## Chapter 1. The Lender

#### Overview

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date | >                                                       |
|            | > The Topic table has been changed to reflect new topic |
|            | > names for sections 14, 15 and 16.                     |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### How  | > This chapter describes the steps needed to obtain and |
|  To Use Th | > maintain VA approved lender status. Specific          |
| is Chapter | > documentation requirements exist when applying for    |
|            | > lender status. These documents may be sent to the     |
|            | > Regional Offices or Loan Centers via electronic media |
|            | > or by traditional mail, as long as all the documents  |
|            | > are adequately completed with the appropriate         |
|            | > required signatures when necessary.                   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > This chapter contains the following topics.           |
| #### In th |                                                         |
| is Chapter |                                                         |
+------------+---------------------------------------------------------+

+------+--------------------------------------------------------+-----+
| T    | Topic                                                  | See |
| opic |                                                        | P   |
|      |                                                        | age |
+------+--------------------------------------------------------+-----+
| 1    | Definitions and Authorities                            | 1-3 |
+------+--------------------------------------------------------+-----+
| 2    | Before a Lender Starts Making VA Loans                 | 1-7 |
+------+--------------------------------------------------------+-----+
| 3    | Lenders That are Considered Supervised                 | 1-9 |
+------+--------------------------------------------------------+-----+
| 4    | > How a Nonsupervised Lender Applies for Automatic     | 1   |
|      | > Authority                                            | -12 |
+------+--------------------------------------------------------+-----+
| 5    | Certifications a Nonsupervised Automatic Lender Must   | 1   |
|      | Comply With                                            | -18 |
+------+--------------------------------------------------------+-----+
| 6    | > How a Nonsupervised Automatic Lender Requests        | 1   |
|      | > Underwriter Approval or Approval to Close Loans      | -21 |
|      | > Involving an Affiliate                               |     |
+------+--------------------------------------------------------+-----+
| 7    | > How a Supervised or Nonsupervised Automatic Lender   | 1   |
|      | > Requests VA Recognition of an Agent                  | -23 |
+------+--------------------------------------------------------+-----+
| 8    | Mergers and Acquisitions Involving Supervised or       | 1   |
|      | Nonsupervised Automatic Lenders                        | -28 |
+------+--------------------------------------------------------+-----+
| 9    | > Withdrawal of Automatic Authority from Supervised or | 1   |
|      | > Nonsupervised Automatic Lenders                      | -32 |
+------+--------------------------------------------------------+-----+
| 10   | Participation Fees for Supervised and Nonsupervised    | 1   |
|      | Automatic Lenders                                      | -35 |
+------+--------------------------------------------------------+-----+
| 11   | Maintenance of Loan Records                            | 1   |
|      |                                                        | -38 |
+------+--------------------------------------------------------+-----+

Continued on next page

Overview, Continued

  -----------------------------------------------------------------------
  In this Chapter (continued)

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+------+--------------------------------------------------------+-----+
| T    | Topic                                                  | See |
| opic |                                                        | P   |
|      |                                                        | age |
+------+--------------------------------------------------------+-----+
| 12   | Lender ID Numbers                                      | 1   |
|      |                                                        | -39 |
+------+--------------------------------------------------------+-----+
| 13   | Lender Access to Training and Information              | 1   |
|      |                                                        | -41 |
+------+--------------------------------------------------------+-----+
| 14   | Calculation of Adjusted Net Worth                      | 1   |
|      |                                                        | -43 |
+------+--------------------------------------------------------+-----+
| 15   | Elements of a Quality Control Plan                     | 1   |
|      |                                                        | -45 |
+------+--------------------------------------------------------+-----+
| 16   | > Application Checklist for Authority to Close Loans   | 1   |
|      | > on an Automatic Basis                                | -49 |
+------+--------------------------------------------------------+-----+

####  1. Definitions and Authorities

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | Subsection g has been added and the remaining           |
|            | subsections renumbered.                                 |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Any person or entity (private sector or government)   |
|  a. Lender | > that originates, holds, services, funds, buys, sells  |
|            | > or otherwise transfers a loan guaranteed by VA.       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > A lender that is subject to mandatory periodic        |
| b. Supervi | > examination and supervision by an agency of the       |
| sed Lender | > United States or of any State or territory, including |
|            | > the District of Columbia.                             |
|            | >                                                       |
|            | > VA determines whether the level of examination and    |
|            | > supervision to which a lender is subject satisfies    |
|            | > the requirement.                                      |
|            | >                                                       |
|            | > Examples of supervised lenders include:               |
|            |                                                         |
|            | -   Federal savings banks                               |
|            |                                                         |
|            | -   National banks                                      |
|            |                                                         |
|            | -   Farm Credit System institutions                     |
|            |                                                         |
|            | -   State banks                                         |
|            |                                                         |
|            | -   Insurance companies                                 |
|            |                                                         |
|            | -   Credit unions, and                                  |
|            |                                                         |
|            | -   Private banks.                                      |
|            |                                                         |
|            | > A State acting as a lender is also considered         |
|            | > supervised.                                           |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### c.   | > Any lender that is **not** a supervised lender.       |
| Nonsupervi |                                                         |
| sed Lender |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > A nonsupervised lender who, after applying to VA for  |
| #### d. No | > authority to close loans on an automatic basis, has   |
| n- supervi | > been formally granted such authority by VA.           |
| sed Automa |                                                         |
| tic Lender |                                                         |
+------------+---------------------------------------------------------+

Continued on next page

1\. Definitions and Authorities, Continued

+------------+---------------------------------------------------------+
| ####       | > A person or entity that performs **any** portion of   |
| # e. Agent | > the work involved in originating and closing a        |
|            | > VA-guaranteed loan on behalf of, or in the name of, a |
|            | > sponsoring lender.                                    |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > A lender that uses an agent to perform **any**        |
| f. Sponsor | > portion of the work involved in originating and       |
| ing Lender | > closing a VA-guaranteed loan is the "sponsoring       |
|            | > lender" for that agent.                               |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > Lender mergers and acquisitions are discussed in      |
| ## g. Merg | > section 8 of this chapter.                            |
| ers and Ac | >                                                       |
| quisitions | > ***Note***: Lenders with questions pertaining to      |
|            | > mergers and acquisitions should send an e-mail to     |
|            | > [lgymerger@vba.va.gov](mailto:LGYMERGER@VBA.VA.GOV).  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > Submission of a loan to VA for underwriting and       |
| ## h. Prio | > approval prior to closing the loan.                   |
| r Approval | >                                                       |
|            | > All lenders, whether or not they have automatic       |
|            | > authority, **must** submit the following types of     |
|            | > loans to VA for prior approval:                       |
|            |                                                         |
|            | -   Joint loans.                                        |
|            |                                                         |
|            | -   Loans to veterans in receipt of VA                  |
|            |     nonservice-connected pension.                       |
|            |                                                         |
|            | -   Loans to veterans rated incompetent by VA.          |
|            |                                                         |
|            | -   Interest Rate Reduction Refinancing Loans (IRRRLs)  |
|            |     made to refinance delinquent VA loans.              |
|            |                                                         |
|            | -   Manufactured home loans (except when the            |
|            |     manufactured home is permanently affixed to the lot |
|            |     and considered real estate under state law)         |
|            |     **unless** the lender has been separately approved  |
|            |     for this purpose.                                   |
|            |                                                         |
|            | -   Cooperative loans.                                  |
|            |                                                         |
|            | -   Unsecured loans or loans secured by less than a     |
|            |     first lien.                                         |
|            |                                                         |
|            | -   Supplemental loans.                                 |
+------------+---------------------------------------------------------+

Continued on next page

1\. Definitions and Authorities, Continued

+------------+---------------------------------------------------------+
| h\. Prior  | > Lenders with automatic authority may also elect to    |
| Approval   | > submit a loan (of a type not on the above list) for   |
| (          | > prior approval when issues or circumstances cannot be |
| continued) | > resolved by the lender's own underwriting staff (see  |
|            | > section 5 of [Current                                 |
|            | > Issues](http://www.                                   |
|            | warms.vba.va.gov/admin26/pamphlet/pam26_7/issues.doc)). |
|            |                                                         |
|            | -   The submission must include the underwriter's       |
|            |     analysis and explanation of why it is being         |
|            |     submitted for prior approval.                       |
|            |                                                         |
|            | -   Do **not** use this provision to shift the burden   |
|            |     of a loan rejection to VA.                          |
|            |                                                         |
|            | > Lenders without automatic authority must submit all   |
|            | > loans to VA for prior approval except IRRRLs made to  |
|            | > refinance VA loans that are **not** delinquent.       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### i    | > Automatic authority is authority for a lender to      |
| . Automati | > close VA-guaranteed loans without the prior approval  |
| c Authorit | > of VA. The following lenders have automatic           |
| y (Authori | > authority:                                            |
| ty to Clos |                                                         |
| e Loans on | -   all supervised lenders                              |
|  an Automa |                                                         |
| tic Basis) | -   certain nonsupervised lenders who apply for and are |
|            |     granted automatic authority by VA, and              |
|            |                                                         |
|            | -   any lender (even a lender who does not otherwise    |
|            |     have automatic authority) for the limited purpose   |
|            |     of closing an IRRRL, as long as the loan being      |
|            |     refinanced is not delinquent.                       |
|            |                                                         |
|            | > Lenders with automatic authority should use it to the |
|            | > maximum extent possible.                              |
+------------+---------------------------------------------------------+

Continued on next page

1\. Definitions and Authorities, Continued

+------------+---------------------------------------------------------+
| ##### j.   | > A nonsupervised lender that wishes to close loans on  |
|  Supervise | > an automatic basis must obtain both VA authorization  |
| d Versus N | > for automatic authority and obtain VA approval of     |
| onsupervis | > other elements of its automatic lending operations    |
| ed Automat | > (that is, underwriter approval). This difference      |
| ic Lenders | > between supervised and nonsupervised lenders is       |
|            | > outlined below.                                       |
+------------+---------------------------------------------------------+

  ---------------- --------------------------- --------------------------
  Authority        Supervised Lender           Nonsupervised Automatic
                                               Lender

  To close loans   No VA approval needed.      Must submit application
  on the automatic                             and be authorized by VA to
  basis                                        close loans on an
                                               automatic basis.

  To use certain   No VA approval needed. Any  Must submit application
  underwriters     of the lender's             and obtain VA approval for
                   underwriters may underwrite each person to underwrite
                   loans processed on the      VA loans processed on the
                   automatic basis.            automatic basis.

  To close loans   No VA approval needed.      No VA approval needed.
  in particular    Lender may close loans in   Lender may close loans in
  states           any State.                  any State.

  To use agents to Must submit request and     Must submit request and
  process VA loans obtain VA recognition of    obtain VA recognition of
                   each agent with whom the    each agent with whom the
                   lender has an ongoing       lender has an ongoing
                   relationship.               relationship.
  ---------------- --------------------------- --------------------------

+------------+---------------------------------------------------------+
| ##### k.   | > IRRRLs, except those intended to refinance delinquent |
|  Exception | > VA loans, can be closed automatically by any lender   |
|            | > in any State without specific approval of automatic   |
|            | > authority, underwriters, or the State in which the    |
|            | > loan is made.                                         |
|            | >                                                       |
|            | > ***Note***: Use of agents to process IRRRLs is        |
|            | > subject to the same requirements as agents processing |
|            | > other types of loans (see section 7 of this chapter). |
+------------+---------------------------------------------------------+

#### 2. Before a Lender Starts Making VA Loans

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | -   Subsection a's heading has been changed.            |
|            |                                                         |
|            | -   Subsection b has been changed to update the URL for |
|            |     the VA Lender's Handbook.                           |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > This section applies to ALL lenders (supervised,      |
| # a. Sendi | > nonsupervised automatic, and nonsupervised prior      |
| ng the Ini | > approval).                                            |
| tial Infor | >                                                       |
| mation Pac | > For first-time VA lenders, send the following         |
| kage to VA | > information to the VA office with jurisdiction over   |
|            | > the lender's home office (a complete list of VA       |
|            | > Regional Offices and Regional Loan Centers may be     |
|            | > found in [Appendix                                    |
|            | > A](http://ww                                          |
|            | w.warms.vba.va.gov/admin26/pamphlet/pam26_7/appa.doc)): |
|            |                                                         |
|            | -   specimen signatures of all officers, underwriters,  |
|            |     or other personnel authorized to sign documents     |
|            |     related to VA-guaranteed loan activities            |
|            |                                                         |
|            | -   [VA Form                                            |
|            |                                                         |
|            | 26-8812](http://www.vba.va.gov/pubs/forms/26-8812.pdf), |
|            |     VA Equal Opportunity Lender Certification           |
|            |                                                         |
|            | -   a letter identifying:                               |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   the lender's corporate address                      |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   the lender's owners                                 |
|            |                                                         |
|            | -   any lending personnel or officers that VA or HUD    |
|            |     ever debarred or took other adverse action against, |
|            |     and                                                 |
|            |                                                         |
|            | -   a list of all the lender's branch offices that are  |
|            |     involved in VA mortgage lending.                    |
|            |                                                         |
|            | > In addition, VA may at its discretion:                |
|            |                                                         |
|            | -   order a credit report on a lender, and/or           |
|            |                                                         |
|            | -   interview principal officers.                       |
+------------+---------------------------------------------------------+

