The following applies to both supervised and nonsupervised lenders. If the VA has decided to withdraw a lender’s automatic authority, it will give the lender a 30 day notice. The withdrawal of automatic authority will not be without proper cause, and the lender will be informed of the reason or reasons for the withdrawal.
If a lender’s automatic authority is withdrawn, the lender may still process loans but will require approval from the VA.
Reasons Automatic Authority May Be Withdrawn
The VA may withdraw automatic authority from 60 days to three years. There are also cases in which automatic authority may be withdrawn for an indefinite period.
Withdrawal for an indefinite period may be placed on the lender for several reasons. A supervised lender will be put on indefinite withdrawal if they continuously fail to meet the basic qualifying criteria. A nonsupervised lender can lose their automatic authority for not having an approved underwriter, failing to maintain $50,000 working capital or $250,000 adjusted net worth, or failing to file required financial statements. Nonsupervised lenders can also lose automatic authority during their probationary period if there is poor underwriting or careless processing.
A lender may be put on a 60 day withdrawal. A 60 day withdrawal will happen if the lender processes loan submissions with deficiencies in credit underwriting. Examples would be processing loans from borrowers with unstable income or ignoring important adverse credit items. The lender may also be put on a 60 day withdrawal if employment or deposit verifications are improperly passed through the hands of a third party. Consistently not completing loan submissions and disregard of VA requirements are also a reason that a lender may lose its automatic authority.
A withdrawal for 180 days can happen if the lender processes loans that conflict with VA standards, fails to disclose VA significant obligations, or mishandles employment or deposit verifications. A lender may also be put on an 180 day withdrawal if they sustain complaints that misrepresent VA requirements.
A withdrawal of one to three years will only occur if the lender fails to disperse loans properly. Examples of this would be loan disbursement checks returned, because of the lender’s improper use of a veteran’s entitlement. Another example would be permitting a veteran to violate occupancy requirements. Lender involvement in a veteran’s sale of entitlement to a third party would also cause a one to three year automatic authority withdrawal.