| VA Circular 26-05-6 Eligibility & Underwriting Guidance for Hurricane Katrina/Rita Impacted Veterans |
| Thursday, 29 September 2005 | |
|
Veterans Benefits Administration Circular 26-05-6 Department of Veterans Affairs September 27, 2005 Washington, DC 20420
ELIGIBILITY AND UNDERWRITING GUIDANCE FOR
HURRICANE
KATRINA AND HURRICANE RITA IMPACTED
VETERANS 1.
Purpose. This circular provides
guidance on eligibility and underwriting issues relating to
veterans who have been impacted by Hurricane Katrina and Hurricane
Rita.
2.
Restoration of
Entitlement
a. The basic requirements for restoration are
disposal of the property and evidence that the VA guaranteed loan
has been paid in full. As a result of
Hurricane Katrina and Hurricane Rita VA will be flexible in
applying the procedures for restoration. If a veteran reports a prior VA loan on a
property that a lender proposing to make a loan confirms was in the
affected area and was destroyed or likely not to be salvageable, VA
will consider the requirement for disposal of the property to have
been met. Documentation supporting
these cases may be varied. Lenders
contemplating a loan for a veteran should be flexible and use their
judgment when determining if the documentation indicates the
property was destroyed or is not salvageable.
b. In regards to the requirement that loans be paid
in full, VA will presume insurance will likely pay off mortgage
obligations. It is recognized there
will be cases where this does not happen; however, VA is willing to
assume this risk. In instances where
the condition of the property may not be readily apparent, lenders
should still forward whatever documentation/evidence they have to
the Winston-Salem Eligibility Center, along with VA Form 26-1880,
Request for Certificate of Eligibility, for a
determination. There will be
instances where veterans will seek restoration of entitlement prior
to considering obtaining a new loan.
VA personnel will advise veterans that they will need to provide
documentation similar to that mentioned in subparagraph a
above.
c. All such restoration requests, both those where
a lender is assisting and those submitted by veterans, will be
processed by the Winston-Salem Eligibility Center as this office
will be keeping track of restorations involving Hurricane Katrina
and Hurricane Rita affected veterans.
Lenders can contact the Eligibility Center by calling
1-888-244-6711.
3. Credit. Lenders should be able to review credit reports and determine if derogatory credit occurred subsequent to Hurricane Katrina (August 2005) and Hurricane Rita (September 2005). If the credit report indicates satisfactory credit prior to August 2005 (Hurricane Katrina) or September 2005 (Hurricane Rita), and any derogatory credit subsequent to these dates can be related to the effects of the hurricanes, it should still be possible to determine the veteran is a satisfactory credit risk. 4
Income. Lenders should be advised that
VA will be flexible with regard to documentation
requirements. If prior employment
can’t be verified (business records destroyed, etc.), but the
veteran has a current position in the same or similar field, it
still may be possible to consider the income. W-2s and tax returns may be obtained from the
Internal Revenue Service to confirm prior employment and
income. If that cannot be done in a
timely manner, it is possible the credit report will indicate the
veteran’s prior employment.
Short-term employment will be considered in light of the
circumstances. Although it is
anticipated that lenders will make every effort to obtain
documentation on prior employment, VA will be flexible on
documentation requirements. In all
cases where traditional documentation cannot be obtained, lenders
should document their efforts.
5. Assets. Because “hard copy” bank records may
be unavailable, lenders should encourage borrowers to access their
financial institution’s websites to try and download
statements confirming assets needed to close the loan. Lenders should document their efforts to verify
assets and make every effort to ensure that the veteran will have
funds to complete the transaction.
6. Liabilities. With regard to the continued mortgage obligations on the prior loans securing properties that have been destroyed or damaged, VA will accept that the record may show late payments as a result of Hurricane Katrina and Hurricane Rita. Lenders should not consider the outstanding mortgage obligation on destroyed or seriously damaged properties when determining a veterans’ ability to make payments on a new loan. We will take the position that insurance settlements are likely to pay off remaining obligations. If the veteran was 3 or more month’s delinquent on his/her loan prior to the hurricane and the property has been destroyed, it would not be prudent for a lender to make a new loan unless they can show and document extenuating circumstances. 7.
Summary a. The above information
is meant to be general guidance only.
Each case is different and will ultimately need to be evaluated on
its own merits. The guiding principle
should be a desire to ensure every qualified veteran obtains the
benefit he or she
deserves. Lenders can check the
Federal Emergency Management Agency (FEMA) site at http://www.fema.gov/news/disasters.fema
to determine if the veteran lives in or
did live in an area affected by the Hurricanes. Lenders should be advised to DOCUMENT their
decisions so that persons doing post-closing reviews will be able
to follow the rationale for loan approval. While lenders are encouraged to use their
automatic authority to the maximum extent possible, it is
recognized there will be instances where they may be uncertain if
the loan meets VA credit guidelines.
In those cases lenders are reminded that they can submit such cases
to VA for prior approval. A letter
from the underwriter should accompany such submissions explaining
why the loan is being forwarded to VA. b. Please note that the guidelines contained in this circular are applicable only for veterans who have been impacted by Hurricane Katrina and Hurricane Rita. In all other cases, lenders are expected to follow the normal documentation and restoration procedures spelled out in the VA Lender’s Handbook. Any questions regarding this guidance should be directed to William White in Loan Guaranty Service at william.white@vba.va.gov.
By Direction of the Under Secretary for Benefits Keith Pedigo, Director Loan Guaranty Service
The full document can be viewed by clicking on the following link
|