Continued on next page

2\. Before a Lender Starts Making VA Loans, Continued

+------------+---------------------------------------------------------+
| ##### b    | > The VA office of jurisdiction will provide            |
| . What Hap | > information to the lender, including:                 |
| pens Next? |                                                         |
|            | -   VA Poster 26-77-2, Equal Opportunity Lender         |
|            |                                                         |
|            | -   Training on VA loan processing, and                 |
|            |                                                         |
|            | -   VA ID number to use for all VA lending transactions |
|            |     and documents as an identifier of the lender.       |
|            |                                                         |
|            | > ***Note***: The lender should download a copy of this |
|            | > Lenders Handbook, VA Pamphlet 26-7, at                |
|            | > <http://www.warms.vba.va.gov/pam26_7.html>.           |
|            | >                                                       |
|            | > The VA office of jurisdiction will place the lender   |
|            | > on appropriate mailing lists to receive future VA     |
|            | > publications.                                         |
|            | >                                                       |
|            | > The VA office of jurisdiction will serve as the       |
|            | > lender's primary contact point with VA. Please direct |
|            | > all technical questions, requests for training, or    |
|            | > requests for VA publications and materials to that    |
|            | > office.                                               |
|            | >                                                       |
|            | > As soon as a lender becomes familiar with the laws,   |
|            | > regulations, and procedures pertaining to             |
|            | > VA-guaranteed loans, it may begin making VA loans.    |
|            | >                                                       |
|            | > A nonsupervised lender must submit all loans except   |
|            | > certain IRRRLs to VA for prior approval unless the    |
|            | > lender applies for and receives specific authority    |
|            | > from VA to close loans on the automatic basis.        |
|            | >                                                       |
|            | > A lender supervised by one of the Federal entities    |
|            | > described in section 3 of this chapter, can begin     |
|            | > closing loans on the automatic basis immediately.     |
|            | >                                                       |
|            | > A lender that must submit a request to VA for         |
|            | > recognition as supervised (see section 3 of this      |
|            | > chapter), must submit all loans except certain IRRRLs |
|            | > to VA for prior approval until it receives            |
|            | > recognition as supervised.                            |
+------------+---------------------------------------------------------+

#### 3. Lenders That are Considered Supervised

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | Subsection a has been changed to reference "initial     |
|            | information package" instead of "letter of              |
|            | introduction."                                          |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a.   | > VA considers any lender subject to mandatory periodic |
|  Supervisi | > examination and supervision by any of the following   |
| on by Cert | > Federal entities to be supervised:                    |
| ain Federa |                                                         |
| l Entities | -   The Board of Governors of the Federal Reserve       |
|            |     System.                                             |
|            |                                                         |
|            | -   The Federal Deposit Insurance Corporation.          |
|            |                                                         |
|            | -   The Comptroller of the Currency.                    |
|            |                                                         |
|            | -   The Office of Thrift Supervision.                   |
|            |                                                         |
|            | -   The National Credit Union Administration.           |
|            |                                                         |
|            | -   The Farm Credit Administration.                     |
|            |                                                         |
|            | > Lenders supervised by these Federal entities are not  |
|            | > required to request recognition from VA.              |
|            | >                                                       |
|            | > Indicate which of the above Federal entities          |
|            | > supervises the lender in the initial information      |
|            | > package submitted to VA (see section 2 of this        |
|            | > chapter).                                             |
|            | >                                                       |
|            | > If VA needs clarification of the lender's status, VA  |
|            | > will request appropriate documentation from the       |
|            | > lender.                                               |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### b.   | > VA recognizes supervision by the State of Illinois or |
| Supervisio | > New Jersey as conveying supervised status to a lender |
| n by the S | > operating within the State. The lender's supervised   |
| tate of Il | > status does **not** extend to any lending activities  |
| linois or  | > it conducts outside the State of supervision.         |
| New Jersey | >                                                       |
|            | > If the lender is supervised by either of these        |
|            | > States, the lender must submit a copy of the          |
|            | > appropriate state license, along with the information |
|            | > required under section 2 of this chapter, to the VA   |
|            | > office with jurisdiction over the lender's home       |
|            | > office.                                               |
|            |                                                         |
|            | -   For Illinois lenders, Office of Banks and Real      |
|            |     Estate.                                             |
|            |                                                         |
|            | -   For New Jersey lenders, New Jersey Department of    |
|            |     Banking and Insurance.                              |
+------------+---------------------------------------------------------+

Continued on next page

3\. Lenders That are Considered Supervised, Continued

+------------+---------------------------------------------------------+
| ###        | > These instructions apply to a lender that wishes to   |
| ## c. Circ | > be recognized as a supervised lender by VA, but is    |
| umstances  | > not directly supervised by one of the Federal         |
| under whic | > entities listed in section 3a of this chapter or the  |
| h VA Recog | > State of Illinois or New Jersey. In such cases, the   |
| nition as  | > lender must request that VA specifically recognize it |
| Supervised | > as supervised. The lender should fit one of the       |
|  is Needed | > following circumstances:                              |
|            |                                                         |
|            | -   the lender is a wholly-owned subsidiary or          |
|            |     affiliate of a VA-recognized supervised lender, or  |
|            |                                                         |
|            | -   the lender is examined and supervised by a State    |
|            |     agency or a Federal agency **not** previously       |
|            |     listed.                                             |
|            |                                                         |
|            | > Submit the following to the VA office with            |
|            | > jurisdiction over the lender's home office:           |
|            |                                                         |
|            | -   Description of the nature and extent of the         |
|            |     examinations performed by a Federal or State        |
|            |     agency.                                             |
|            |                                                         |
|            | -   Letter or statement from the Federal or State       |
|            |     supervising agency that the specific applicant is   |
|            |     subject to mandatory periodic examination and       |
|            |     supervision by the agency.                          |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   A general statement of statutory or regulatory      |
|            |     requirements for examination of supervised lenders  |
|            |     and their affiliates is **not** sufficient.         |
|            |                                                         |
|            | -   A lender's voluntary submission to examination is   |
|            |     **not** sufficient.                                 |
|            |                                                         |
|            | -   A lender's receipt of a license from a State is     |
|            |     **not** necessarily sufficient.                     |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   If the relationship between a wholly-owned          |
|            |     subsidiary or affiliate of a VA-recognized          |
|            |     supervised lender and that supervised lender is to  |
|            |     be the basis for recognition as supervised,         |
|            |     documentation of the structure, capitalization, and |
|            |     ownership of the subsidiary or affiliate and its    |
|            |     legal/financial relationship to the supervised      |
|            |     lender.                                             |
|            |                                                         |
|            | > VA will inform the lender of its decision by letter.  |
+------------+---------------------------------------------------------+

Continued on next page

3\. Lenders That are Considered Supervised, Continued

+------------+---------------------------------------------------------+
| ##### d.   | > A supervised lender has the authority to close        |
|  If a Lend | > VA-guaranteed loans on an automatic basis (without    |
| er is Supe | > the prior approval of VA) except for certain types of |
| rvised {#d | > loans that must be submitted to VA for prior approval |
| .-if-a-len | > by all lenders.                                       |
| der-is-sup | >                                                       |
| ervised .u | > ***Note***: These loan types are listed in section 1  |
| nnumbered} | > of this chapter under "Prior Approval."               |
|            | >                                                       |
|            | > The supervised lender must obtain VA recognition of   |
|            | > agents it uses to make VA loans (see section 7 of     |
|            | > this chapter).                                        |
|            | >                                                       |
|            | > If the lender uses ongoing agency relationships       |
|            | > ("ongoing" generally means use of an agent more than  |
|            | > four times per year), it must submit the following to |
|            | > the VA office with jurisdiction over its home office  |
|            | > by January 31 of each year:                           |
|            |                                                         |
|            | -   a list of the VA-recognized agency relationships it |
|            |     wishes to renew                                     |
|            |                                                         |
|            | -   the annual renewal fee (see section 10 of this      |
|            |     chapter) for each lender agent that acts for the    |
|            |     lender on an ongoing basis and had been recognized  |
|            |     by VA as the lender's agent as of September 30 (120 |
|            |     days before payment is due), and                    |
|            |                                                         |
|            | -   any other information requested by VA.              |
|            |                                                         |
|            | > Although VA offices may issue an annual reminder      |
|            | > notice to lenders that the above information is due,  |
|            | > lenders bear the ultimate responsibility for timely   |
|            | > submission of the information and appropriate fees.   |
+------------+---------------------------------------------------------+

#### 4. How a Nonsupervised Lender Applies for Automatic Authority

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | -   Subsection a has been changed to remove "figure"    |
|            |     from the reference to sections 14 and 15.           |
|            |                                                         |
|            | -   Subsection b has been changed to remove "figure"    |
|            |     from the reference to section 16.                   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a. P | > Submit a completed [VA Form                           |
| rocedures  | >                                                       |
| and Criter | 26-8736](http://www.vba.va.gov/pubs/forms/26-8736.pdf), |
| ia for Qua | > Application for Authority to Close Loans on an        |
| lification | > Automatic Basis-Nonsupervised Lenders, to the VA      |
|            | > office with jurisdiction over the lender's home       |
|            | > office, along with:                                   |
|            |                                                         |
|            | -   The documentation specified in the tables in        |
|            |     section a of this chapter.                          |
|            |                                                         |
|            | -   The appropriate fee(s), and                         |
|            |                                                         |
|            |     (***Reference***: See section 10 of this chapter)   |
|            |                                                         |
|            | -   The information specified in section 2 of this      |
|            |     chapter, if not already submitted, or any updates   |
|            |     to that information (including a current list of    |
|            |     branch offices involved in VA mortgage lending).    |
|            |                                                         |
|            | > The tables in this section describe the criteria that |
|            | > must be met to qualify for automatic authority, and   |
|            | > the documentation the lender must submit with its     |
|            | > application to meet each criterion.                   |
+------------+---------------------------------------------------------+

Continued on next page

4\. How a Nonsupervised Lender Applies for Automatic Authority,
Continued

  -----------------------------------------------------------------------
  a\. Procedures and Criteria for Qualification (continued)

  -----------------------------------------------------------------------

+---------------------------+------------------------------------------+
| Criteria                  | Required Documentation                   |
+---------------------------+------------------------------------------+
| Lender Experience         | (***Note***: For purposes of determining |
|                           | whether the experience criteria are met, |
| Either:                   | IRRRLs do **not** count as VA loans      |
|                           | originated, since no underwriting is     |
| -   the lender must have  | involved.)                               |
|     at least two years    |                                          |
|     active VA origination | ***For all lenders***:                   |
|     experience and have   |                                          |
|     originated and closed | Completed [VA Form                       |
|     at least 10 VA loans  | 26-8736](http:                           |
|     (properly documented  | //www.vba.va.gov/pubs/forms/26-8736.pdf) |
|     and submitted) within |                                          |
|     the past two years,   | -   VA ID number, and                    |
|     or                    |                                          |
|                           | -   resume for each principal officer    |
| -   the lender (with less |     (president plus any officers         |
|     than two years active |     involved in managing loan            |
|     VA origination        |     origination functions) showing       |
|     experience) must have |     mortgage lending experience.         |
|     originated and closed |                                          |
|     at least 25 VA loans  | ***Additional documentation for lenders  |
|     (properly documented  | qualifying based on experience as        |
|     and submitted), or    | agent***                                 |
|                           |                                          |
| -   each principal        | -   copy of the VA letter(s) recognizing |
|     officer (president or |     the lender as an agent for the       |
|     vice president) who   |     sponsoring lender(s)                 |
|     is actively involved  |                                          |
|     in managing           | -   copy of the corporate resolution     |
|     origination functions |     sent to VA by the sponsoring lender  |
|     must have at least    |     describing the functions the agent   |
|     two recent years      |     was to perform, and                  |
|     management experience |                                          |
|     in the origination of | -   a letter from a senior officer of    |
|     VA loans, or          |     the sponsoring lender(s) indicating  |
|                           |                                          |
| -   the lender, acting as | ```{=html}                               |
|     an agent for an       | <!-- -->                                 |
|     automatic lender(s),  | ```                                      |
|     must have originated  | -   the number of VA loans submitted by  |
|     at least 10 VA loans  |     the agent each year, and             |
|     over the past 2 years |                                          |
|     or 25 VA loans (if    | -   that the loans have been documented  |
|     less than 2 years).   |     and submitted in compliance with VA  |
|                           |     requirements and procedures.         |
+---------------------------+------------------------------------------+

Continued on next page

4\. How a Nonsupervised Lender Applies for Automatic Authority,
Continued

  -----------------------------------------------------------------------
  a\. Procedures and Criteria for Qualification (continued)

