To: All VHDA Originating Lenders
Re: New “Lender Watch” Program
Date: November 7, 2008
Due to unstable market conditions, VHDA has had to reconsider the risk we are assuming in relying upon some of our Lender partners to provide quality service regarding loan origination procedures and post-closing compliance. It has become more critical to document our loans in a timely manner and ensure the security of our loans. In many instances, we are experiencing difficulty obtaining critical final documents including but not limited to mortgage insurance certificates, corrected notes and deeds of trust, etc. In addition, many Lenders are approving loans outside of program underwriting standards without satisfactory loan documentation or approval.
In consideration of the risks these deficiencies place upon VHDA, we will begin a new program providing VHDA with enhanced oversight of Lender performance through the implementation of a “Lender Watch” status for those Lenders identified with significant negative performance.
Areas of performance that “Lender Watch”considers to present the highest level of risk are:
- Audited financials reflecting significant reduced earnings or net worth
- Potential change in corporate structure (mergers, acquisitions)
- Failure to provide timely financials, Errors and Omissions and Fidelity bond policies
Outstanding Critical Documents:
- Loan Guarantees and mortgage insurance certificates
- Deeds of Trust and Notes
- Hazard, flood or title insurance policies
- Mortgage Revenue Bond Compliance documents or violations including Borrower and Seller Affidavits and maximum income violations
- Outstanding reservation fees and documentation penalty fees
Overall Origination Performance:
- Adverse rating on FHA Connection/Neighborhood Watch
- Unsatisfactory compliance with VHDA guidelines and procedures
- High VHDA delinquencies
- Inability to meet VHDA Delegated Lender status within a reasonable time frame
“Lender Watch” Status:
If a lender is identified as presenting a significant risk to VHDA through non-compliance with one or more of the concerns noted above, the following tiers of loan status action will be taken.
- Notification of the “Watch” status will be provided to the Lender’s Senior Management, along with appropriate documentation.
- Based upon the areas of concern, the lender may be requested to provide interim financials and staff may be required to attend training related to the non-compliance issues or provide outstanding required documentation by certain deadlines. In many cases, Lenders will be provided 90 - 180 days to demonstrate improved performance. However, if a Lender has failed to provide loan documents in a timely manner for quite some time and has received communications from VHDA regarding non-compliance, the deadlines may be more restrictive.
- Recognition of the Lender and Loan Officers as VHDA approved will be removed from VHDA’s “Find a Lender” application on VHDA.com. This would include top-performing Loan Originators.
- VHDA will also retain the lender service release premiums until such time as the performance compliance has been attained.
- The Lender and all Branches will be suspended from VHDA reservations and participating in all VHDA loan programs until satisfactory resolution of loan issues.
- Failure to resolve these issues immediately will result in permanent termination of Lender approval.
VHDA regrets the necessity of having to take such action; however, the inattention to detail by some of our Lending Partners has left us no alternative. These “Lender Watch” procedures do not supersede the VHDA Originating Agreement and VHDA can exercise its right to terminate an existing agreement at any time in accordance with the terms of the VHDA Originating Agreement.
Implementation of the Lender Watch assessment will begin in January 1, 2009. Our goal is to continue to work with all of our lenders to assist in resolving any critical issues to avoid Lender Watch status. We appreciate the efforts that our lenders provide in helping to ensure the quality and security of our loans which enable us to provide affordable financing to Virginia homebuyers