[Federal Register Volume 85, Number 237 (Wednesday, December 9, 2020)]
[Proposed Rules]
[Pages 79142-79161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26964]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 85, No. 237 / Wednesday, December 9, 2020 /
Proposed Rules
[[Page 79142]]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF VETERANS AFFAIRS
38 CFR Part 36
RIN 2900-AR05
Loan Guaranty: COVID-19 Veterans Assistance Partial Claim Payment
Program
AGENCY: Department of Veterans Affairs.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Department of Veterans Affairs (VA) proposes to establish
the COVID-19 Veterans Assistance Partial Claim Payment program (COVID-
VAPCP), a temporary program to help veterans return to making normal
loan payments on a VA-guaranteed loan (guaranteed loan) after exiting a
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
forbearance period. Under this proposed program, a servicer could
consider a partial claim option after the servicer has evaluated all
loss-mitigation options for feasibility. If the veteran qualifies and
opts to move forward, VA would act as a mortgage investor of last
resort by purchasing the amount of indebtedness necessary to bring the
veteran's guaranteed loan current. The veteran would have up to 60
months to defer repayment to VA and up 120 months to repay the loan in
full, with the interest rate fixed at 1 percent per annum.
DATES: Comments must be received on or before January 8, 2021.
ADDRESSES: Comments may be submitted through www.Regulations.gov or
mailed to Stephanie Li, Chief of Regulations, Loan Guaranty Service
(26), Veterans Benefits Administration, Department of Veterans Affairs,
810 Vermont Avenue NW, Washington, DC 20420. Please note that due to
circumstances associated with the COVID-19 pandemic, VA discourages the
submission of comments by mail. Comments should indicate that they are
submitted in response to ``RIN 2900-AR05--Loan Guaranty: COVID-19
Veterans Assistance Partial Claim Payment Program.'' Comments received
will be available at regulations.gov for public viewing, inspection or
copies.
FOR FURTHER INFORMATION CONTACT: Andrew Trevayne, Assistant Director,
Loan Property and Management, Loan Guaranty Service (26), Veterans
Benefits Administration, Department of Veterans Affairs, 810 Vermont
Avenue NW, Washington, DC 20420, (202) 632-8862. (This is not a toll-
free telephone number.)
SUPPLEMENTARY INFORMATION:
I. Summary of the Proposed Rule
One of the primary goals of VA's Home Loan Guaranty Service is to
help veterans who use their guaranteed loan benefit retain their homes
and avoid foreclosure. To that end, VA and loan servicers intervene
dynamically when guaranteed loans are more than 60 days in default.
Such actions to assist veterans in default not only help veterans
retain their homes and minimize damage to their credit ratings, but
also help produce cost savings to the Government.
Given the unique needs of veterans and loan servicers during the
novel coronavirus disease (COVID-19) national emergency, VA proposes to
initiate a temporary program that would establish a partial claim
option to aid veterans who suffer financial hardship due to COVID-19.
VA's program would be modeled after existing partial claim programs
already available to borrowers with other federally backed loans; that
is, those guaranteed or insured by the U.S. Department of Housing and
Urban Development's (HUD) Federal Housing Administration (FHA) and the
U.S. Department of Agriculture's (USDA) Rural Housing Service.
Under VA's proposed COVID-VAPCP, servicers would consider a veteran
for the program only after evaluating the feasibility of loss-
mitigation options that are already available in VA's program. If a
servicer determines that the veteran satisfies the COVID-VAPCP
requirements and the veteran elects to participate, VA would purchase
the veteran's forborne indebtedness, which is similar to VA's existing
loan refund process. As a mortgage investor of last resort, VA would
purchase the amount of indebtedness that is necessary to bring the
veteran's guaranteed loan current. The veteran would repay VA for this
amount, and the indebtedness would be secured as a lien against the
veteran's home upon execution and recordation of the security
instrument. The servicer would handle all aspects of the origination.
With the veteran's guaranteed loan brought current, the veteran would
resume making regularly scheduled monthly loan payments to the
servicer. The veteran would also repay VA for the new loan, under the
terms proposed below. The new loan would be serviced under VA's
existing loan portfolio.