  -----------------------------------------------------------------------

+--------------------------+-------------------------------------------+
| Criteria                 | Required Documentation                    |
+--------------------------+-------------------------------------------+
| Qualified Underwriter(s) | ***For all underwriters***                |
|                          |                                           |
| A senior officer of the  | [VA Form                                  |
| lender must nominate at  | 26-8736a,](http:                          |
| least one full-time      | //www.vba.va.gov/pubs/forms/26-8736a.pdf) |
| qualified employee to    | Nonsupervised Lender's Nomination and     |
| act as an underwriter    | Recommendation of Credit Underwriter,     |
| who has either:          | completed by a senior officer if the      |
|                          | underwriter is not located in the         |
| -   at least 3 years'    | lender's corporate office, a senior       |
|     experience in        | officer's certification that the          |
|     processing,          | underwriter reports to and is supervised  |
|     pre-underwriting or  | by an individual who is not a branch      |
|     underwriting         | manager or other person with production   |
|     mortgage loans, or   | responsibilities.                         |
|                          |                                           |
| -   at least one year of | ***Additional documentation for           |
|     the most recent      | underwriters qualifying based on 3 years' |
|     three years must     | experience***                             |
|     have included making |                                           |
|     underwriting         | Underwriter's resume, outlining the       |
|     decisions on VA      | underwriter's specific experience with VA |
|     loans, or            | loans.                                    |
|                          |                                           |
| -   a current ARU        | (***Note***: For purposes of determining  |
|     (Accredited          | whether the experience criteria are met,  |
|     Residential          | IRRRLs do **not** count as processing,    |
|     Underwriter)         | pre-underwriting or underwriting.)        |
|     designation from the |                                           |
|     Mortgage Bankers     | ***Additional documentation for           |
|     Association (MBA).   | underwriters qualifying based on ARU      |
|                          | designation***                            |
| > All VA-approved        |                                           |
| > underwriters must be   | Evidence that he or she is a current ARU  |
| > familiar with VA's     | as designated by the MBA.                 |
| > credit underwriting    |                                           |
| > standards and this     | See "Underwriter Approval" in section 6   |
| > Lender's Handbook.     | of this chapter for mandatory training    |
|                          | requirements for newly approved           |
|                          | underwriters and underwriters who have    |
|                          | not underwritten VA loans in the past 24  |
|                          | months.                                   |
+--------------------------+-------------------------------------------+

Continued on next page

4\. How a Nonsupervised Lender Applies for Automatic Authority,
Continued

  -----------------------------------------------------------------------
  a\. Procedures and Criteria for Qualification (continued)

  -----------------------------------------------------------------------

+---------------------------+------------------------------------------+
| Criteria                  | Required Documentation                   |
+---------------------------+------------------------------------------+
| Minimum Working Capital   | ***For all lenders***                    |
| Or Net Worth              |                                          |
|                           | Lender's most recent annual financial    |
| The lender must maintain  | statements audited and certified by a    |
| either:                   | CPA if the date of the financial         |
|                           | statements precedes the application date |
| -   a minimum of \$50,000 | by more than six months, attach a copy   |
|     working capital       | of the latest internal financial         |
|                           | statement.                               |
|     working capital is    |                                          |
|     the excess of current | ***Additional requirement if qualifying  |
|     assets over current   | based on working capital***              |
|     liabilities. (Current |                                          |
|     assets are defined as | Either:                                  |
|     cash or other liquid  |                                          |
|     assets convertible    | -   the balance sheet must be classified |
|     into cash within 1    |     to distinguish between current and   |
|     year. Current         |     fixed assets and between current and |
|     liabilities are debts |     long-term liabilities, or            |
|     that must be paid     |                                          |
|     within one year), or  | -   the information must be provided in  |
|                           |     a footnote to the statement.         |
| -   a minimum of          |                                          |
|     \$250,000 in adjusted | Additional requirement if qualifying     |
|     net worth.            | based on net worth. Adjusted net worth   |
|                           | must be calculated by a CPA in           |
|     ***Reference***: See  | accordance with the requirements in      |
|     section 14 of this    | section 14 of this chapter.              |
|     chapter for VA's      |                                          |
|     calculation           |                                          |
|     requirements.         |                                          |
+---------------------------+------------------------------------------+
| Lines Of Credit           | Letter(s) from the company(ies)          |
|                           | verifying the amount(s) and unrestricted |
| The lender must have one  | nature of the warehouse lines of credit. |
| or more unrestricted      |                                          |
| lines of credit totaling  |                                          |
| at least \$1 million.     |                                          |
|                           |                                          |
| Unrestricted means funds  |                                          |
| are available upon demand |                                          |
| to close loans and are    |                                          |
| not dependent on prior    |                                          |
| investor approval.        |                                          |
+---------------------------+------------------------------------------+

Continued on next page

4\. How a Nonsupervised Lender Applies for Automatic Authority,
Continued

  -----------------------------------------------------------------------
  a\. Procedures and Criteria for Qualification (continued)

  -----------------------------------------------------------------------

+---------------------------+------------------------------------------+
| Criteria                  | Required Documentation                   |
+---------------------------+------------------------------------------+
| Permanent Investors       | Names, addresses and telephone numbers   |
|                           | of two or more permanent investors.      |
| If the lender customarily |                                          |
| sells loans it            |                                          |
| originates, it must have  |                                          |
| a minimum of two          |                                          |
| permanent investors .     |                                          |
+---------------------------+------------------------------------------+
| Quality Control Plan      | Copy of quality control plan which meets |
|                           | the criteria outlined in section 15 of   |
| The lender must implement | this chapter.                            |
| a written quality control |                                          |
| plan which ensures        |                                          |
| compliance with VA        |                                          |
| requirements and meets    |                                          |
| the criteria outlined in  |                                          |
| section 15 of this        |                                          |
| chapter.                  |                                          |
+---------------------------+------------------------------------------+
| Liaison                   | [VA Form                                 |
|                           | 26-8736](http:                           |
| The lender must designate | //www.vba.va.gov/pubs/forms/26-8736.pdf) |
| one qualified employee    | contains a space in which to indicate    |
| and an alternate to be    | liaison selections.                      |
| the primary liaison with  |                                          |
| VA.                       |                                          |
|                           |                                          |
| The liaison officers      |                                          |
| should be thoroughly      |                                          |
| familiar with the         |                                          |
| lender's operation and be |                                          |
| able to respond to any    |                                          |
| query from VA concerning  |                                          |
| a particular VA loan or   |                                          |
| the firm's automatic      |                                          |
| authority.                |                                          |
+---------------------------+------------------------------------------+
| > Sanctions For Prior     | > A statement of facts is required in    |
| > Acts                    | > any case where:                        |
| >                         |                                          |
| > There must be no        | -   the lender, or any director or       |
| > factors indicating the  |     principal officer was ever debarred  |
| > lender would not        |     or suspended or otherwise formally   |
| > exercise the necessary  |     sanctioned by the Government, or     |
| > care and diligence.     |                                          |
|                           | -   any director or officer was ever a   |
|                           |     director or officer of a debarred or |
|                           |     suspended firm, or                   |
|                           |                                          |
|                           | -   the lender had a servicing contract  |
|                           |     with an investor terminated for      |
|                           |     cause.                               |
+---------------------------+------------------------------------------+

Continued on next page

4\. How a Nonsupervised Lender Applies for Automatic Authority,
Continued

+------------+---------------------------------------------------------+
| ##### b. A | > Section 16 of this chapter, provides a                |
| pplication | > quick-reference checklist of application materials    |
|  Checklist | > and requirements.                                     |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### c.   | > All lenders who have been approved by VA for          |
| Nationwide | > automatic authority may use this authority on a       |
|  Authority | > nationwide basis.                                     |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > The VA office of jurisdiction reviews the application |
| ### d. Not | > materials submitted, writes comments and makes a      |
| ification  | > determination regarding the lender's qualifications.  |
| of VA Deci | > The office then sends the lender written notice of    |
| sion {#d.- | > its decision and, if approved, any conditions         |
| notificati | > attached to its automatic authority.                  |
| on-of-va-d | >                                                       |
| ecision .u | > Lenders are expected to use their automatic authority |
| nnumbered} | > to the maximum extent possible.                       |
|            | >                                                       |
|            | > ***Note***: Loans submitted for prior approval that   |
|            | > are **not** required to be submitted for prior        |
|            | > approval **must** include a written explanation from  |
|            | > the underwriter.                                      |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### e.   | > The lender will be subject to a probationary period   |
|  Probation | > of one year, during which the VA offices to which it  |
| ary Period | > submits loans will carefully review the quality of    |
|            | > the lender's underwriting, completeness of loan       |
|            | > submissions, compliance with VA requirements and      |
|            | > procedures, and delinquency and foreclosure rates.    |
|            |                                                         |
|            | -   VA may withdraw automatic authority at any time     |
|            |     during the probationary period based on poor        |
|            |     underwriting and/or consistently careless           |
|            |     processing.                                         |
|            |                                                         |
|            | -   At the expiration of the probationary period, VA    |
|            |     sends the lender written notice of its decision to  |
|            |     terminate the probationary period, extend it, or    |
|            |     revoke automatic authority.                         |
+------------+---------------------------------------------------------+

#### 5. Certifications a Nonsupervised Automatic Lender Must Comply With

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | Subsection d has been changed to remove "figure" from   |
|            | the reference to sections 14.                           |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a    | > The president or principal officer must certify on    |
| . Don't Cl | > [VA Form                                              |
| ose Loans  | >                                                       |
| for Others |  26-8736](http://www.vba.va.gov/pubs/forms/26-8736.pdf) |
|            | > that the lender will **not** close loans on an        |
|            | > automatic basis.                                      |
|            |                                                         |
|            | -   As a courtesy or accommodation for other mortgage   |
|            |     lenders regardless of whether or not such lenders   |
|            |     are approved themselves to close on an automatic    |
|            |     basis. (This does not prevent the lender from       |
|            |     closing loans based on documents prepared by an     |
|            |     authorized agent.)                                  |
|            |                                                         |
|            | -   For any builder or other entity in which the lender |
|            |     has a financial interest or which it owns, is owned |
|            |     by, or with which it is affiliated, without the     |
|            |     express approval of the VA.                         |
|            |                                                         |
|            | -   See "Approval to Close Loans Involving an           |
|            |     Affiliate" in section 6 of this chapter, for        |
|            |     details.                                            |
|            |                                                         |
|            | -   If the only connection between the lender and the   |
|            |     builder is a construction loan, the lender may      |
|            |     close the permanent mortgage on an automatic basis  |
|            |     without VA approval.                                |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > The president or principal officer must certify on    |
| ## b. Noti | > [VA Form                                              |
| fy VA of S | >                                                       |
| ignificant |  26-8736](http://www.vba.va.gov/pubs/forms/26-8736.pdf) |
|  Changes i | > that the lender will notify the VA office with        |
| ncluding M | > jurisdiction over its home office of any changes in   |
| erger or A | > its corporate structure, operations, or financial     |
| cquisition | > condition which **may** have a bearing on the         |
|            | > lender's continued qualifications for authority to    |
|            | > close loans automatically.                            |
|            | >                                                       |
|            | > If the lender no longer meets the qualifications for  |
|            | > automatic authority, but **no** change in ownership   |
|            | > has occurred (that is, working capital becomes        |
|            | > inadequate), submit a plan of correction to the VA    |
|            | > office of jurisdiction.                               |
|            |                                                         |
|            | Continue to close loans on the automatic basis until    |
|            | the lender receives a determination from VA, except if  |
|            | the lender no longer has a VA-approved underwriter, it  |
|            | may no longer close loans on the automatic basis.       |
+------------+---------------------------------------------------------+

Continued on next page

5\. Certifications a Nonsupervised Automatic Lender Must Comply With,
Continued

+------------+---------------------------------------------------------+
| #####      | > A change in the ownership of a nonsupervised          |
|  b. Notify | > automatic lender always extinguishes the automatic    |
|  VA of Sig | > authority of the lender unless the new entity is      |
| nificant C | > supervised.                                           |
| hanges inc | >                                                       |
| luding Mer | > ***Note***: This includes **all** mergers and         |
| ger or Acq | > acquisitions. See section 8 of this chapter, for      |
| uisition ( | > requirements in the case of a merger, acquisition, or |
| continued) | > change in ownership.                                  |
|            | >                                                       |
|            | > **Reference**: See section 8 of this chapter, for     |
|            | > consequences to the lender.                           |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > The president or principal officer must certify that  |
| # c. All L | > **all** prospective VA loans to be closed on an       |
| oans Must  | > automatic basis will be reviewed and either approved  |
| be Reviewe | > or rejected by a VA-approved underwriter.             |
| d by a VA- | >                                                       |
| Approved U | > All VA-approved underwriters must be familiar with    |
| nderwriter | > VA's Lender's Handbook specifically [Chapter 4:       |
|            | > Credit                                                |
|            | > Underwriting](http://w                                |
|            | ww.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch04.doc). |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > The president or principal officer must certify that  |
| ## d. Subm | > the lender will submit annual financial statements    |
| it Annual  | > audited and certified by a CPA to VA within 120 days  |
| Financial  | > of the end of its fiscal year. The financial          |
| Statements | > statements must be sent to the [Regional Loan         |
|            | > Center](http://www.homeloans.va.gov/RLCWEB.htm) (RLC) |
|            | > where the lender's home office is located.            |
|            | >                                                       |
|            | > The statements must show either:                      |
|            |                                                         |
|            | -   a minimum of \$50,000 working capital               |
|            |                                                         |
|            |     Either the balance sheet must be classified to      |
|            |     distinguish between current and fixed assets and    |
|            |     between current and long-term liabilities or the    |
|            |     information must be provided in a footnote to the   |
|            |     statement, or                                       |
|            |                                                         |
|            | -   a minimum of \$250,000 in adjusted net worth        |
|            |                                                         |
|            |     Adjusted net worth must be calculated by a CPA in   |
|            |     accordance with the requirements in section 14 of   |
|            |     this chapter.                                       |
+------------+---------------------------------------------------------+

