Updated 5/22/20: The VA issued Circular 26-19-17: Change 2.

Circular 26-19-17: Change 2

Updated 10/17/19: The VA issued Circular 26-19-17: Change 1.

Circular 26-19-17: Change 1

Investor Update
June 28, 2019

Source: VA

1. Purpose. This Circular supplements the Department of Veterans Affairs (VA) Lenders Handbook, Chapter 8, Topic 8, The VA Funding Fee, and updates Chapter 6, Refinancing, concerning Interest Rate Reduction Refinancing Loans (IRRRLs).

2. Background. Congress enacted the funding fee to help reduce the government’s costs associated with loans guaranteed, made, or insured under VA’s Home Loan program. In September 2011, VA added the Veteran’s funding fee status to the Certificate of Eligibility (COE). Lenders and servicers should rely on the funding fee status shown on the COE as evidence of the Veteran’s exemption status. All Veterans must pay the VA funding fee except the following:

a. A Veteran who is receiving disability compensation (or who, but for the receipt of retirement pay or active service pay, would be entitled to receive compensation).

b. A surviving spouse of any Veteran (including a person who died during active military, naval, or air service) who died from a service-connected disability.

c. A Veteran who is rated eligible to receive compensation resulting from a pre-discharge disability examination or rating, or based on a pre-discharge review of existing medical evidence that results in the issuance of a memorandum rating.

3. Action. Effective immediately, lenders and servicers must comply with the following guidance regarding the VA funding fee.

a. Funding Fee Exemption Determination. Ensuring that the funding fee exemption information is up to date at the time of closing is essential to avoid incorrect charges to exempt Veterans. Lenders must not advise Veterans who believe they are exempt from paying the funding fee to close on a loan without first establishing their funding fee exemption status. b. For IRRRLs, a COE is now required.

c. For all loans, if the COE does not show that the Veteran is exempt from paying the funding fee, the lender must ask the Veteran if he or she has a claim for compensation pending with VA. If so, the lender must obtain an updated COE no earlier than 3 days before the loan closing using the COE ”Correct” function in WebLGY. Instructions for the “Correct” function are found in the “Quick Reference Document For Correct Certificate of Eligibility” available at: https://www.benefits.va.gov/HOMELOANS/documents/docs/LGY_COE_Quick_Reference_Document.pdf. Step-by-step instructions are available on the VA’s Lender Resource webpage in the Lender’s COE tutorial.

d. The lender must ask the Active Duty Servicemember if he or she has a pre-discharge claim pending. If so, the lender must contact the Regional Loan Center (RLC) immediately to request assistance in obtaining a proposed or memorandum rating in the event that the Servicemember may be exempt from paying the funding fee as noted in Item 2 above. If a proposed or
memorandum rating is not obtained and a closing takes place, the Servicemember is not eligible for funding fee exemption.

e. Funding Fee Correction Request. Lenders and servicers must initiate a request in the Funding Fee Payment System (FFPS) within 3 business days from being notified by VA or the Veteran of an overpayment of the funding fee to include a request for a retroactive refund. Necessary corrections may be made in FFPS by utilizing the “Correct”function at any time. Lenders and servicers must provide a detailed explanation together with the name, phone number, and email address of the person requesting the correction/waiver on behalf of the Veteran.

f. Funding Fee Refunds. Funding fee refunds must be paid to the Veteran by VA through FFPS. The lender/servicer must change the refund destination from ‘Lender/Vendor’ to ‘Primary Veteran’ in the refund setting section of FFPS. If the loan is in default, the Veteran will be advised that he/she may wish to use the refund to bring their loan current.

4. Rescission: This Circular is rescinded July 1, 2020.

By Direction of the Under Secretary for Benefits

Jeffrey F. London
Director, Loan Guaranty Service

Investor Update
June 20, 2019

Source: VA

1. Purpose. This Circular expresses concern about the Department of Veterans Affairs (VA) home loan borrowers affected by the severe storms and flooding in Arkansas and describes measures mortgagees may employ to provide relief. Mortgage servicers and borrowers alike should review VA’s Guidance on Natural Disasters to ensure Veterans receive the assistance they need. (https://www.benefits.va.gov/homeloans/documents/docs/va_policy_regarding_natural_disasters.pdf or https://www.benefits.va.gov/WARMS/docs/admin26/m26_04/Chapter_21.docx).

2. Forbearance Request. VA encourages holders of guaranteed loans to extend forbearance to borrowers in distress as a result of the severe storms and flooding. Careful counseling with borrowers should help determine whether their difficulties are related to this disaster, or whether they stem from other sources that must be addressed. The proper use of authorities granted in VA regulations may be of assistance in appropriate cases. For example, Title 38, Code of Federal Regulations (CFR), section 36.4311 allows the reapplication of prepayments to cure or prevent a default. Also, 38 CFR 36.4315 allows the terms of any guaranteed loan to be modified without the prior approval of VA, provided conditions in the regulation are satisfied.

3. Moratorium on Foreclosure. Although the loan holder is ultimately responsible for determining when to initiate foreclosure, and for completing termination action, VA has requested on its website (https://www.benefits.va.gov/homeloans) that holders establish a 90-day moratorium from the date of a disaster on initiating new foreclosures on loans affected by major disasters. VA regulation 38 CFR 36.4324(a)(3)(ii) allows additional interest on a guaranty claim when eventual termination has been delayed due to circumstances beyond the control of the holder, such as VA-requested forbearance. Because of the widespread impact of the disaster, holders should review all foreclosure referrals to ensure that borrowers have not been affected significantly enough to justify delay in referral. Any questions about impact should be discussed with the VA Regional Loan Center (RLC) of jurisdiction.

4. Late Charge Waivers. VA believes that many servicers plan to waive late charges on affected loans and encourages all servicers to adopt such a policy for any loans that may have been affected.

5. Credit and VA Reporting. In order to avoid damaging credit records of Veteran borrowers, servicers are encouraged to suspend credit bureau reporting on affected loans. VA will not penalize affected servicers for any late default reporting to VA as a result. Please contact the appropriate RLC with any questions.

6. Activation of the National Guard. Members of the National Guard may be called to active duty to assist in recovery efforts. VA encourages servicers to extend special forbearance to National Guard members who experience financial difficulties as a result of their service.

7. Rescission: This Circular is rescinded July 1, 2020.

By Direction of the Under Secretary for Benefits

Jeffrey F. London
Director, Loan Guaranty Service