VA Loan Guaranty Compliance & Audit: Navigating Lender Scorecards and Misleading Ads

1. VA Loan Guaranty Service Navigating Compliance Lender Scorecards for Audits & Misleading Advertisements Alberto Planas, Assistant Director, Oversight

2. Lender Scorecard – Audit Perspective • Overview • Discuss VA Lender Scorecards from a Loan Guaranty Audit perspective • How LGY Auditors use the Scorecards • What questions they will ask • Some tips to help you

3. Lender Scorecard – Audit Perspective • Cash-Outs - higher than National avg? • ARMs - higher than National avg? • Loans Guaranteed at <24.5% Guaranty lower than National avg? • Median Cal. Days – Closing to Guaranty higher than National avg or close to VA 60-day requirement?

4. Lender Scorecard – Audit Perspective • Fixed – lower than National avg? • Fixed – higher than National avg? • ARM – lower than National avg? • ARM – higher than National avg?

5. Lender Scorecard – Audit Perspective • Higher than National avg? • Lower than National avg? • Which loans get priority? • Avg Timeliness X past loan volume?

6. Lender Scorecard – Audit Perspective • AUS Approve – higher than National avg? • AUS Refer – higher than National avg? • Median DTI – high or low? • Other Median Stats – high or low?

7. Lender Scorecard – Audit Perspective • Loans Reviewed - higher than National avg? • Other stats higher than National avg? • Status of Currently Non-Compliant Cases? • EPD Reviews – higher than National avg?

8. Lender Scorecard – Audit Perspective • Higher than National avg? • Lower than National avg? • Significant differences from National avg?

9. Lender Scorecard – Audit Perspective • Fees & Charges higher than National avg? • Unallowable Cash Back higher than National avg? • Significant differences from National avg? • Discount points appropriate?

10. Lender Scorecard – Audit Perspective • Targeting specific age ranges (i.e., younger Veterans/Servicemembers, elderly, etc.)? • Median Stats for certain age ranges appropriate?

11. Lender Scorecard – Audit Perspective • Loan activity in line with business model? • Loan activity in line with office locations? • Source of loan activity?

12. Lender Scorecard – Audit Perspective • Other Lender Audit Tips • Use Lender Scorecard to QC Operations • Respond to RLC inquiries • Document, document, document • What’s caused you stress recently? • When does the audit start?

13. Lender Scorecard – Audit Perspective

14. Misleading Advertisements • Overview • Regulatory Process • VA’s Regulation on Misleading Ads • Regulations N & Z

15. Misleading Advertisements • Regulatory Process • Congress writes a Bill • President Approves (or Vetoes) the Bill • Act is Codified in the U.S. Code • VA Proposes a Regulation • VA considers comments and issues Final Rule • Regulation is Codified in Code of Federal Regulations

16. Misleading Advertisements • 38 CFR § 36.4370 - Advertising and solicitation requirements • Any advertisement or solicitation in any form (e.g., written, electronic, oral) from a private lender concerning housing loans to be guaranteed or insured by the Secretary: • (a) Must not include information falsely stating or implying that it was issued by or at the direction of VA or any other department or agency of the United States, and • (b) Must not include information falsely stating or implying that the lender has an exclusive right to make loans guaranteed or insured by VA.

17. Misleading Advertisements • Must not include information falsely stating or implying that it was issued by or at the direction of VA • From VA • VA Program Customer Support • VA Loan Representative • VA Specialist • VA Loan Department • VA Loan Specialist Division

18. Misleading Advertisements • Must not include information falsely stating or implying that it was issued by or at the direction of VA • About the Veteran’s benefits (Eligibility) • Eligibility Notice • Eligibility Status • Eligibility Advisory • Pre-qualification • Benefit Announcement

19. Misleading Advertisements • Must not include information falsely stating or implying that it was issued by or at the direction of VA • About the Veteran’s benefits (Time-sensitive) • Expiration Notice • Waiting Period • Pending Authorization • Referencing a false ‘Original Mail Date’

20. Misleading Advertisements • Must not include information falsely stating or implying that it was issued by or at the direction of VA • Use of VA logo • Additional implications • Similar to VA logos • Green paper • Government-style letter formatting • Government-style envelopes

21. Misleading Advertisements • Must not include information falsely stating or implying that it was issued by or at the direction of VA or any other department or agency of the United States • Use of IRS signature year style (e.g., 2019) • Information displayed in IRS Form W-2 manner • Additional implications • Similar to IRS symbol • Government-style letter formatting • Government-style envelopes

22. Misleading Advertisements • Additional Misleading Practices • “Skip” two payments • Escrow account refunded • Fake checks

23. Misleading Advertisements • 12 CFR § 1014.3 - Prohibited representations (Regulation N) • Some key provisions • Misrepresentation of fees, taxes and insurance • Mortgage type • Variability of mortgage • Likelihood of approval • Source of advertisement

24. Misleading Advertisements • 12 CFR § 1026.24 - Advertising (Regulation Z) • Seven prohibited acts or practices • Use of ‘fixed’ • Rate &/or payment comparisons • Government endorsement • Use of current lender’s name • Claims of debt elimination • Use of term ‘counselor’ • Foreign language

25. Misleading Advertisements

26. THANKS Thank you for helping us provide this important benefit to our Nation’s Veterans!!!