Continued on next page

5\. Certifications a Nonsupervised Automatic Lender Must Comply With,
Continued

+------------+---------------------------------------------------------+
| d\. Submit | > When submitting the financial statements to the       |
| Annual     | > [RLC](http://www.homeloans.va.gov/RLCWEB.htm), the    |
| Financial  | > lender **must** also submit the following:            |
| Statements |                                                         |
| (          | -   if the lender uses agents for making VA loans, a    |
| continued) |     list of VA-recognized agent relationships the       |
|            |     lender wants to renew, and                          |
|            |                                                         |
|            | -   the annual fees specified in section 10 of this     |
|            |     chapter.                                            |
|            |                                                         |
|            | > Any other information requested by VA. Although VA    |
|            | > offices may issue an annual reminder notice to        |
|            | > lenders that the above information is due, lenders    |
|            | > bear the ultimate responsibility for timely           |
|            | > submission of this information.                       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### e.   | > When the president or principal officer signs [VA     |
| Other Cert | > Form                                                  |
| ifications | >                                                       |
|            | 26-8736](http://www.vba.va.gov/pubs/forms/26-8736.pdf), |
|            | > he or she certifies that the lender will comply with  |
|            | > a number of other requirements. These include:        |
|            |                                                         |
|            | -   complying with VA regulations, directives, and law  |
|            |                                                         |
|            | -   submitting at any time to VA examination of its     |
|            |     records and accounts                                |
|            |                                                         |
|            | -   furnishing VA any requested information             |
|            |                                                         |
|            | -   maintaining \$50,000 working capital or \$250,000   |
|            |     adjusted net worth, and                             |
|            |                                                         |
|            | -   using its automatic authority to the maximum extent |
|            |     possible; if not used, submitting an explanation as |
|            |     to why a loan was processed prior approval.         |
+------------+---------------------------------------------------------+

#### 6. How a Nonsupervised Automatic Lender Requests Underwriter Approval or Approval to Close Loans involving an Affiliate

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date |                                                         |
|            | -   This section has been changed to create subsection  |
|            |     lettering.                                          |
|            |                                                         |
|            | -   This section has been updated to reflect the        |
|            |     nationwide authority of lenders.                    |
|            |                                                         |
|            |     The title of this section no longer refers to       |
|            |     "Extension of Authority," and                       |
|            |                                                         |
|            |     the subsection on extension of authority has been   |
|            |     removed.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a.   | > All VA loans to be closed on an automatic basis must  |
| Underwrite | > be reviewed and either approved or rejected by a      |
| r Approval | > VA-approved underwriter.                              |
|            | >                                                       |
|            | > A VA-approved underwriter must sign a [VA Form        |
|            | >                                                       |
|            | 26-6393](http://www.vba.va.gov/pubs/forms/26-6393.pdf), |
|            | > Loan Analysis, on each loan to certify his or her     |
|            | > review of such loan.                                  |
|            | >                                                       |
|            | > The lender may request approval of additional         |
|            | > underwriters at any time after its initial approval   |
|            | > for automatic authority by submitting a request to    |
|            | > the VA office with jurisdiction over its home office, |
|            | > including                                             |
|            |                                                         |
|            | -   the appropriate fee (see section 10 of this         |
|            |     chapter), and                                       |
|            |                                                         |
|            | -   the documentation for underwriter approval          |
|            |     described under "Procedures and Criteria for        |
|            |     Qualification" in section 4 of this chapter.        |
|            |                                                         |
|            | > All VA-approved underwriters must be familiar with    |
|            | > VA's credit underwriting standards and this Lender's  |
|            | > Handbook.                                             |
|            | >                                                       |
|            | > All VA-approved underwriters must attend a one-day    |
|            | > (eight hour) training course on underwriter           |
|            | > responsibilities, VA underwriting requirements, and   |
|            | > VA administrative requirements, including the usage   |
|            | > of VA forms, within 90 days of approval. If the VA    |
|            | > office of jurisdiction is unable to make such         |
|            | > training available within 90 days, the underwriter    |
|            | > must attend the first available training. Web based   |
|            | > training is also available. Using any standard        |
|            | > Internet browser, log onto                            |
|            | > <http://homeloans.va.gov/train.htm>. Successful       |
|            | > completion of the Internet based training meets the   |
|            | > one-day training requirement.                         |
+------------+---------------------------------------------------------+

Continued on next page

6\. How a Nonsupervised Automatic Lender Requests Underwriter Approval
or Approval to Close Loans involving an Affiliate, Continued

+------------+---------------------------------------------------------+
| a\.        | > VA underwriter training is required of **all**        |
| U          | > underwriters whether approved based on experience or  |
| nderwriter | > based on an ARU designation. It is also required of   |
| Approval   | > underwriters who have not underwritten VA guaranteed  |
| (          | > loans in the past 24 months. Underwriters who         |
| continued) | > consistently approve loans that do not meet VA credit |
|            | > standards may be required to retake this training.    |
|            | >                                                       |
|            | > VA approval of an underwriter is automatically        |
|            | > terminated (without notice) if the underwriter is no  |
|            | > longer employed by the same lender. The lender        |
|            | > **must** report any such circumstances to VA.         |
|            | >                                                       |
|            | > The lender may **not** continue to close loans        |
|            | > automatically without a VA-approved underwriter.      |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > The lender may request VA approval to close loans     |
|  b. Approv | > involving an affiliate on an automatic basis          |
| al to Clos | > ("affiliate" as used here includes a real estate      |
| e Loans In | > brokerage firm and/or residential builder or          |
| volving an | > developer that the lender has a financial interest    |
|  Affiliate | > in, owns, is owned by, or is affiliated with). The    |
|            | > lender may request such approval at the time it       |
|            | > applies for automatic authority or any time           |
|            | > thereafter. Submit the request to the VA office with  |
|            | > jurisdiction over the lender's home office along with |
|            | > a corporate resolution from the lender and each       |
|            | > affiliate indicating they are separate entities       |
|            | > operating independently of each other.                |
|            |                                                         |
|            | -   The lender's corporate resolution must indicate     |
|            |     that it will not give more favorable underwriting   |
|            |     consideration to its affiliate's loans.             |
|            |                                                         |
|            | -   The affiliate's corporate resolution must indicate  |
|            |     that it will not seek to influence the lender to    |
|            |     give their loans more favorable underwriting        |
|            |     consideration.                                      |
|            |                                                         |
|            | > Letters from permanent investors indicating the       |
|            | > percentage of all VA loans based on the affiliate's   |
|            | > production originated by the lender over a one year   |
|            | > period that are past due 90 days or more. This        |
|            | > delinquency ratio must be no higher than the national |
|            | > average for the same period for all mortgage loans.   |
+------------+---------------------------------------------------------+

#### 7. How a Supervised or Nonsupervised Automatic Lender Requests VA Recognition of an Agent

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date |                                                         |
|            | -   This section has been changed to create subsection  |
|            |     lettering.                                          |
|            |                                                         |
|            | -   Subsections a, c, and i have been updated to        |
|            |     reflect nationwide authority for VA approved        |
|            |     lenders.                                            |
|            |                                                         |
|            | -   Subsection b's frequency has been changed from two  |
|            |     to "less than four."                                |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a    | > A lender must request VA recognition of an ongoing    |
| . Limitati | > relationship with an agent. "Ongoing" generally means |
| ons on Use | > use of an agent more than four times per year.        |
|  of Agents | >                                                       |
|            | > The lender may designate any individual or entity as  |
|            | > an agent to perform loan-related functions on its     |
|            | > behalf or in its name.                                |
|            | >                                                       |
|            | > The extent of the relationship between the lender and |
|            | > the agent is at the lender's discretion.              |
|            |                                                         |
|            | -   The lender must accept full responsibility for the  |
|            |     acts, errors, or omissions of the agent in          |
|            |     processing and/or closing loans.                    |
|            |                                                         |
|            | -   The lender accepts this responsibility by           |
|            |     certification on [VA Form                           |
|            |     26-1820](http:                                      |
|            | //www.vba.va.gov/pubs/forms/26-1820.pdf)[,]{.underline} |
|            |     Report and Certification of Loan Disbursement, and  |
|            |     the corporate resolution.                           |
|            |                                                         |
|            | -   The lender may **not** subsequently claim that it   |
|            |     should not be held accountable for inaccurate or    |
|            |     fraudulent credit information or other loan data    |
|            |     because it relied on the agent.                     |
|            |                                                         |
|            | -   Irregularities resulting from acts or omissions of  |
|            |     the agent are treated as acts or omissions of the   |
|            |     lender**.**                                         |
|            |                                                         |
|            | -   The lender's use of an agent will not prevent VA    |
|            |     from taking actions in appropriate cases such as:   |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   denial of liability,                                |
|            |                                                         |
|            | -   claim adjustments,                                  |
|            |                                                         |
|            | -   collection of the amount of any loss incurred due   |
|            |     to irregularities, and                              |
|            |                                                         |
|            | -   imposition of sanctions against both the lender and |
|            |     the agent.                                          |
|            |                                                         |
|            | > If the lender is a nonsupervised automatic lender,    |
|            | > loans made by an agent on its behalf which are closed |
|            | > automatically must:                                   |
|            |                                                         |
|            | -   be reviewed and approved by a VA-approved           |
|            |     underwriter employed by the lender.                 |
+------------+---------------------------------------------------------+

Continued on next page

7\. How a Supervised or Nonsupervised Automatic Lender Requests VA
Recognition of an Agent, Continued

+------------+---------------------------------------------------------+
| ###        | > If the lender uses an agent one time or very          |
| ## b. Use  | > infrequently (less than four times per year), it may  |
| of an Agen | > authorize the agency relationship on a loan-by-loan   |
| t on a One | > basis using the lender's certification on [VA Form    |
| time Basis | >                                                       |
|            | 26-1820](http://www.vba.va.gov/pubs/forms/26-1820.pdf). |
|            |                                                         |
|            | -   The lender must identify the agent and its function |
|            |     on that form.                                       |
|            |                                                         |
|            | -   No VA recognition of the agency relationship is     |
|            |     needed.                                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### c. H | > If the lender wishes to maintain an ongoing           |
| ow to Requ | > relationship with an agent, submit a request for      |
| est VA Rec | > recognition of the agency relationship to the VA      |
| ognition o | > office with jurisdiction over the lender's home       |
| f an Agent | > office. Include a corporate resolution which          |
|            | > contains:                                             |
|            |                                                         |
|            | -   the agent's name, address, and the geographic area  |
|            |     in which the agent will be originating and/or       |
|            |     closing VA loans                                    |
|            |                                                         |
|            | -   the agent's function(s) (such as, taking the loan   |
|            |     application, ordering the credit report and         |
|            |     verifications of employment and deposit, holding    |
|            |     settlement)                                         |
|            |                                                         |
|            | -   a statement that the lender takes full              |
|            |     responsibility for all acts, errors, or omissions   |
|            |     of the agent and its employees, and                 |
|            |                                                         |
|            | -   if the agent will enter into interest rate lock-in  |
|            |     agreements on the lender's behalf, a statement that |
|            |     the lender will honor the lock-in.                  |
|            |                                                         |
|            | > ***Note***: A conditional loan purchase agreement,    |
|            | > wherein the lender agrees only to purchase the        |
|            | > agent's production subject to the lender's review and |
|            | > approval, is unacceptable.                            |
|            | >                                                       |
|            | > Also include appropriate fees with the request.       |
|            |                                                         |
|            | -   Remit a \$100 fee for each agent.                   |
|            |                                                         |
|            | > The lender may begin to use an agent after VA sends   |
|            | > recognition of the relationship to the lender in      |
|            | > writing. Even with formal VA recognition, the lender  |
|            | > **must** identify the agent and its function on [VA   |
|            | > Form                                                  |
|            | >                                                       |
|            |  26-1820](http://www.vba.va.gov/pubs/forms/26-1820.pdf) |
|            | > for each loan involving an agent.                     |
+------------+---------------------------------------------------------+

Continued on next page

7\. How a Supervised or Nonsupervised Automatic Lender Requests VA
Recognition of an Agent, Continued

+------------+---------------------------------------------------------+
| ##### d    | > Lenders that use a multitude of agents on an ongoing  |
| . Lenders  | > basis may submit a **"**blanket" corporate resolution |
| That use a | > that contains:                                        |
|  Multitude |                                                         |
|  of Agents | -   the agents' function(s) (such as, taking the loan   |
|            |     application, ordering the credit report and         |
|            |     verifications of employment and deposit, holding    |
|            |     settlement)                                         |
|            |                                                         |
|            | -   a statement that the lender takes full              |
|            |     responsibility for all acts, errors, or omissions   |
|            |     of its agents and agents' employees                 |
|            |                                                         |
|            | -   if agents will enter into interest rate lock-in     |
|            |     agreements on the lender's behalf, a statement that |
|            |     the lender will honor the lock-in, and              |
|            |                                                         |
|            | -   the identity of the officer(s) of the lender who is |
|            |     (are) delegated authority to request recognition of |
|            |     additional agents under the "blanket" corporate     |
|            |     resolution and delete agents.                       |
|            |                                                         |
|            | > Even using a "blanket" corporate resolution, a        |
|            | > request for VA recognition must be made for each new  |
|            | > agent and appropriate fees paid. Include the agent's  |
|            | > name, address, and the geographic area in which the   |
|            | > agent will be originating and/or closing VA loans and |
|            | > refer to the "blanket" corporate resolution, giving   |
|            | > the date the board adopted it. The lender may begin   |
|            | > to use an agent after VA sends recognition of the     |
|            | > relationship to the lender in writing.                |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > Each agent must contact the VA office with            |
| #### e. VA | > jurisdiction over its home office to obtain a VA      |
|  ID Number | > lender ID number if it does not already have one.     |
|            | > This number is used as the agent's identifier in all  |
|            | > VA lending transactions, whether the agent is acting  |
|            | > as an "agent," or on its own behalf as a "lender."    |
+------------+---------------------------------------------------------+

Continued on next page

7\. How a Supervised or Nonsupervised Automatic Lender Requests VA
Recognition of an Agent, Continued

