlement, theft, forgery, falsification or destruction of records, commission of an offense evidencing a serious lack of integrity
  • Violation of the terms of a public agreement or transaction so serious as to affect the integrity of an agency program
  • Knowingly doing business with a debarred, suspended, ineligible, or voluntarily excluded person
  • Failure to pay debts owed to the federal government

Who Can Be Debarred?

A debarment can be made against an entire lender (organization), but it can also be made against an individual. Lenders should do their best to hire the right people and try to pay a reasonable amount of attention to the people they hire, but there will always be individuals who are willing to make unethical or illegal choices to accomplish their goals.

The VA understands that the lender can’t always be held responsible for the unethical or illegal choices of one or two of their employees, so rather than debar the lender, they may debar a single loan officer or staff appraisal reviewer if appropriate.

The same may apply to a part of the organization (such as one branch that has made poor choices).

How Does Debarment of a Lender Affect Me?

So how does this affect you as the borrower?

As we mentioned above, if a lender is debarred before you start working with them, then there’s just one less lender on the market for you to choose from.

Or, if you’re in the process of getting your VA loan approved with the lender when the debarment or suspension occurs, you will probably need to start the process over again with a new lender.

Call your local VA office to find out if you are entitled to a refund for any fees or charges you have paid up to that point.

VA Loan Lender LAPP Authority – And How It Can Be Withdrawn

Deciphering the VA Lender’s Handbook: Chapter 17, Part 5

Much like the way we covered automatic authority in the last article, we’ll be covering Lender Appraisal Processing Program (LAPP) authority in this article.

We’ll do a quick refresher on what LAPP authority is, why it’s great, how lenders get it, and how lenders can lose it. We’ll also talk about how it can affect you if the lender either does not have LAPP authority or gets it revoked.

What is LAPP?

LAPP, which stands for Lender Appraisal Processing Program, is a program that allows lenders to have their own appraisal reviewer on staff to process appraisals on their VA loans.

Like automatic authority, LAPP is another way for lenders to shorten and simplify the VA loan approval process. After receiving LAPP authority, appraisals are still conducted by an official VA appraiser, but the appraiser can send the report directly to the lender’s Staff Appraisal Reviewer (SAR) for processing rather than to the VA.

Having a SAR process appraisal reports saves the lender a lot of time in processing a VA loan, especially if any issues need to be worked out with the appraiser. Lenders that are part of LAPP are also those that focus heavily on VA loans, which means they are also more likely to have VA loan experts on their teams that know the ins and outs of the program well enough to make sure their borrowers get the best loan.

LAPP authority is granted to lenders completely at the VA’s discretion, and lenders maintain LAPP privileges by complying with all the VA requirements for LAPP lenders.

Obviously, granting a lender approval to be a part of LAPP is a gesture of significant trust in the lender from the VA, since processing appraisal reports is one of the way that the VA can keep an eye on lenders and make sure they are complying with all the rules of the VA loan program.

If the VA allows a lender to process their own appraisals, this implies that the VA trusts that the lender will comply with all of their rules without needing that extra level of oversight.

When Is LAPP Authority Withdrawn?

The VA can withdraw LAPP authority for what they deem to be a proper cause, and the authority can be withdrawn for a specific time period or indefinitely. So what are we talking about when we say proper cause?Withdrawn Authority

The Handbook provides the following list of examples of things that it would deem proper cause for withdrawing LAPP authority. The Handbook also specifies that this list does not include everything that might cause LAPP authority to be withdrawn:

  • Technical Incompetence
    • Conduct demonstrating insufficient knowledge of industry-accepted appraisal principles, techniques and practices and/or the inability to adequately apply them in reviewing appraisal reports and making value determinations for VA purposes.
  • Substantive or Repetitive Errors
    • A substantive error is one which significantly involves the value determination or condition of the property. In the aggregate, nonsubstantive errors which are frequently repeated may also indicate that LAPP case reviews are being performed in a careless or negligent manner.
  • Disregard for VA requirements
    • Continued disregard for the VA requirements and procedures outlined in VA regulations, guidelines, instructions or applicable laws, after the problem has been brought to the lender’s attention.
  • Failure to meet qualification requirements
    • The lender or the lender’s staff appraisal reviewer (SAR) no longer meets the basic LAPP qualification requirements.
  • Civil Judgments and convictions

Usually, the VA will provide 30 days’ notice to the lender if their LAPP authority is being withdrawn. However, the VA is not obligated to provide this notice if the government’s interest are exposed to immediate risk from the lender’s activities.

Once LAPP authority has been withdrawn, the VA must make all of the determinations of reasonable value for the lender, and issue all Certificates of Reasonable Value.

How Does This Affect Borrowers?

So how does this affect you as the borrower? Much like a lender losing automatic authority, if a lender loses their LAPP authority, your VA loan is going to take longer to process. Most likely, no additional documents or information will be required from you; it will simply take longer than it would otherwise.

VA Loan Lender Automatic Authority – And How It Can be Withdrawn

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 and talk about how lenders can lose it.

