Joint Trades Letter to the FHA on the Veterans Affair Loan Information Disclosure Act (VALID Act)

Dear Deputy Assistant Secretary Jones:

On behalf of our respective members, we appreciate the opportunity to offer recommendations regarding the Federal Housing Administration’s (FHA) implementation of the Veterans Affairs Loan Information Disclosure Act (VALID Act), enacted as part of the 21st Century ROAD to Housing Act.

While we support the intent of the law to inform servicemembers and veterans of the Department of Veterans Affairs (VA) home loan benefits, it is not possible to determine VA eligibility without additional information from the prospective borrower. Therefore, presenting VA loan terms to all prospective FHA borrowers without explaining the basic eligibility requirements could cause consumer confusion and operational challenges for lenders. To avoid these unintended consequences, we recommend that FHA present the required VA comparative column with concise and prominent eligibility language.

Consumer and Operational Concerns

FHA's Informed Consumer Choice Disclosure Notice is intended to help borrowers determine whether they would qualify for a conventional loan at a lower cost. If the VA column is presented to prospective FHA borrowers without qualification language, borrowers who do not meet VA eligibility requirements may reasonably believe that VA financing is available to them. This could create unrealistic expectations regarding interest rates, fees, down payment requirements, mortgage insurance, and other loan terms.

In addition to non-veteran borrowers, veterans and servicemembers may also face confusion when their VA home loan eligibility has not yet been established. Military service alone does not automatically grant eligibility for a VA-guaranteed loan. Borrowers generally must satisfy VA's applicable service requirements and obtain evidence of eligibility, commonly through a Certificate of Eligibility.

Our members are concerned that a comparison of loan products that could be misconstrued to suggest that all borrowers are eligible for the products presented will slow the origination process. Lenders will need to spend more time responding to borrowers who lack the necessary military qualifications and explaining why they do not qualify for the VA terms shown. These additional steps would increase administrative burdens and delay processing without improving the disclosure's usefulness.

Clear and Prominent Eligibility Language

We recommend that FHA adopt the attached draft FHA Informed Consumer Choice Disclosure Notice, which pairs the new VA comparative column with clear qualification language before the borrower reviews the pricing and product features. The notice explains that neither the lender nor HUD guarantees that the borrower qualifies for any product included in the comparison and that final approval requires a full underwriting analysis.

At a minimum, the final disclosure should include the VA-specific explanation that eligibility depends on applicable length of service, character of service, and entitlement requirements and must be validated through a Certificate of Eligibility. It should also include explanations regarding the VA funding fee, potential exemptions, and the assumptions used to calculate the representative VA loan terms.

Housekeeping Update of the Current Form

Along with fulfilling the new statutory obligations to implement the VALID Act, we recommend that FHA use this opportunity to also update the mortgage parameters that are currently on the form. Specifically, we would note that the sales price, closing costs, and monthly mortgage insurance premium parameters have become outdated. We believe that consumers would benefit from information that more closely mirror current market realities.

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The associations appreciate FHA's consideration of these recommendations and welcome the opportunity to work with FHA to implement the VALID Act. Should you have questions or wish to discuss these issues further, please contact Darnell Peterson, Manager, Residential Loan Production Policy, at (202) 557-2922 or [email protected].

Sincerely,