+------------+---------------------------------------------------------+
| ##### f.   | > If the loan is closed and funded by the lender        |
| How to Com | > (**not** the agent) or an agent conducts the closing  |
| plete [VA  | > but a sponsoring lender buys (funds) the loan at      |
| Form 26-18 | > closing (commonly called table funding), enter the:   |
| 20](http:/ |                                                         |
| /www.vba.v | -   lender's VA ID number in item 2B, and               |
| a.gov/pubs |                                                         |
| /forms/26- | -   name and function of the agent in item 24J.         |
| 1820.pdf)  |                                                         |
|            | > ***Note***: The lender must complete items 25 and 26. |
|            | >                                                       |
|            | > If the loan is closed and funded in the agent's name  |
|            | > pursuant to an agency agreement, enter the following: |
|            |                                                         |
|            | -   agent's VA ID number in item 2B                     |
|            |                                                         |
|            | -   name and function of the agent in item 24J, and     |
|            |                                                         |
|            | -   agent's name, followed by the words "agent for      |
|            |     (lender's name)," and agent's address in 25A.       |
|            |                                                         |
|            | > ***Note***: The agent must complete items 25 and 26.  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### g    | > [VA Form                                              |
| . Enter Bo | >                                                       |
| th ID Numb | 26-0286](http://www.vba.va.gov/pubs/forms/26-0286.pdf), |
| ers on [VA | > VA Loan Summary Sheet, contains spaces marked "Lender |
|  Form 26-0 | > VA ID Number" and "Agent VA ID Number (if             |
| 286](http: | > applicable)." Always enter both ID numbers if an      |
| //www.vba. | > agent has performed any function(s) on behalf of the  |
| va.gov/pub | > sponsoring lender in connection with the loan.        |
| s/forms/26 |                                                         |
| -0286.pdf) |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > VA will issue the Loan Guaranty Certificate (LGC) to  |
| # h. Who i | > the sponsoring lender at the address which            |
| s the LGC  | > corresponds to the lender VA ID number entered on [VA |
| Issued to? | > Form                                                  |
|            | >                                                       |
|            | 26-0286](http://www.vba.va.gov/pubs/forms/26-0286.pdf), |
|            | > unless the lender requests that it be sent to the     |
|            | > agent in the "Remarks" block of that form.            |
+------------+---------------------------------------------------------+

Continued on next page

7\. How a Supervised or Nonsupervised Automatic Lender Requests VA
Recognition of an Agent, Continued

+------------+---------------------------------------------------------+
| ###        | > If the lender has automatic authority, its agent can  |
| ## i. When | > close loans automatically on its behalf. This can be  |
|  Can an Ag | > done to the extent the loans could be closed          |
| ent Close  | > automatically if made by the lender, provided VA      |
| Loans Auto | > requirements for recognition of an agency             |
| matically? | > relationship and reporting it on [VA Form             |
|            | >                                                       |
|            |  26-1820](http://www.vba.va.gov/pubs/forms/26-1820.pdf) |
|            | > have been complied with.                              |
|            | >                                                       |
|            | > If the lender is a nonsupervised automatic lender,    |
|            | > this means all loans must be reviewed and approved by |
|            | > a VA-approved underwriter employed by the lender.     |
|            |                                                         |
|            | ***Note***: The underwriter's certification must appear |
|            | on [VA Form                                             |
|            | 26-6393](http://www.vba.va.gov/pubs/forms/26-6393.pdf), |
|            | Loan Analysis, as required for VA loans closed on the   |
|            | automatic basis that do not involve agents.             |
|            |                                                         |
|            | > In other words, it does not matter whether the agent  |
|            | > itself has automatic authority. When the agent is     |
|            | > acting as the lender's agent pursuant to a            |
|            | > VA-recognized agency relationship, the conditions of  |
|            | > the lender's automatic authority must be complied     |
|            | > with.                                                 |
|            | >                                                       |
|            | > Loans closed by a lender's agent without a            |
|            | > VA-recognized agency relationship in place are        |
|            | > considered loans of that agent, and **not** of the    |
|            | > lender.                                               |
|            |                                                         |
|            | -   If the agent does not itself have automatic         |
|            |     authority, the loans are not automatically          |
|            |     guaranteed and cannot subsequently be assigned to   |
|            |     the lender as automatically guaranteed.             |
|            |                                                         |
|            | -   If the agent itself has automatic authority, the    |
|            |     lender may purchase the loans from the agent and    |
|            |     consider them automatically guaranteed.             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### j.   | > If the lender does not have automatic authority and   |
|  Use of Ag | > wishes to use the services of an agent, the lender    |
| ents by Pr | > does **not** need to request VA recognition of the    |
| ior Approv | > agency relationship.                                  |
| al Lenders |                                                         |
|            | -   Submit all loans to VA for prior approval, and      |
|            |                                                         |
|            | -   When reporting the loan after closing, follow the   |
|            |     instructions in "How to Complete [VA Form           |
|            |                                                         |
|            | 26-1820](http://www.vba.va.gov/pubs/forms/26-1820.pdf)" |
|            |     (in this section) to document use of the agent.     |
+------------+---------------------------------------------------------+

#### 8. Mergers and Acquisitions Involving Supervised or Nonsupervised Automatic Lenders

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | Subsection b has been changed to add reference          |
|            | including VA ID numbers and for contacting Central      |
|            | Office with questions pertaining to merger and          |
|            | acquisition transactions.                               |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a.   | > Changes in the ownership or corporate structure of a  |
|  The Issue | > lender may impact its continued qualifications for    |
|            | > automatic authority. Lenders must notify VA whenever  |
|            | > a merger, acquisition, or change in the ownership of  |
|            | > the lender occurs, so that VA can evaluate any impact |
|            | > on the lender's participation in the VA-guaranteed    |
|            | > loan program.                                         |
|            | >                                                       |
|            | > Although only the terms "merger" and "acquisition"    |
|            | > and "selling," "acquiring" or "surviving" entities    |
|            | > are used in this paragraph, the concepts and          |
|            | > procedures in this paragraph apply to every type of   |
|            | > restructuring that has a significant impact on an     |
|            | > organization's ownership, structure, or assets, and   |
|            | > so on.                                                |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### b.   | > Whenever a lender with automatic authority is         |
| Required S | > involved in a merger or acquisition, it **must**      |
| ubmissions | > submit a \$100 processing fee along with the          |
|            | > following information to the VA office with           |
|            | > jurisdiction over its home office:                    |
|            |                                                         |
|            | -   the names of the acquiring and selling entities,    |
|            |     and the surviving entity.                           |
|            |                                                         |
|            | -   the information listed in the "Sending The Initial  |
|            |     Information Package to VA" heading in section 2 of  |
|            |     this chapter, as applied to the surviving entity.   |
|            |                                                         |
|            | -   a general description of the assets being acquired. |
|            |                                                         |
|            | -   the addresses of all branch offices and their       |
|            |     current VA ID numbers that are involved in VA       |
|            |     mortgage lending, and whether they will continue to |
|            |     operate or be closed.                               |
|            |                                                         |
|            | -   a list of agents and their VA ID numbers that will  |
|            |     be used by the surviving entity and have already    |
|            |     been recognized by VA as agents of the selling or   |
|            |     acquiring entities.                                 |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   requests for recognition of **new agents** may      |
|            |     accompany the submission along with appropriate     |
|            |     fees and corporate resolutions. (See section 7 of   |
|            |     this chapter.)                                      |
|            |                                                         |
|            |     ***Note***: Any of these items that remain          |
|            |     unchanged do **not** have to be resubmitted; simply |
|            |     indicate that they are unchanged.                   |
+------------+---------------------------------------------------------+

Continued on next page

8\. Mergers and Acquisitions Involving Supervised or Nonsupervised
Automatic Lenders, Continued

+------------+---------------------------------------------------------+
| b\.        | > Questions about merger or acquisition transaction can |
| Required   | > be sent to VA central office by e-mail to             |
| S          | > [lgymerger@vba.va.gov](mailto:LGYMERGER@VBA.VA.GOV)   |
| ubmissions | > or can be directed to the RLC of jurisdiction.        |
| (          | >                                                       |
| continued) | > Since each merger or acquisition is unique, VA may    |
|            | > discover that it needs to request additional          |
|            | > information from the lender during its review.        |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### c    | > Nonsupervised automatic lenders must also provide:    |
| . Addition |                                                         |
| al Submiss | -   a resume for each new owner or principal officer    |
| ions for N |     (president plus any officers involved in managing   |
| onsupervis |     loan origination functions) of the surviving entity |
| ed Automat |     showing mortgage lending experience, and            |
| ic Lenders |                                                         |
|            | -   a list of underwriters to be employed by the        |
|            |     surviving entity who had already been approved by   |
|            |     VA as underwriters for the selling or acquiring     |
|            |     entities. Requests for approval of new underwriters |
|            |     may accompany the submission along with appropriate |
|            |     fees and application materials.                     |
|            |                                                         |
|            | > **Reference**: See section 7 of this chapter.         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### d.   | > LAPP lenders must also provide a list of LAPP SARs to |
|  Additiona | > be employed by the surviving entity who had already   |
| l Submissi | > been approved by VA as SARs for the selling or        |
| ons for LA | > acquiring entities. Include their SAR ID numbers and  |
| PP Lenders | > a copy of any VA letter(s) which state that these     |
|            | > SARs have met the VA training and case review         |
|            | > requirements.                                         |
|            | >                                                       |
|            | > Additional Submissions                                |
|            | >                                                       |
|            | > An additional submission is required for any of these |
|            | > SARs **if** the entity that employed them when they   |
|            | > were approved by VA bore a different company name     |
|            | > than the surviving entity. For each such SAR, submit  |
|            | > a newly executed SAR application and lender           |
|            | > certifications by the surviving entity, in the        |
|            | > prescribed order. (See [chapter                       |
|            | > 15](http://                                           |
|            | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch15.doc) |
|            | > of this handbook.)                                    |
|            | >                                                       |
|            | > **Exception**: If the entity that previously employed |
|            | > the SAR was a wholly owned subsidiary of the          |
|            | > surviving entity, this additional submission may not  |
|            | > be required.                                          |
+------------+---------------------------------------------------------+

Continued on next page

8\. Mergers and Acquisitions Involving Supervised or Nonsupervised
Automatic Lenders, Continued

+------------+---------------------------------------------------------+
| d\.        | > Also provide a list of the LAPP SARs (and their ID    |
| Additional | > numbers) of the selling or acquiring entities that    |
| S          | > will no longer be employed by the surviving entity.   |
| ubmissions | >                                                       |
| for LAPP   | > Requests for approval of new SARs may accompany the   |
| Lenders    | > submission along with appropriate fees and            |
| (          | > application materials.                                |
| continued) | >                                                       |
|            | > **Reference**: See [chapter                           |
|            | > 15](http://                                           |
|            | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch15.doc) |
|            | > of this handbook.                                     |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > A change in the ownership of a nonsupervised          |
| ## e. Imme | > automatic lender always extinguishes the automatic    |
| diate Impa | > authority (and therefore the LAPP authority) of the   |
| ct While V | > lender unless the new entity is supervised; such as,  |
| A Reviews  | > automatic authority is not for sale.                  |
| Submission | >                                                       |
|            | > Whenever a supervised lender undergoes merger or      |
|            | > acquisition, apply the standards detailed in section  |
|            | > 4 of this chapter, to determine whether the surviving |
|            | > entity is supervised.                                 |
|            | >                                                       |
|            | > The following table lists some of the scenarios that  |
|            | > can emerge from a merger or acquisition and provides: |
|            |                                                         |
|            | -   whether the surviving entity can exercise automatic |
|            |     authority while VA is reviewing its                 |
|            |     merger/acquisition submission, and                  |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   any additional submissions the entity must send to  |
|            |     VA.                                                 |
|            |                                                         |
|            | > ***Note***: These are in addition to the required     |
|            | > submissions detailed in the preceding material in     |
|            | > this section.                                         |
+------------+---------------------------------------------------------+

  --------------- --------------- ------------------ ---------------------
  Prior Status of Status of       Additional         Authority of
  Restructured    Surviving       Submissions Needed Surviving Entity
  Entity(ies)     Entity Appears                     while Awaiting VA
                  to be                              Review

  Supervised      Supervised by a None               Automatic authority
  and/or          Federal entity                     continues.
  Nonsupervised   listed in                          
  Automatic       section 3 of                       
                  this chapter*.*                    

  Supervised      Supervised by   Copy of State      Automatic authority
  and/or          the State of    license specified  continues.
  Nonsupervised   Illinois or New in section 3 of    
  Automatic       Jersey.         this chapter*.*    
  --------------- --------------- ------------------ ---------------------

Continued on next page

8\. Mergers and Acquisitions Involving Supervised or Nonsupervised
Automatic Lenders, Continued

  -----------------------------------------------------------------------
  e\. Immediate Impact While VA Reviews Submission (continued)

  -----------------------------------------------------------------------

  --------------- --------------- ------------------ ----------------------
  Prior Status of Status of       Additional         Authority of Surviving
  Restructured    Surviving       Submissions Needed Entity while Awaiting
  Entity(ies)     Entity Appears                     VA Review
                  to be                              

  At least one of Supervised, but Request for        If the nature and
  the entities    status is not   recognition as     source of supervision
  was supervised  clear. VA       supervised and     of the surviving
                  recognition as  information        entity is the same as
                  supervised is   specified in       for the prior
                  required under  section 3 of this  supervised entity,
                  section 3 of    chapter*.*         automatic authority
                  this chapter*.*                    continues. If
                                                     supervision has
                                                     changed, submit all
                                                     loans for prior
                                                     approval until VA
                                                     makes a determination.

