On February 23, the Department of Veterans Affairs (VA) issued Circular 26-18-4 in response to reports that lenders may be funding temporary “buydown” or escrow accounts in order to subsidize a borrower’s payment through an above market interest rate, which the VA views as a “cash-advance on principal.” The circular reminds lenders that cash-advances on principal are prohibited, and lenders may not pay temporary buydown fees and charges. The circular notes that sellers are not prohibited from paying buydown fees and charges for the borrower and that lenders are allowed to charge a maximum of one percent of the loan amount as a flat charge in lieu of all other charges related to the costs of origination not expressly allowed by 38 C.F.R. 36.4313. The circular is effective until January 1, 2020.

Previously, on February 1, the VA updated multiple chapters of the VA Servicer Handbook M26-4, which, among other things, added the definition of delinquency, corrected the bankruptcy reporting timeframe, and added information on the new VA Affordable Modification.