99 Percent Automatic

You 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.

What Is 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 be 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.

When Automatic Authority Is Taken Away

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, but 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 will not immediately appear on the government’s list of excluded parties that are not allowed to participate in the VA loan program. They’ll only be added to the list if there is another sanction imposed in addition to the removal of automatic authority.

How Long Is a Lender’s Automatic Authority Withdrawn?

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:Protection form Lenders Authority

  • 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
  • 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
  • There is a use of unstable sources of income to qualify the borrower or significant adverse credit items affecting applicant’s creditworthiness are ignored
  • 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

What Does It Mean for the Veteran Borrower?

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. Also, the lender will probably be working harder than before 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.

Low VA Rates

If you’d like to work with a lender who knows what they’re doing, is efficient, and works responsibly, talk to our team at Low VA Rates. We’ve been helping veterans like you get great loans for over 10 years.

The VA Loan Lender Certification – Purpose and Penalties

 

Deciphering the VA Lender’s Handbook Chapter 17 Part 3

Pupose and Penalties of VA Loan Lender Certification

As you may already know, the VA has strict standards for lenders offering VA loans. These lenders must first be approved by the VA to offer VA loans, and they have to regularly certify that they are still fulfilling all of the VA’s requirements for lenders. This happens with every single loan submission and is called the Lender Certification. The lender submits the Lender Certification with each loan submission and it states that in processing and underwriting the loan, the lender complied with VA requirements, regulations, and the law. There is specific language that is to be used on the Certification, but as long as you know that the lender is required to certify their compliance with all applicable rules and regulations, knowing the specific verbiage isn’t very important.

 

Obviously,  From the Handbook: “Any lender who knowingly and willfully makes a false certification may be subject to civil money penalties equal to the greater of

  • two times the amount of the Government’s loss on the loan involved, or
  • another appropriate amount, not to exceed $10,000.

 

In other words, a lender may be on the hook for a lot of money if they falsify a certification and the VA loan results in a loss to the VA. Even if the falsification does not result in a loss for the VA, the lender may still be charged a penalty of up to $10,000. But a one-time monetary penalty is most likely not the end of the story. A lender who makes a false certification will usually provoke an investigation, which might uncover further falsifications and, therefore, further penalties. Even for single offenses, the lender may impose sanctions on the lender in addition to the monetary penalty, such as debarment and suspension, and a loss of automatic authority. All of these situations are dealt with on a case-by-case basis, and the penalties and sanctions are as well.

 

In the previous article, we discussed the List of Parties Excluded From Federal Procurement and Nonprocurement Programs. This is a list maintained by the federal government of individuals and entities that are not permitted to participate in government programs in a money-making way. A lender being assessed a monetary penalty does not automatically put them on the List; in fact, lenders will not be put on the list if the only penalty they faced was a monetary one. However, if a sanction in addition to a monetary penalty was placed on them, they may appear on the list, depending on the severity of the sanctions. If that is the case, then just like any other party on the list, other program participants are prohibited from doing VA-loan related business with them.

Avoiding Lender Penalties

Lenders can be penalized in many ways – they may have their ability to approve most loans without prior VA approval revoked, or they may no longer be able to have a staff appraisal reviewer process appraisals and have to submit them to the VA instead. The lender may also face debarment and suspension, or a Limited Denial of Participation. These penalties have their own unpleasantness, and all of them provide strong motivation for lenders to keep their noses clean. We’re going to go over each of these penalties in the next few articles and talk about what they mean for the lender and what they mean for the borrower if you’re working with or thinking about working with a lender that is under one of these sanctions.

 

If a lender has paid a monetary penalty and that was the end of it, then usually you won’t be affected much, if at all. In fact, you probably won’t even find out that the lender paid a penalty (it’s not exactly the sort of thing they advertise). Don’t stress over it too much; if the VA determined that a monetary penalty was sufficient and no other action was needed, then the falsification must have been a one-time thing and relatively minor.

 

VA Exclusion of Program Participants – VA Loan Sanctions

 

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.

 

ILearn about VA Loan Sanctionsf 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. 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.

VA Home Closing

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.

 

VA Sanctions Against VA Loan Program Participants – Overview

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.

What Are VA-Imposed Sanctions?

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 refers to 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 is depends on two different factors:Protecting Yourself from Scams

  • The type of participant (for example, lender, builder, management broker, etc.)
  • The nature of the actions (for example, fraud, significant deficiencies in performance, ongoing disregard for VA requirements, and so on)

How Does the VA Impose Sanctions against Lenders?

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.

Who Is Considered a VA Program Participant?

The VA considers any person or entity that conducts business that has anything to do with the VA loan guaranty program to be 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.

Important to note is that 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.

VA Home Loan Borrower

As an informed borrower, it’s important for you to understand the different types of sanctions the VA might impose, the effects 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 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.

For information on a specific sanction, click on one of the following links to other articles:

Feel free to contact us at Low VA Rates if you have any questions!

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