  Nonsupervised   Supervised, but Request for        Submit all loans for
  Automatic only  status is not   recognition as     prior approval until
                  clear. VA       supervised and     VA makes a
                  recognition as  information        determination.
                  supervised is   specified in       
                  required under  section 3 of this  
                  section 3 of    chapter*.*         
                  this chapter*.*                    

  Nonsupervised   Nonsupervised   If the surviving   Automatic authority is
  Automatic with  lender          entity wishes to   extinguished. Submit
  different                       have automatic     all loans for prior
  ownership than                  authority, it must approval until VA
  surviving                       submit a complete  makes a determination
  entity and/or a                 new application    on the application for
  supervised                      for automatic      automatic authority.
  lender                          authority with the 
                                  appropriate fee    
                                  (see section 5 of  
                                  this chapter).     

  Nonsupervised   Nonsupervised   None               Automatic authority
  Automatic with  Lender                             continues if lender
  same ownership                                     retains its
  as surviving                                       VA-approved
  entity                                             underwriter(s).
  --------------- --------------- ------------------ ----------------------

#### 9. Withdrawal of Automatic Authority from Supervised or Nonsupervised Automatic Lenders

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > VA can withdraw a lender's automatic authority for    |
| a. General | > proper cause, after giving the lender 30 days'        |
|            | > notice.                                               |
|            |                                                         |
|            | -   This applies to both supervised and nonsupervised   |
|            |     lenders.                                            |
|            |                                                         |
|            | -   VA regulations at [38 CFR                           |
|            |     36.4349](http://ww                                  |
|            | w.warms.vba.va.gov/Regs/38CFR/BOOKH/PART36/36_4349.doc) |
|            |     provide the framework.                              |
|            |                                                         |
|            | -   The lender may continue processing loans on a prior |
|            |     approval basis after its automatic authority has    |
|            |     been withdrawn.                                     |
|            |                                                         |
|            | > The remainder of this paragraph gives the reasons a   |
|            | > lender's automatic authority can be withdrawn, and    |
|            | > the corresponding period for which the withdrawal     |
|            | > will be effective.                                    |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > Withdrawal for an indefinite period can be based on   |
| # b. Withd | > any of the following:                                 |
| rawal for  |                                                         |
| an Indefin | -   Failure to continue meeting basic qualifying        |
| ite Period |     criteria.                                           |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   For supervised lenders this includes loss of status |
|            |     as an entity subject to examination and supervision |
|            |     by a Federal or State regulatory agency.            |
|            |                                                         |
|            | -   For nonsupervised lenders this includes no approved |
|            |     underwriter, failure to maintain \$50,000 working   |
|            |     capital or \$250,000 adjusted net worth, and/or     |
|            |     failure to file the required financial statements.  |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   Any of the causes for debarment set forth in 38 CFR |
|            |     44.                                                 |
|            |                                                         |
|            | -   During the probationary period for newly-approved   |
|            |     nonsupervised automatic lenders, automatic          |
|            |     authority may be withdrawn for poor underwriting or |
|            |     consistently careless processing.                   |
+------------+---------------------------------------------------------+

Continued on next page

9\. Withdrawal of Automatic Authority from Supervised or Nonsupervised
Automatic Lenders, Continued

+------------+---------------------------------------------------------+
| #          | > Withdrawal for 60 days can be based on any of the     |
| #### c. Wi | > following:                                            |
| thdrawal f |                                                         |
| or 60 Days | -   Loan submissions show deficiencies in credit        |
|            |     underwriting after repeatedly being called to the   |
|            |     lender's attention.                                 |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   Examples:                                           |
|            |                                                         |
|            | -   Use of unstable sources of income to qualify        |
|            |     borrower.                                           |
|            |                                                         |
|            | -   Ignoring significant adverse credit items affecting |
|            |     applicant's creditworthiness.                       |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   Employment or deposit verifications are hand        |
|            |     carried by applicants or otherwise improperly       |
|            |     permitted to pass through the hands of a third      |
|            |     party.                                              |
|            |                                                         |
|            | -   Consistently incomplete loan submissions after      |
|            |     repeatedly being called to the lender's attention.  |
|            |                                                         |
|            | -   Continued instances of disregard of VA requirements |
|            |     after repeatedly being called to the lender's       |
|            |     attention.                                          |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > Withdrawal for 180 days can be based on any of the    |
| ### d. Wit | > following:                                            |
| hdrawal fo |                                                         |
| r 180 Days | -   Loans conflict with VA credit standards and would   |
|            |     not have been made by a lender acting prudently.    |
|            |                                                         |
|            | -   Failure to disclose to VA significant obligations   |
|            |     or other information so material to the veteran's   |
|            |     ability to repay the loan that undue risk to the    |
|            |     Government results.                                 |
|            |                                                         |
|            | -   Employment or deposit verifications are handcarried |
|            |     by the applicant or otherwise mishandled, resulting |
|            |     in submission of significant misinformation to VA.  |
|            |                                                         |
|            | -   Substantiated complaints are received that the      |
|            |     lender misrepresented VA requirements to veterans   |
|            |     to the detriment of their interests.                |
|            |                                                         |
|            |     ***Examples***:                                     |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   The veteran was dissuaded from seeking a lower      |
|            |     interest rate based on lender's incorrect advice    |
|            |     that such options were excluded by VA requirements. |
|            |                                                         |
|            |     \- Closing documents show instances of improper     |
|            |     charges to veteran after                            |
|            |                                                         |
|            |     the impropriety of such charges are called to       |
|            |     lender's attention by VA, or                        |
|            |                                                         |
|            |     the lender refuses to refund such charges after     |
|            |     notification by VA.                                 |
|            |                                                         |
|            | -   Other instances of lender actions prejudicial to    |
|            |     the interests of veterans such as deliberate delays |
|            |     in scheduling loan closings.                        |
+------------+---------------------------------------------------------+

Continued on next page

9\. Withdrawal of Automatic Authority from Supervised or Nonsupervised
Automatic Lenders, Continued

+------------+---------------------------------------------------------+
| ####       | > Withdrawal for one to three years can be based on any |
| # e. Withd | > of the following:                                     |
| rawal for  |                                                         |
| One to Thr | -   Failure to properly disburse loans.                 |
| ee Years { |                                                         |
| #e.-withdr |     **Example**: Loan disbursement checks are returned  |
| awal-for-o |     due to insufficient funds.                          |
| ne-to-thre |                                                         |
| e-years .u | -   Involvement by the lender in the improper use of a  |
| nnumbered} |     veteran's entitlement.                              |
|            |                                                         |
|            |     **Example**: Knowingly permitting the veteran to    |
|            |     violate occupancy requirements.                     |
|            |                                                         |
|            | -   Lender involvement in the veteran's sale of         |
|            |     entitlement to a third party. **Example**: A lender |
|            |     makes the loan with the knowledge that the veteran  |
|            |     is not purchasing the property to be his or her     |
|            |     home. Instead, the veteran intends to transfer      |
|            |     title to a third party who assumes the loan shortly |
|            |     after closing.                                      |
+------------+---------------------------------------------------------+

#### 10. Participation Fees for Supervised and Nonsupervised Automatic Lenders

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | -   Subsection a has been changed to add a link to the  |
|            |     regulatory authority.                               |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   Subsection e has been changed to clarify fees       |
|            |     charged with mergers and acquisitions.              |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > VA is authorized by                                   |
| #### a. In | > [38CFR36**.**4348](http://ww                          |
| troduction | w.warms.vba.va.gov/regs/38cfr/bookh/part36/36_4348.doc) |
|            | > to collect fees from lenders with automatic authority |
|            | > to help defray the costs of administering the Loan    |
|            | > Guaranty Program. Always submit fees to the VA office |
|            | > with jurisdiction over the lender's home office. Fees |
|            | > consist of:                                           |
|            |                                                         |
|            | -   Annual participation fees, and                      |
|            |                                                         |
|            | -   Administrative fees (for processing lender          |
|            |     requests).                                          |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   If the lender submits a request for administrative  |
|            |     action without the correct processing fee, VA will  |
|            |     delay processing of the request until the fee is    |
|            |     received.                                           |
|            |                                                         |
|            | -   Fees are nonrefundable, even if the request is      |
|            |     denied (except in cases of accidental overpayment). |
|            |                                                         |
|            | > Pay all fees by lender's check to the Department of   |
|            | > Veterans Affairs.                                     |
|            | >                                                       |
|            | > If an agent, underwriter, or SAR recognized or        |
|            | > approved by VA for a role with one lender begins work |
|            | > for another lender, the new lender must request and   |
|            | > pay the fee for a new VA recognition or approval of   |
|            | > that individual.                                      |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Remit fees within 120 days of the end of the lender's |
| b. Annual  | > fiscal year to the VA office with jurisdiction of the |
| Fees for N | > lender's home office. If the lender has ongoing       |
| onsupervis | > VA-recognized agency relationships, a list of agency  |
| ed Automat | > relationships the lender wants to renew.              |
| ic Lenders |                                                         |
+------------+---------------------------------------------------------+

Continued on next page

10\. Participation Fees for Supervised and Nonsupervised Automatic
Lenders, Continued

+------------+---------------------------------------------------------+
| b\. Annual | > The fees are:                                         |
| Fees for   |                                                         |
| Non        | -   \$200 annual recertification fee.                   |
| supervised |                                                         |
| Automatic  | -   \$100 for annual renewal of each agent that acts    |
| Lenders    |     for the lender on an ongoing basis and had been     |
| (          |     recognized by VA as the lender's agent as of the    |
| continued) |     end of its fiscal year. ***Exception***: No annual  |
|            |     fee is due for an agent if VA's letter of           |
|            |     recognition is dated within the last quarter of the |
|            |     lender's most recent fiscal year.                   |
|            |                                                         |
|            | -   \$500 for processing an application for automatic   |
|            |     authority.                                          |
|            |                                                         |
|            | > The fee:                                              |
|            |                                                         |
|            | -   includes any requests submitted simultaneously for  |
|            |     the review of underwriter nominees, and             |
|            |                                                         |
|            | -   does not include simultaneous requests for          |
|            |     recognition of agents                               |
|            |                                                         |
|            | > (This requires an additional \$100 fee per agent.)    |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > Remit fees along with requests for approval,          |
| # c. Other | > recognition, or other VA action related to lender     |
|            | > status.                                               |
| ###        | >                                                       |
| ## Adminis | > The fees are:                                         |
| trative Fe |                                                         |
| es for Non | -   \$100 for processing requests for approval of each  |
| supervised |     nominee for underwriter (Not required if submitted  |
|            |     with the request for automatic authority).          |
| ###        |                                                         |
| ## Automat | -   \$100 for processing requests for VA recognition of |
| ic Lenders |     each lender agent                                   |
|            |                                                         |
|            | -   \$200 for processing requests for reinstatement of  |
|            |     lapsed or terminated automatic authority, and       |
|            |                                                         |
|            | -   a minimum fee of \$100 per request for any other VA |
|            |     administrative actions pertaining to a lender's     |
|            |     participation in the automatic lending program.     |
|            |                                                         |
|            |     **Examples**:                                       |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   Submission from a lender that undergoes a merger.   |
|            |                                                         |
|            | -   If the fee to process a request is greater than     |
|            |     \$100, VA will notify the lender.                   |
+------------+---------------------------------------------------------+

Continued on next page

10\. Participation Fees for Supervised and Nonsupervised Automatic
Lenders, Continued

+------------+---------------------------------------------------------+
| #####      | > Annual fees for supervised lenders are **only**       |
| d. Annual  | > required of lenders with ongoing agency               |
| Fees for S | > relationships. Remit fees by January 31 of each year  |
| upervised  | > based on the lender's agency relationships in the     |
| Lenders {# | > previous calendar year, along with a list of agency   |
| d.-annual- | > relationships the lender wants to renew.              |
| fees-for-s | >                                                       |
| upervised- | > The fees are:                                         |
| lenders .u |                                                         |
| nnumbered} | -   \$100 for annual renewal of each lender agent that  |
|            |     acts for the lender on an ongoing basis and has     |
|            |     been recognized by VA as the lender's agent, and    |
|            |                                                         |
|            | -   annual fee is due for an agent if VA's letter of    |
|            |     recognition is dated within the last quarter of the |
|            |     most recent calendar year.                          |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > The fees are:                                         |
| #### e. Ad | >                                                       |
| ministrati | > \$100 for processing requests for VA recognition of   |
| ve Fees fo | > each lender agent.                                    |
| r Supervis |                                                         |
| ed Lenders |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Lenders must pay a one-time \$100 fee for each staff  |
| f. LAPP Fe | > appraisal reviewer (SAR) applicant. Remit the fee     |
| es {#f.-la | > with the SAR application to the appropriate VA        |
| pp-fees .u | > office. The fee is nonrefundable, even if the         |
| nnumbered} | > applicant is found not to be acceptable.              |
|            | >                                                       |
|            | > If a SAR is approved and subsequently moves to        |
|            | > another lender, a \$100 application fee must be paid  |
|            | > by the new employer.                                  |
|            | >                                                       |
|            | > For detailed information on the Lender Appraisal      |
|            | > Processing Program (LAPP), see [chapter               |
|            | > 15](http://                                           |
|            | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch15.doc) |
|            | > of this handbook.                                     |
+------------+---------------------------------------------------------+

