BULLETIN NO. 2005-13

September 27, 2005

TO: ALL LENDERS, SARS, HOLDERS AND SERVICERS

SUBJ: REQUIREMENTS FOR TEXAS AND LOUISIANA VA LOANS WHEN PROPERTIES ARE LOCATED IN A DISASTER AREA – HURRICANE RITA

Purpose This bulletin is to remind you of VA requirements regarding loans secured by properties that are located in the disaster areas designated by Federal or State authorities as a result of Hurricane Rita.

Areas Affected All counties and parishes in Texas and Louisiana declared as disaster areas by Federal Emergency Management Agency (FEMA) and eligible for individual or public assistance.

Loan Closed Prior To Disaster Any loan closed prior to the incident period of September 23, 2005, is eligible for VA guaranty without regard to the disaster except for those loans affected by Hurricane Katrina.

Property Appraised Prior To Disaster For a property in one of the above counties or parishes that was appraised on or before Sepember 23, 2005, and loans not closed prior to the disaster, the following certifications are necessary for the loan to be eligible for VA guaranty: Both of the following certifications must be submitted with the guaranty request:

Lender Certification - This is to affirm that the property which is the security for VA loan identification number 21-21-6-xxxxxxx or 62-62-6-xxxxxxx has been inspected to ensure that it was either not damaged in the recent disaster or has been restored to its pre-disaster condition or better. _______________________________ _________________________ _______________ (Lender Signature) (Lender Title) (Date)
RLC Bulletin 2005-
October 4, 2005
Veteran Certification - I have inspected the property located at _______________________ ____________________________________ and find its condition now to be acceptable to me. I certify that any disaster-related damage has been corrected to my satisfaction. I understand that I will not be charged for any disaster-related expenses and now wish to close the loan. ________________________________ ________________ (Veteran Signature) (Date) .. The “Remarks” section of VA Form 26-0286, VA Loan Summary Sheet, must be annotated “Lender and Veteran Disaster Certifications Enclosed”. Additionally, if local law requires the property to be inspected and approved by the local building inspection authority, a copy of the appropriate local report(s) must be provided. Neither VA nor the veteran purchaser shall bear the expense of any disaster-related inspections or repairs. .. If there is an indication that the property, despite repairs, will be worth less at the time of loan closing than it was at the time of appraisal, then the lender must have the VA fee appraiser update the original value estimate. The payment of the appraiser’s fee for that service will be a contractual matter between the buyer and seller. If the property value has decreased, the loan amount must be reduced accordingly. .. The lender should ascertain prior to closing that the veteran’s employment and income have not changed since the loan application. If at the time of loan closing the veteran is no longer employed or family income has been reduced, report that information to VA or the automatic underwriter, as appropriate, for evaluation prior to closing the loan.

Assistance To Homeowners VA encourages holders of guaranteed loans in disaster areas to extend every possible forbearance to borrowers in distress through no fault of their own. VA Regulations regarding Reapplication of Prepayments (38 CFR 36.4310), Advances (38 CFR 36.4313), Extensions and Reamortizations (38 CFR 36.4314), and Supplemental Loans (38 CFR 36.4355) may be of assistance in appropriate cases. It is the loan holders responsibility to inspect damage to properties and counsel borrowers concerning assistance that may be available to them. Loan holders are reminded that insurance proceeds must be sufficient to pay the loan balance or restore the security. Please include a copy of the attached Disaster Information Bulletin for Homeowners with any correspondence you send to borrowers in the disaster areas.

Foreclosure Sales Although the loan holder is ultimately responsible for determining when to initiate foreclosure and for completing termination action, we are requesting that holders establish a 90 day moratorium from September 23, 2005, on initiating new foreclosures in the disaster areas. Since VA is requesting this, the provisions of 38 CFR 36.4319(f) will not be applied by VA during the moratorium to loans secured by properties in the disaster areas. Also, the period of the moratorium will be considered “VA-requested forebearance” for the purposes of the no-bid avoidance provisions of 38 CFR 36.4321. There are two exceptions to the 90 day moratorium on new foreclosures: 1) When a default is clearly insoluble and there is no likelihood of reinstatement, and the holder requests and receives VA prior approval to initiate foreclosure during the period of the moratorium, and
2
RLC Bulletin 2005-
October 4, 2005
2) When a foreclosure sale, the product of an insoluble default which occurred prior to the disaster, was already scheduled. The sale should be delayed only to the extent necessary to determine whether or not the liquidation appraisal remains accurate, and for such time as it may take the holder to obtain an acceptable hazard insurance loss settlement for purposes of 38 CFR 36.4326. Loan holders will contact the VA fee appraiser assigned the case for an updated liquidation appraisal when there is damage to the property. VA will reimburse a re-inspection fee of $100 when the claim under guaranty is submitted.

Hazard Insurance VA Regulation 38 CFR 36.4326 requires that lenders and holders ensure that homes financed with the assistance of VA guaranteed loans are sufficiently insured against hazards (including flooding, where appropriate). 38 CFR 36.4325(b) authorizes VA to adjust any claim resulting from a loan foreclosure in which the holder failed to obtain insurance. The burden of proof is upon the holder to establish that no increase in VA’s ultimate liability is attributable to the failure of the holder to have the property properly insured. Holders are reminded that hazard insurance policies are not to be canceled in the event of a foreclosure sale if the property is to be conveyed to VA. The policies are to be endorsed to the Secretary of Veterans Affairs.

Questions And Comments If there are any loan origination-related questions, please contact Karl Pack, Loan Production Officer, at 713-383-3104 or via E-mail at Karl.Pack@vba.va.gov. Please E-mail questions and comments concerning Loan Administration related issues to Helen M. Galer, Loan Administration Officer, at Helen.Galer@vba.va.gov. You may also call her at 713-794-3602. For Construction and Valuation related questions, please contact Dave Newton at (713) 383-3117 or via E-mail at David.Newton@vba.va.gov.

Rescission This bulletin rescinds all previous disaster bulletins except RLC Bulletin No. 2005-09, dated August 30, 2005, and is effective for the duration of this disaster and until risk to the veteran, lender, holder, and VA have been mitigated or until rescinded.

R. BIAGIOLI

 Loan Guaranty Officer

Also included is the

DEPARTMENT OF VETERANS AFFAIRS DISASTER INFORMATION BULLETIN FOR HOMEOWNERS

To view the full Bulletin please click on the following link

VA Houston RLC Bulletin 2005-13