VA requirements

Time Running Out on Current VA Co-Op Loan Program

October 7, 2011

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Time Running Out on Current VA Co-Op Loan Program

On April 1, 2010, the Department of Veterans Affairs revised the VA Lender’s Handbook to include updated rules and regulations for co-op purchases.

According to Chapter Seven of the VA Lender’s Guide, “Public Law 109-461, The Veterans Benefits, Health Care, and Information Technology Act of 2006, authorized VA to guarantee loans made to veterans for the purchase of stock or membership in co-op housing corporations to enable veterans to occupy such co-ops as their residence.”

The Lender’s Guide also adds that VA’s authorization for this program “expires in December 2011.” As you can see, there’s not much time left on the original authorization for co-op loans guaranteed by the VA, but borrowers may still have time to act if they are interested in such transactions.

What are the basic rules for co-op loans? “If a co-op project is currently approved by Fannie Mae, a veteran may obtain a VA share loan to purchase in that co-op project.  Co-op projects with Fannie Mae approval must provide a copy of the approval documentation with each share loan application.  If the co-op project is not approved by Fannie Mae, the lender must obtain VA approval.”

The rules also state that VA approvals for co-op projects are valid for  three years, and “subject to verification of a project’s satisfactory in-force insurance coverage at the time of share loan application. To obtain the requirements for initial approval of a co-op project, refer to Fannie Mae’s 2007 Selling Guide, Part XII, Chapters 1 – 5 (http://www.allregs.com/efnma/) and Fannie Mae’s Announcement 07-18.”

VA loans for co-ops also require the loan to be secured “by the assignment (in pledge or trust) of the leasehold estate; a pledge or trust of the corporation stock, shares, or membership certificate; and any other documents that are appropriate under individual state or local laws and practices”.  Co-ops qualify for a VA loan when they are a first lien. Like many other VA rules there may be an exception to that requirement.

According to the rules, “where custom dictates to the contrary, VA will consider partial subordination of its lien to that portion of the co-op corporation’s lien against the veteran’s shares for unpaid assessments that represents the pro rata share of the corporation’s payments for the blanket mortgage, current year’s real estate taxes, and special assessments.”

The rules for VA co-op loans includes a requirement that the property be located within the United States (including territories like American Samoa, Guam, the Mariana Islands, and Puerto Rico) and VA co-op loans are not allowed “in any area where federal, state, and/or local law expressly prohibits the Government from providing financial assistance.”

The current rules expire in December 2011, but that does not mean the program is completely finished at that time. The government could pass legislation extending the program or the VA could propose a replacement for the current rules. Check with the Department of Veterans Affairs is you miss the current deadline to learn the status of possible new rules for co-ops or an extension of the existing ones.

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