#### 11. Maintenance of Loan Records {#maintenance-of-loan-records .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a. R | > Lenders must maintain copies of all loan origination  |
| equirement | > records on VA guaranteed home loans for at least two  |
|  {#a.-requ | > years from the date of loan closing. Even if the loan |
| irement .u | > is sold, the original lender must maintain these      |
| nnumbered} | > records (or legible copies) for the required period.  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Loan origination records include:                     |
| b. Example |                                                         |
| s of Loan  | -   the loan application (including any preliminary     |
| Records {# |     application)                                        |
| b.-example |                                                         |
| s-of-loan- | -   verifications of employment and deposit             |
| records .u |                                                         |
| nnumbered} | -   all credit reports (including preliminary credit    |
|            |     reports)                                            |
|            |                                                         |
|            | -   copies of each sales contract and addendum          |
|            |                                                         |
|            | -   letters of explanation for adverse credit items,    |
|            |     discrepancies and the like                          |
|            |                                                         |
|            | -   direct references from creditors                    |
|            |                                                         |
|            | -   correspondence with employers                       |
|            |                                                         |
|            | -   appraisal and compliance inspection reports         |
|            |                                                         |
|            | -   reports on termite and other inspections of the     |
|            |     property                                            |
|            |                                                         |
|            | -   builder change orders, and                          |
|            |                                                         |
|            | -   all closing papers and documents.                   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > Lenders must make these records accessible to VA      |
| ### c. Acc | > personnel conducting audit reviews.                   |
| essibility |                                                         |
+------------+---------------------------------------------------------+

#### 12. Lender ID Numbers

+------------+---------------------------------------------------------+
| ##### C    | > September 15, 2004, Change 4                          |
| hange Date | >                                                       |
|            | > This section has been changed to create subsection    |
|            | > lettering.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Each lender is assigned an ID number by VA to use as  |
| a. Purpose | > an identifier in all VA loan transactions. The ID     |
|            | > number is linked to the mailing address provided by   |
|            | > the lender to VA. It enables the lender to receive    |
|            | > documents through VA's automated systems. These       |
|            | > documents include:                                    |
|            |                                                         |
|            | -   information mailings to all lenders, or lenders     |
|            |     within a certain geographic area                    |
|            |                                                         |
|            | -   VA-generated documents pertaining to individual     |
|            |     loans, such as the Loan Guaranty Certificate, and   |
|            |                                                         |
|            | -   receipts for payment of the VA funding fee.         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Agents also must have a lender ID number. Agents      |
|  b. Agents | > should use this ID number for all VA lending          |
|            | > transactions, whether acting as an "agent" or a       |
|            | > "lender."                                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### c.   | > The first six digits are unique to each lender and    |
| The 11 Dig | > always stay the same.                                 |
| its of the | >                                                       |
|  ID Number | > The next four digits indicate the home or branch      |
|            | > office of the lender.                                 |
|            |                                                         |
|            | -   The home office is always four zeros.               |
|            |                                                         |
|            | -   Anything other than four zeros indicates a branch   |
|            |     office. A unique four-digit number is assigned to   |
|            |     each branch office for which the lender requests an |
|            |     ID number.                                          |
|            |                                                         |
|            |     The eleventh digit is a check digit assigned by VA. |
+------------+---------------------------------------------------------+

Continued on next page

12\. Lender ID Numbers, Continued

+------------+---------------------------------------------------------+
| #          | > Most lenders obtain their lender ID numbers after     |
| #### d. Ho | > sending an initial information package to VA, as      |
| w to Obtai | > described in section 2 of this chapter. VA will       |
| n a Lender | > automatically assign an ID number to the lender at    |
|  ID Number | > that time for the home office, and may assign         |
|            | > separate ID numbers to branch offices. (If the lender |
|            | > knows that it wants ID numbers for its branch offices |
|            | > at that time, the lender should specifically request  |
|            | > this.)                                                |
|            | >                                                       |
|            | > A lender must specifically request assignment of an   |
|            | > ID number in the following circumstances:             |
|            |                                                         |
|            | -   The lender has not previously obtained an ID number |
|            |     from VA and will be acting as an agent for another  |
|            |     lender.                                             |
|            |                                                         |
|            |     ***Note***: Request the ID number from the VA       |
|            |     office with jurisdiction over the agent's home      |
|            |     office location.                                    |
|            |                                                         |
|            | -   The lender already has a VA ID number for its home  |
|            |     office, but wants correspondence and loan documents |
|            |     related to loan transactions in a certain           |
|            |     geographic area sent to the address of a branch     |
|            |     office for which no separate lender ID number has   |
|            |     previously been assigned.                           |
|            |                                                         |
|            |     ***Note***: Request the ID number from the VA       |
|            |     office with jurisdiction over the branch office     |
|            |     location.                                           |
+------------+---------------------------------------------------------+

#### 13. Lender Access to Training and Information

+-----------+----------------------------------------------------------+
| ##### Ch  | > July 20, 2007, Change 5                                |
| ange Date |                                                          |
|           | -   Subsection b has been updated to reflect currently   |
|           |     offered televised trainings.                         |
|           |                                                          |
|           | -   Subsections e and g have been changed to update the  |
|           |     Lenders/Servicers home page to its new name,         |
|           |     "Lenders, Servicers, Real Estate Professionals."     |
+-----------+----------------------------------------------------------+

+-----------+----------------------------------------------------------+
| ##        | > Each VA office of jurisdiction conducts regular        |
| ### a. VA | > training sessions on VA requirements, credit           |
|  Training | > standards, procedures, and so on, for lenders and      |
|  Sessions | > other program participants in its jurisdiction.        |
|           |                                                          |
|           | -   At a minimum, have a representative attend one VA    |
|           |     training session per year.                           |
|           |                                                          |
|           | -   Increase participation if lender management or VA    |
|           |     identifies a greater need.                           |
|           |                                                          |
|           | > Discuss any special training needs with the VA office  |
|           | > of jurisdiction.                                       |
+-----------+----------------------------------------------------------+

+-----------+----------------------------------------------------------+
| ##        | > VA offers interactive televised training sessions to   |
| ### b. Na | > lenders and holders/servicers on a nationwide basis.   |
| tionally  | > Current and future training broadcasts are announced   |
| Televised | > through the VA Training home page at                   |
|  Training | > <http://www.homeloans.va.gov/train.htm>.               |
|           | >                                                        |
|           | > Videotapes of previous broadcasts may be purchased     |
|           | > from Multi Video Services at 1-800-800-3827.           |
+-----------+----------------------------------------------------------+

+-----------+----------------------------------------------------------+
| ##### c.  | > Free VA training software which addresses VA loan      |
|  Training | > processing and appraisal issues is available through   |
|  Software | > [VA's Training](http://www.homeloans.va.gov/train.htm) |
|           | > home page.                                             |
+-----------+----------------------------------------------------------+

  ------------ ----------------------------------------------------------
  d\. Internet Free VA web based training is available at [VA's
  Training     Training](http://www.homeloans.va.gov/train.htm) home page
               using any standard Internet browser. This courseware, when
               successfully completed, will meet the 8 hour underwriter
               training course requirement.

  ------------ ----------------------------------------------------------

Continued on next page

13\. Lender Access to Training and Information, Continued

+-----------+----------------------------------------------------------+
| ###       | > The Lender's Handbook, Servicing Guide, selected VA    |
| ## e. Ele | > circulars, and other information are all available     |
| ctronic D | > through VA's Lenders, Servicers, Real Estate           |
| ocuments  | > Professionals Internet page at                         |
| and Files | > <http://www.homeloans.va.gov/ls.htm>.                  |
+-----------+----------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > It is essential that lenders inform the appropriate   |
| #### f. Re | > VA office whenever they have an address change.       |
| ceipt of V | > Informational mailings are sent to the address        |
| A Mailings | > associated with a lender's VA ID number.              |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Contact the VA office with jurisdiction over the      |
|  g. VA Off | > lender's home office to request any information not   |
| ices of Ju | > found in this Lender's Handbook. Some VA offices have |
| risdiction | > their own Internet sites with information of interest |
|            | > to lenders. These sites can be accessed through VA's  |
|            | > Lenders, Servicers, Real Estate Professionals         |
|            | > Internet page.                                        |
|            | >                                                       |
|            | > To discuss issues on a particular loan, contact the   |
|            | > [VA office with                                       |
|            | > jurisdiction](http://                                 |
|            | www.warms.vba.va.gov/admin26/pamphlet/pam26_7/appa.doc) |
|            | > over the geographic area in which the property is     |
|            | > located.                                              |
+------------+---------------------------------------------------------+

#### 14. Calculation of Adjusted Net Worth 

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date | >                                                       |
|            | > This section's topic name has been changed to remove  |
|            | > the reference to Figure.                              |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a. S | > The method for calculating adjusted net worth for VA  |
| ame as HUD | > purposes is the same as the method for calculating    |
|            | > adjusted net worth required by the Department of      |
|            | > Housing and Urban Development (HUD).                  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > Adjusted net worth **must** be calculated by a CPA    |
| # b. CPA R | > using an audited and certified balance sheet from the |
| equirement | > lender's latest financial statements.                 |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### c. C | > Adjusted net worth is total assets minus total        |
| alculation | > liabilities minus the following unacceptable assets:  |
|            |                                                         |
|            | -   Any assets of the lender pledged to secure          |
|            |     obligations of another person or entity.            |
|            |                                                         |
|            | -   Any asset due from either officers or stockholders  |
|            |     of the lender or related entities, in which the     |
|            |     lender's officers or stockholders have a personal   |
|            |     interest, unrelated to their position as an officer |
|            |     or stockholder. Personal interest indicates a       |
|            |     relationship between the lender and a person or     |
|            |     entity in which that specified person (such as,     |
|            |     spouse, parent, grandparent, child, brother,        |
|            |     sister, aunt, uncle or in-law) has a financial      |
|            |     interest in or is employed in a management position |
|            |     by the lender.                                      |
|            |                                                         |
|            |     ***Note***: In other words, amounts due from        |
|            |     officers or stockholders of the lender, their       |
|            |     family members, or related entities in which these  |
|            |     officers, stockholders or family members have a     |
|            |     financial or managerial interest.                   |
|            |                                                         |
|            | -   Any investment in related entities in which the     |
|            |     lender's officers or stockholders (or their family  |
|            |     members) have a personal interest unrelated to      |
|            |     their position as an officer or stockholder.        |
+------------+---------------------------------------------------------+

Continued on next page

14\. Calculation of Adjusted Net Worth, Continued

+------------+---------------------------------------------------------+
| c\.        | -   That portion of an investment in joint ventures,    |
| C          |     subsidiaries, affiliates and/or other related       |
| alculation |     entities, which is carried at a value greater than  |
| (          |     equity, as adjusted ("equity, as adjusted" means    |
| continued) |     the book value of the related entity reduced by the |
|            |     amount of unacceptable assets carried by the        |
|            |     related entity).                                    |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   All intangibles, such as goodwill, covenants not to |
|            |     compete, franchisee fees,                           |
|            |                                                         |
|            |     organization costs, and so on, except unamortized   |
|            |     servicing costs carried at                          |
|            |                                                         |
|            |     a value established by an arm's-length transaction  |
|            |     and presented in                                    |
|            |                                                         |
|            |     accordance with generally accepted accounting       |
|            |     principles.                                         |
|            |                                                         |
|            | ```{=html}                                              |
|            | <!-- -->                                                |
|            | ```                                                     |
|            | -   That portion of an asset not readily marketable and |
|            |     for which appraised values are very subjective,     |
|            |     carried at a value in excess of a substantially     |
|            |     discounted appraised value. Assets such as          |
|            |     antiques, art work and gemstones are subject to     |
|            |     this provision and should be carried at the lower   |
|            |     of cost or market.                                  |
|            |                                                         |
|            | -   Any asset that is principally used for the personal |
|            |     enjoyment of an officer or                          |
|            |                                                         |
|            | > stockholder and not for normal business purposes.     |
+------------+---------------------------------------------------------+

#### 15. Elements of a Quality Control Plan {#elements-of-a-quality-control-plan .unnumbered}

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date | >                                                       |
|            | > Section's topic name has been changed to remove the   |
|            | > reference to Figure.                                  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > A quality control plan must be submitted with every   |
| # a. Purpo | > nonsupervised lender's application for automatic      |
| se {#a.-pu | > authority. This exhibit outlines the criteria which   |
| rpose-1 .u | > the quality control plan (QC plan) must satisfy.      |
| nnumbered} |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | The QC plan must provide for:                           |
| # b. Audit |                                                         |
|  Program { | -   a program of internal or external audit of the      |
| #b.-audit- |     lender's compliance with VA loan processing and     |
| program .u |     underwriting requirements, or                       |
| nnumbered} |                                                         |
|            | -   independent review by management personnel          |
|            |     knowledgeable of such requirements who have **no**  |
|            |     direct loan processing or underwriting              |
|            |     responsibilities.                                   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | The QC plan must provide:                               |
| ## c. Adeq |                                                         |
| uate Scope | -   that the scope of audits or reviews be not less     |
|            |     than 10 percent of all VA-guaranteed mortgages      |
|            |     originated by the lender monthly, including its     |
|            |     branches and authorized agents except that lenders  |
|            |     making more than 140 VA mortgages monthly may use   |
|            |     statistical sampling methods in lieu of the 10      |
|            |     percent.                                            |
|            |                                                         |
|            | -   that the loan sample include loans processed by all |
|            |     loan officers and underwriters and a random         |
|            |     selection which includes loans from all branch      |
|            |     offices and authorized agents.                      |
|            |                                                         |
|            | -   procedures for expanding scope when fraudulent      |
|            |     activity or patterns of deficiencies are            |
|            |     identified.                                         |
|            |                                                         |
|            | -   for lenders participating in LAPP, that reviews     |
|            |     include the quality control procedures.             |
|            |                                                         |
|            | -   that for each branch office that originates VA      |
|            |     loans, an on-site branch office review should be    |
|            |     conducted at least once annually.                   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | The QC plan must provide for written notification of    |
| ### d. Man | deficiencies cited as a result of audits or reviews at  |
| agement No | least quarterly to the lender's senior management.      |
| tification |                                                         |
+------------+---------------------------------------------------------+

Continued on next page

15\. Elements of a Quality Control Plan, Continued

+------------+---------------------------------------------------------+
| ##### e. C | The QC plan must require that:                          |
| orrective  |                                                         |
| Action by  | -   Prompt and effective corrective action by senior    |
| Management |     management on all deficiencies identified by either |
|            |     the lender or VA                                    |
|            |                                                         |
|            | -   Maintenance of documentation of deficiencies and    |
|            |     corrective actions taken                            |
|            |                                                         |
|            | -   Employees be held accountable for performance       |
|            |     failures or errors, and                             |
|            |                                                         |
|            | -   Where patterns of deficiencies have been            |
|            |     identified, corrective instructions be provided to  |
|            |     all relevant employees.                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > The QC plan must:                                     |
| f. Deficie |                                                         |
| ncies Repo | -   Require prompt reporting of any violation of law or |
| rted to VA |     regulation, false statements or program abuses by   |
|            |     the lender, its employees or any other party to the |
|            |     transaction to the VA office of jurisdiction, and   |
|            |                                                         |
|            | -   Provide for furnishing audit or review findings to  |
|            |     VA on demand.                                       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### g    | > The QC plan must ensure that:                         |
| . Current  |                                                         |
| VA Underwr | -   The lender's procedures are revised in a timely     |
| iting Poli |     manner to accurately reflect changes in VA          |
| cies and P |     requirements. Personnel are informed of the         |
| rocedures  |     changes.                                            |
| Maintained |                                                         |
|            | -   Each of the lender's offices, including its         |
|            |     approved agent(s) and branches, maintains copies of |
|            |     all VA publications, including regulations,         |
|            |     handbooks, and releases, which are relevant to the  |
|            |     lender's VA loan origination activities. They must  |
|            |     be accessible to all employees, periodically        |
|            |     reviewed with appropriate staff, and kept current.  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > The QC plan must ensure that all loans submitted by   |
| h. Only Au | > the lender to VA for guaranty are processed by        |
| thorized P | > employees of the lender or its authorized agent(s).   |
| ersons Pro |                                                         |
| cess Loans |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > The QC plan must ensure that VA funding fees are      |
| i. Funding | > remitted within 15 days from the date of loan closing |
|  Fees Paid | > and late charges and interest penalties are promptly  |
|            | > submitted.                                            |
+------------+---------------------------------------------------------+

Continued on next page

15\. Elements of a Quality Control Plan, Continued

+------------+---------------------------------------------------------+
| #          | > The QC plan must ensure that escrow funds received    |
| #### j. Es | > from borrowers are **not** excessive and are **not**  |
| crow Fund  | > used for any purposes other than that for which they  |
| Management | > are received.                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### k.   | > The QC plan must ensure that the lender does not      |
|  Debarred  | > employ for VA loan origination's or underwriting any  |
| Persons No | > individual who is debarred or suspended.              |
| t Employed |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > The QC plan must provide for the following on loans   |
| # l. Revie | > selected for review:                                  |
| w of Loans |                                                         |
|            | -   Review of loans within 90 days of loan closing.     |
|            |                                                         |
|            | -   Written re-verification of borrower's employment,   |
|            |     deposits, and all sources of funds.                 |
|            |                                                         |
|            | -   Reordering of a new credit report from another      |
|            |     credit source.                                      |
|            |                                                         |
|            |     ***Note***: Report may be a RMCR (Residential       |
|            |     Mortgage Credit Report) or an in-file report which  |
|            |     merges the records of the three national            |
|            |     repositories of credit files, commonly known as a   |
|            |     3-file merge.                                       |
|            |                                                         |
|            | -   The reviewer, on each loan, to determine whether    |
|            |     underwriting conclusions and lender documentation   |
|            |     are overall complete and accurate. Specifically,    |
|            |     the reviewer must make a determination on each item |
|            |     in the table below:                                 |
+------------+---------------------------------------------------------+

  ------ -------- ----------------------------------------------------------------
  Step   Action   

  1               Does each loan file contain all required loan processing,
                  underwriting and legal documents?

  2               Were all relevant loan documents **not** signed in blank by the
                  borrower or employee(s) of lender, and were all corrections
                  initialed by the borrower or employee(s) of lender?

  3               Were verifications of employment, verifications of deposit, and
                  the credit report not handled by the borrower or any interested
                  third party?

  4               Do credit reports conform to Residential Mortgage Credit Report
                  standards (if RMCR used), and if more than one credit report was
                  ordered, were all credit reports submitted with the loan package
                  to VA?
  ------ -------- ----------------------------------------------------------------

Continued on next page

15\. Elements of a Quality Control Plan, Continued

  -----------------------------------------------------------------------
  l\. Review of Loans (continued)

  -----------------------------------------------------------------------

+-----+----------------------------------------------------------------+
| S   | Action                                                         |
| tep |                                                                |
+-----+----------------------------------------------------------------+
| 5   | Is there a correlation of each outstanding liability and each  |
|     | asset of the borrower and coborrower used to qualify for the   |
|     | loan to those listed on the initial loan application?          |
|     |                                                                |
|     | ***Note***: If discrepancies exist, the loan file must show    |
|     | they have been explained or otherwise resolved.                |
+-----+----------------------------------------------------------------+
| 6   | Were any outstanding judgments appearing on the credit report  |
|     | listed on the application with an accompanying explanation and |
|     | documentation?                                                 |
|     |                                                                |
|     | ***Note***: When there is a delinquency or judgment involving  |
|     | debt to the Federal Government, evidence must be provided      |
|     | showing the delinquent account was brought current or          |
|     | satisfactory arrangements were made between the borrower and   |
|     | the Federal agency owed, or the judgment was paid or otherwise |
|     | satisfied.                                                     |
+-----+----------------------------------------------------------------+
| 7   | Does the loan file contain required tax returns?               |
|     |                                                                |
|     | ***Note***: If the borrower is self-employed, the loan file    |
|     | must include two years' tax returns and a profit and loss      |
|     | statement for year-to-date since the end of the last fiscal    |
|     | year (or whatever shorter period records may be available),    |
|     | and a current balance sheet showing all assets and             |
|     | liabilities.                                                   |
+-----+----------------------------------------------------------------+
| 8   | Was the                                                        |
|     | [                                                              |
|     | HUD-1](http://www.hudclips.org/sub_nonhud/html/pdfforms/1.pdf) |
|     | settlement statement accurately prepared and properly          |
|     | certified?                                                     |
+-----+----------------------------------------------------------------+
| 9   | Were fees charged to the veteran appropriate and accurate?     |
+-----+----------------------------------------------------------------+
| 10  | Was the loan properly documented and submitted in accordance   |
|     | with VA standardized loan file set-up procedure?               |
+-----+----------------------------------------------------------------+
| 11  | Was the loan current at the time it was submitted to VA for    |
|     | guaranty?                                                      |
+-----+----------------------------------------------------------------+
| 12  | Did the borrower transfer the property at the time of closing  |
|     | or soon after, indicating possible misuse of the veteran's     |
|     | loan entitlement?                                              |
+-----+----------------------------------------------------------------+
| 13  | Was all conflicting information or discrepancies resolved and  |
|     | properly documented in writing prior to submission of the loan |
|     | to VA for guaranty?                                            |
+-----+----------------------------------------------------------------+

#### 16. Application Checklist for Authority to Close Loans on an Automatic Basis

+------------+---------------------------------------------------------+
| ##### C    | > July 20, 2007, Change 5                               |
| hange Date |                                                         |
|            | -   This section's topic name has been changed to       |
|            |     remove the reference to                             |
|            |                                                         |
|            |     "Figure."                                           |
|            |                                                         |
|            | -   Subsection a has been changed to update the block   |
|            |     heading and section                                 |
|            |                                                         |
|            |     references to reflect changes in sections topic     |
|            |     names.                                              |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### a.   | > **1) Experience**                                     |
|  Checklist | >                                                       |
|            | > Your firm must meet one of the following experience   |
|            | > requirements:                                         |
|            | >                                                       |
|            | > *Company Experience*                                  |
|            | >                                                       |
|            | > Firm actively engaged in originating VA loans for at  |
|            | > least two years, and firm has originated and closed a |
|            | > minimum of ten VA loans (excluding IRRRLs); **or,**   |
|            | >                                                       |
|            | > Firm actively originating and closing VA loans for    |
|            | > less than two years, and firm has originated and      |
|            | > closed at least 25 VA loans (excluding IRRRLs).       |
|            | >                                                       |
|            | > *Principal Officer Experience*                        |
|            | >                                                       |
|            | > -Documentation                                        |
|            | >                                                       |
|            | > Resumes for each principal officer (president plus    |
|            | > any officers involved in managing loan origination    |
|            | > functions) showing mortgage lending experience.       |
|            | >                                                       |
|            | > -Experience Requirement                               |
|            | >                                                       |
|            | > > All principal officers engaged in origination have  |
|            | > > two recent years management experience in the       |
|            | > > origination of VA loans.                            |
+------------+---------------------------------------------------------+

Continued on next page

16\. Application Checklist for Authority to Close Loans on an Automatic
Basis, Continued

+------------+---------------------------------------------------------+
| a\.        | > *Agent Experience*                                    |
| Checklist  | >                                                       |
| (          | > -Documentation                                        |
| continued) | >                                                       |
|            | > A copy of the VA letter approving the firm as an      |
|            | > agent for the sponsoring lender; a letter from a      |
|            | > senior officer of the lender indicating the number of |
|            | > VA loans submitted and compliance with VA             |
|            | > requirements and procedures; and a copy of the        |
|            | > corporate resolution.                                 |
|            | >                                                       |
|            | > -Experience requirement                               |
|            | >                                                       |
|            | > Firm actively operating as an agent for an automatic  |
|            | > lender for two years, and originated a minimum of ten |
|            | > VA loans; **or,**                                     |
|            | >                                                       |
|            | > Firm actively operating as an agent for an automatic  |
|            | > lender for less than two years, and originated a      |
|            | > minimum of 25 VA loans.                               |
|            | >                                                       |
|            | > **2) Underwriter(s)**                                 |
|            | >                                                       |
|            | > -Documentation                                        |
|            | >                                                       |
|            | > [VA Form                                              |
|            | > 2                                                     |
|            | 6-8736a](http://www.vba.va.gov/pubs/forms/26-8736a.pdf) |
|            | > completed by a senior officer outlining the           |
|            | > underwriter's specific experience with VA loans. If   |
|            | > the underwriter is not located in the home office,    |
|            | > provide certification from a senior officer that the  |
|            | > underwriter is supervised by an individual other than |
|            | > a branch manager or other person with production      |
|            | > responsibilities must be provided.                    |
|            | >                                                       |
|            | > -Experience Requirement                               |
|            | >                                                       |
|            | > Minimum three years experience in processing,         |
|            | > pre-underwriting or underwriting mortgage loans, and  |
|            | > at least one recent year of this experience making    |
|            | > underwriting decisions on VA loans (recent = within   |
|            | > the past three years); **or,**                        |
|            | >                                                       |
|            | > Accredited Residential Underwriter (ARU) by the       |
|            | > Mortgage Bankers Association.                         |
+------------+---------------------------------------------------------+

Continued on next page

16\. Application Checklist for Authority to Close Loans on an Automatic
Basis, Continued

+------------+---------------------------------------------------------+
| a\.        | **3) Working Capital or Net Worth**                     |
| Checklist  |                                                         |
| (          | > -A minimum of \$50,000 in working capital must be     |
| continued) | > demonstrated; **or**                                  |
|            | >                                                       |
|            | > -Lender has \$250,000 net worth as defined by HUD and |
|            | > reported by                                           |
|            | >                                                       |
|            | > CPA in annual financial statements (see section 14).  |
|            | >                                                       |
|            | > **4) Financial Statements**                           |
|            | >                                                       |
|            | > -Audited and certified by a CPA; **and**              |
|            | >                                                       |
|            | > -Current to within six months of the application      |
|            | > date.                                                 |
|            | >                                                       |
|            | > **5) Line Of Credit Of At Least \$1 Million Dollars** |
|            | >                                                       |
|            | > **6) Two Permanent Investors**                        |
|            | >                                                       |
|            | > With addresses, telephone numbers and name(s) of      |
|            | > contact person(s)                                     |
|            | >                                                       |
|            | > **7) Quality Control Plan That Meets VA               |
|            | > Requirements**                                        |
|            | >                                                       |
|            | > (see section 15)                                      |
|            | >                                                       |
|            | > **8) Designated Liaison Officer**                     |
|            | >                                                       |
|            | > **9) Corporate Resolutions And Delinquency Data For   |
|            | > Affiliates**                                          |
|            | >                                                       |
|            | > **10) List Of Branch Offices Or Corporate Resolutions |
|            | > For Agents**                                          |
|            | >                                                       |
|            | > **11) Application Fee Submitted**                     |
+------------+---------------------------------------------------------+

####