The VA has issued Circular 26-08-03. The purpose of this circular is to explain how to process transfers of ownership under new VA regulations which establishes the VA Loan Electronic Reporting Interface (VALERI) environment.

While many of the processes will be identical to pre-VALERI methods, there will be some changes. Specifically, servicers will process almost all ownership transfer approval requests for VA-guaranteed loans, including those where the commitment was issued prior to March 1, 1988, and certain divorce cases.

Servicers will also be responsible for electronically reporting authorized ownership transfers and releases of liability.  Please note that this circular only applies to servicers operating under VALERI, which will be applicable to different segments of the servicing industry over a phased, eleven-month implementation period. Servicers should continue to process assumption approval requests as they have been in the past until they are subject to the new VALERI regulations.

Background

Under certain circumstances, properties that are security for VA-guaranteed loans may be sold even though the loans are not paid in full. Borrowers who sell their properties under these conditions remain liable to VA for any loss that may occur as a result of a future default and subsequent claim payment, unless the property is sold to a creditworthy purchaser who agrees to assume the payment obligation. VA or its authorized agent is the party responsible for completing such a determination of creditworthiness. If the purchaser is determined to be creditworthy, the seller may be released of further liability on the loan. While procedures for processing requests for assumption approvals previously depended on the date of loan (commitment made on or after March 1, 1988), the new VALERI regulations authorize loan holders or servicers with automatic authority to determine creditworthiness on all assumption approval requests processed by their servicers. After original veteran borrowers are released of liability, they may request a substitution of entitlement (SOE) from VA when the purchaser-assumer is an eligible veteran with sufficient entitlement.

Servicer Authority
Servicers with automatic authority are authorized to process and determine creditworthiness on assumption approval requests on behalf of VA. Servicers must follow VA underwriting when processing and determining creditworthiness on these cases.VA suggests that servicers consider using one of the VA-approved automatic underwriting systems. Servicers must notify VA electronically of authorized ownership transfers and approved releases of liability.

Commitments made on or after March 1, 1988. Transfers of ownership on properties securing loans for which commitments were made on or after March 1, 1988, must have the prior approval of the loan holder or its authorized servicing agent if either of them have automatic authority. If neither the holder nor the servicer has automatic authority, the servicer must submit a credit package to VA for underwriting.

Commitments made on or after March 1, 1988.
Transfers of ownership on properties securing loans for which commitments were made on or after March 1, 1988, must have the prior approval of the loan holder or its authorized servicing agent if either of them have automatic authority. If neither the holder nor the servicer has automatic authority, the servicer must submit a credit package to VA for underwriting. Processing details are provided inthe full Circular (link below).

Commitments prior to March 1, 1988.
 Loans for which a commitment was made prior to March 1, 1988, are commonly known as freely assumable loans. Owners have the right to sell the property securing these loans under any terms; servicers may not impose a restriction, charge, or fee that would limit or nullify this right. An exception applies when the loan was made by a state, territorial, or local governmental agency and the law requires acceleration of maturity of the loan upon sale or transfer of the property to a person not eligible for assistance under the special program. VA has approved due-on-sale clauses to allow veterans to participate in these programs and take advantage of below-market interest rates and benefits. The original mortgagor remains liable on the loan unless he or she is released from personal liability. The veteran and transferee must specifically apply for a release of liability under 38 U.S.C. 3713. Furthermore, a release
of liability does not restore the original veteran’s VA home loan entitlement and does not affect the guaranty on the loan. Servicers are responsible for providing the veteran seller with this information. Additional information pertaining to release and execution of liability requests is available in the full Circular (link below).

Additional aspects included in the Circular pertain to:

• Divorce cases
• Unrestricted transfers.
• Substitutions of entitlement (SOE).
• Document retention requirements and transmittals for post-closing reviews

Any questions regarding this Circular should be addressed to William White, Supervisory Loan Specialist, at william.white1@va.gov

To view the Circular in its entirety, please click here.

About Safeguard
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, OH  and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees and a handful of contractors performing services in the Midwest, to a national company with over 450 employees.  Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico.