3.03 SERVICER PERFORMS GENERAL LOAN SERVICING ACTIVITIES (10/26/15)
- Kacey Olson
- Marsha Freeman
Owned by Kacey Olson
© VA Servicers Handbook - M26-4
a. Servicers are required to comply with general loan servicing requirements for VA-guaranteed loans and must follow the appropriate procedures for:
1. Maintenance of records (38 CFR 36.4333). Servicers must maintain a record of loan payments received, disbursements made, and dates of all transactions for each account until VA ceases to be liable as a guarantor on the loan or, if VA paid a claim on the guaranty, until 3 years after VA paid the claim. If servicers are unable to support a claim with complete accounting records, VA assumes that all payments were received and applied as scheduled during the period for which no records were provided. Servicers must also maintain records supporting a decision to approve any loss mitigation options for a minimum of three years following receipt of any incentive payment for the option. These records shall include, but not be limited to, credit reports, verifications of income, employment, assets, liabilities, and other factors affecting the obligor's credit worthiness, worksheets, and other documents supporting your decision.
2. Income tax statements (38 CFR 36.4350(2)(c)). VA requires servicers to be fully compliant with RESPA when providing statements for income tax purposes to borrowers. Servicers are required to provide the borrower with a statement of the interest paid and the taxes disbursed from the escrow account during the preceding year within 30 days after the end of each calendar year. At the borrower's request, servicers must furnish a statement of the escrow account that enables the borrower to reconcile the account.
3. Advances (38 CFR 36.4314). Where legally permitted to do so, servicers may advance any amount reasonably necessary and proper for:
(a)Â Maintenance or repair of the security.
(b)Â Payment of accrued taxes, special assessments, and ground or water rents.
(c)Â Premiums on fire, flood, or other casualty insurance against loss or damage to the property.
(d)Â Funding fee of one-half of one percent for a transfer of ownership if it is not paid at the time of transfer and the loan originated on or after March 1, 1988.
(e)Â A servicer may not include advances for payment of condominium or planned unit development homeowners' association assessments in the accounting between a holder and VA unless these fees are a lienable item that survives a foreclosure under state law.
4. Prepayments (38 CFR 36.4311). The borrower has the right to repay at any time, without a premium or fee:
(a)Â The entire indebtedness.
(b)Â Any amount not less than the next monthly principal installment or $100, whichever is less.
(c)Â Any prepayment less than payment in full, which is made on a day other than an installment due date, need not be credited until the following installment due date, or 30 days after the prepayment, whichever is earlier. For example, if a $150 prepayment is received on March 21, and the monthly installment due date is March 30, the payment should be credited on March 30. This is because March 30 is fewer than 30 days after the prepayment was received.
(d)Â The following requirements also apply to prepayments:
(1)Â Servicers may accept prepayment amounts which are smaller than the minimum required by regulation.
(2)Â Payment in full must be accepted and credited to the loan account when tendered, and no interest may be charged thereafter.
(3)Â The servicer and the borrower may agree at any time to re-apply prepayments to cure or prevent a default.
5. Late Charges (38 CFR 36. 4312). VA allows servicers to assess late charges and certain other fees in accordance with VA guidelines. VA encourages consideration of waiving fees and charges when it will help a borrower prevent or resolve a delinquency. Late charges may be collected on any installment received more than 15 days after its due date, provided the loan instruments contain a provision for a late charge. In addition, the late installment must be paid before the late charge is collected. The late charge may not be:
(a)Â More than four percent of any installment (installment = principal + interest + taxes + insurance).
(b)Â Based on an amount greater than the past due installment.
(c)Â Collected from the escrow account or from an escrow surplus without prior approval of the borrower, in accordance with RESPA.
(d)Â Deducted from regular payments.
(e)Â A late charge discourages late payments only when the borrower is able to pay on time, but does not do so. If a borrower is cooperative, but unable to pay, or if collection of late charges could prevent a borrower from reinstating a delinquent account, consideration should be given to waiving the late charge.
6. Other Fees (38 CFR 36.4813). Fees for services outside the scope of the usual mortgage transaction depend on the terms of the loan agreement and should be determined by the parties involved. Such charges must be reasonable, considering the work involved and the amount customarily charged in the locality. The charges listed below, while not allowable on a claim under the guaranty, are not considered improper when they are customary, agreed to by the parties, permissible under the loan agreement, and are reasonable in amount:
(a)Â Loan assumption fees.
(b)Â Processing and reprocessing checks that are returned to the servicer for insufficient funds.
(c)Â Substitution of hazard insurance policies during the life of a previously furnished policy, when substitution is made at the request of the mortgagor.
(d)Â Processing partial releases of the mortgaged property.
(e)Â Processing subordination agreements.
(f)Â Marking the mortgage satisfied if authorized or not prohibited by local law.
7. Payment of taxes (38 CFR 36.4316). Security instruments uniformly require the obligor to pay taxes timely to prevent a lien with priority over the mortgage. Most security instruments require maintenance of an escrow account by the servicer to ensure timely payments. Since VA requires the holder to maintain the priority status of the mortgage lien, servicers must have internal controls in place to confirm tax payments by the holder or the obligor. VA will not reimburse late tax penalties should a claim be filed.
8. Insurance. VA has specific requirements related to insurance. Servicers are responsible for complying with VA regulations and following the guidelines described in this section as they relate to:
(a) Hazard insurance (38 CFR 36.4329). It is the servicer's responsibility to ensure that insurance policies are maintained in an amount sufficient to protect the security against risks or hazards and to the extent customary in the locality. VA recommends coverage that is the lesser of the insurable value of the property or the current loan principal balance. The borrower may take out a larger policy, if desired. Subject to reasonable requirements of mortgagees, borrowers may choose their insurance carrier.
(b) Flood insurance (38 CFR 36.4329). VA requires flood insurance on loans closed on or after March 2, 1974, and located in a special flood hazard area designated by the Federal Emergency Management Agency (FEMA). In these areas, flood insurance is usually available under the National Flood Insurance Program and may also be available through private insurers. The amount of insurance should be the lesser of the outstanding balance of the loan or the maximum amount of coverage available.
(c) Force placed insurance. Force placed insurance is a special policy purchased by the servicer to cover the loan when the borrower's insurance lapses or is cancelled. If insurance coverage cannot be obtained except at a high premium and the servicer is requesting reimbursement for an advance to pay for force placed insurance, the following information should be provided to VA at the time of claim submission:
(1)Â Amounts advanced by the servicer to obtain and/or continue yearly or monthly force placed insurance coverage.
(2)Â The effective date for force placed insurance.
9. Escrow accounts (38 CFR 36.4350). Although VA does not require servicers to collect periodic deposits for tax and insurance or maintain a tax and insurance account, they may do so if authorized under the terms of the security instruments. Servicers must comply with the provisions of RESPA and properly apply or disburse any surplus balance accordingly.
10. Application of funds (38 CFR 36.4316(b)). Payments received from the borrower must be applied in accordance with the terms of the mortgage instruments. Servicers must comply with the provisions of RESPA for the timely application of funds.
(a)Â Partial payments received from the borrower and held in a suspense account should be applied as soon as the aggregate of funds is sufficient to be applied as a full installment. Payments should not be applied first to other amounts due (i.e., attorney fees and costs) unless specifically agreed to by the borrower in writing or by court order.
(b) Ineligible partial payments must be returned to the borrower within ten days. Refer to Chapter 4, Delinquent Loan Servicing, Partial Payment, of this handbook for more information on handling partial payments.
11. Legal proceedings (38 CFR 36.4321). Any time VA is named as a party to a legal proceeding on a VA-guaranteed loan (including probate and bankruptcy proceedings), servicers must provide copies of notices about the legal action to the VA Regional Counsel with jurisdiction over the loan. Servicers must also provide copies of notices to the United States Attorney in that area, so that an appropriate answer to the action can be filed. VA no longer requires servicers to send copies of all legal or procedural papers on regular foreclosures or other actions taken (e.g. motions for relief in bankruptcy cases), unless VA is named as a party to the proceedings.
(a) If a Veteran has filed one or more bankruptcies and his or her loan is at least 61 days delinquent, the bankruptcy must be reported to VA electronically. In addition, bankruptcy status updates must be reported electronically each time a significant event with respect to the bankruptcy occurs. Refer to Chapter 4, Delinquent Loan Servicing, of this handbook for information on reporting bankruptcy events.
12. Servicemembers Civil Relief Act (SCRA). The SCRA provides relief for Veteran borrowers called to active military service. Relief applies to loan obligations the Veteran incurred prior to their current period of service. Veterans are eligible for relief if their ability to maintain the loan obligation has been materially affected by entry into military service. The Act also applies to Reservists and National Guard members called to active military duty.
a. VA does not administer the Act, but seeks to ensure that Veterans receive all protections to which they are entitled. Enforcement of the Act is delegated to any court of competent jurisdiction of the United States or of any state. VA advises servicers to consult counsel to ensure compliance with all provisions of the Act, as well as any local statutes that may require the extension of forbearance.
b. At claim, servicers report SCRA-related data for purposes of interest determination. VA will not include interest on the obligation in excess of six percent for the period of time the Veteran was eligible for the rate reduction provisions of the Act. For more information on SCRA, refer to the VA Loan Guaranty website at: http://www.benefits.va.gov/homeloans/.
(c) Force placed insurance. Force placed insurance is a special policy purchased by the servicer to cover the loan when the borrower's insurance lapses or is cancelled. If insurance coverage cannot be obtained except at a high premium and the servicer is requesting reimbursement for an advance to pay for force placed insurance, the following information should be provided to VA at the time of claim submission:
(1)Â Amounts advanced by the servicer to obtain and/or continue yearly or monthly force placed insurance coverage.
(2)Â The effective date for force placed insurance.
9. Escrow accounts (38 CFR 36.4350). Although VA does not require servicers to collect periodic deposits for tax and insurance or maintain a tax and insurance account, they may do so if authorized under the terms of the security instruments. Servicers must comply with the provisions of RESPA and properly apply or disburse any surplus balance accordingly.
10. Application of funds (38 CFR 36.4316(b)). Payments received from the borrower must be applied in accordance with the terms of the mortgage instruments. Servicers must comply with the provisions of RESPA for the timely application of funds.
(a)Â Partial payments received from the borrower and held in a suspense account should be applied as soon as the aggregate of funds is sufficient to be applied as a full installment. Payments should not be applied first to other amounts due (i.e., attorney fees and costs) unless specifically agreed to by the borrower in writing or by court order.
(b) Ineligible partial payments must be returned to the borrower within ten days. Refer to Chapter 4, Delinquent Loan Servicing, Partial Payment, of this handbook for more information on handling partial payments.
11. Legal proceedings (38 CFR 36.4321). Any time VA is named as a party to a legal proceeding on a VA-guaranteed loan (including probate and bankruptcy proceedings), servicers must provide copies of notices about the legal action to the VA Regional Counsel with jurisdiction over the loan. Servicers must also provide copies of notices to the United States Attorney in that area, so that an appropriate answer to the action can be filed. VA no longer requires servicers to send copies of all legal or procedural papers on regular foreclosures or other actions taken (e.g. motions for relief in bankruptcy cases), unless VA is named as a party to the proceedings.
(a) If a Veteran has filed one or more bankruptcies and his or her loan is at least 61 days delinquent, the bankruptcy must be reported to VA electronically. In addition, bankruptcy status updates must be reported electronically each time a significant event with respect to the bankruptcy occurs. Refer to Chapter 4, Delinquent Loan Servicing, of this handbook for information on reporting bankruptcy events.
12. Servicemembers Civil Relief Act (SCRA). The SCRA provides relief for Veteran borrowers called to active military service. Relief applies to loan obligations the Veteran incurred prior to their current period of service. Veterans are eligible for relief if their ability to maintain the loan obligation has been materially affected by entry into military service. The Act also applies to Reservists and National Guard members called to active military duty.
a. VA does not administer the Act, but seeks to ensure that Veterans receive all protections to which they are entitled. Enforcement of the Act is delegated to any court of competent jurisdiction of the United States or of any state. VA advises servicers to consult counsel to ensure compliance with all provisions of the Act, as well as any local statutes that may require the extension of forbearance.
b. At claim, servicers report SCRA-related data for purposes of interest determination. VA will not include interest on the obligation in excess of six percent for the period of time the Veteran was eligible for the rate reduction provisions of the Act. For more information on SCRA, refer to the VA Loan Guaranty website at: http://www.benefits.va.gov/homeloans/.