While VA's proposed COVID-VAPCP would bear many similarities to the
COVID-related partial claim programs offered by FHA and USDA,\1\ VA's
program would not be identical to either. Similarities to such
agencies' programs would include the following: (1) The guaranteed loan
for which a partial claim payment is requested must have been, on March
1, 2020, either current or less than 30 days past due; (2) a partial
claim payment would only be payable to the servicer if the veteran
missed at least one scheduled monthly payment under a CARES Act
forbearance and at least one such payment remains unpaid; (3) VA would
only pay one partial claim payment per veteran; (4) the veteran would
need to occupy, as the veteran's residence, the property securing the
guaranteed loan for which the partial claim is associated; and (5) the
servicer would be required to determine whether the veteran satisfies
the program requirements, to prepare the appropriate loan documents on
VA's behalf, and to bring the veteran's guaranteed loan current, before
submitting to VA a request for partial claim payment.
---------------------------------------------------------------------------
\1\ See 12 U.S.C. 1715u(b); 24 CFR 203.371; Mortgagee Letter
2020-06, FHA's Loss Mitigation Options for Single Family Borrowers
Affected by the Presidentially-Declared COVID-19 National Emergency
in Accordance with the CARES Act (Apr. 1, 2020), https://www.hud.gov/sites/dfiles/OCHCO/documents/20-06hsngml.pdf; Mortgagee
Letter 2020-22, FHA's COVID-19 Loss Mitigation Options (Jul. 8,
2020), https://www.hud.gov/sites/dfiles/OCHCO/documents/20-22hsgml.pdf. See also 42 U.S.C. 1472(h)(14); 7 CFR 3555.304(d).
---------------------------------------------------------------------------
Distinguishing aspects of VA's program would include the following:
(1) The partial claim payment could not exceed 15 percent of the unpaid
principal balance of the guaranteed loan as of the date the veteran
entered into a CARES Act forbearance; (2) the veteran would have up to
120 months to repay the partial claim VA paid to the servicer on the
veteran's behalf; (3)
[[Page 79143]]
repayment in full would be required immediately upon the veteran's
transfer of title to the property, the refinancing of the guaranteed
loan for which the partial claim payment is associated, or payment in
full of such guaranteed loan; (4) VA would automatically defer a
veteran's monthly payments for the first 60 months of the loan, meaning
that a veteran would not have to make any payment to VA during the
period of deferment; (5) a veteran would be allowed to pay during such
deferment, without premium or fee, the entire indebtedness or any
portion thereof, provided that such portion is not less than what would
be due for one full monthly payment as specified in the loan documents;
(6) VA would charge a fixed interest rate of 1.00 percent per annum on
the loan; and (7) VA would require servicers to certify that the
veteran's monthly residual income, as described in 38 CFR 36.4340(e),
would be adequate to meet living expenses after estimated monthly
shelter expenses (e.g., payments on the guaranteed loan) have been paid
and other monthly obligations have been met.
Another distinguishing aspect of VA's program is that VA would
expect that servicers consider the partial claim payment option only as
a last resort, after a servicer has evaluated the feasibility of
providing loss-mitigation options that are already available in VA's
program. Consistent with VA's existing regulations and policies,
servicers would evaluate a veteran's financial situation and, if
appropriate, offer the veteran options that are within the servicer's
financial capabilities and business model.
As initial CARES Act forbearance periods near their end, VA
stakeholders confront numerous decisions that have far-reaching
consequences. Many veterans, for example, must decide whether to
request additional forbearance and watch their forborne indebtedness
grow, or attempt to resume their regularly scheduled monthly payments,
despite potential hardships and uncertainties caused by the national
emergency. VA's partial claim assistance may well be the determining
factor for certain veterans, affecting the extent to which they can
recover financially from the crisis. Similarly, servicers must evaluate
their liquidity positions and other factors to determine how to make
the advances necessary for investor requirements. Some servicers may
even be questioning whether they can stay afloat, which ultimately
harms not just the servicer, but also the veterans whose guaranteed
loans are being serviced.
VA's proposed COVID-VAPCP would create a ``soft landing'' for
certain veterans, enabling them to return to their regularly scheduled
monthly payments without suffering another financial shock. The program
would also provide a lifeline for certain servicers, thereby mitigating
the risk that veterans would be left without the benefit of prudent
loan servicing.
II. Background
A. VA's Existing Policies for Delinquent Loans
VA's loan administration policies and oversight have resulted in
one of the lowest foreclosure inventory rates in the industry over the
past decade.\2\ Data reported in the most recent Veterans Benefits
Administration Annual Benefits Report reflects that such policies and
oversight saved approximately 100,000 veterans from foreclosure
annually over the past four fiscal years.\3\
---------------------------------------------------------------------------
\2\ Mortgage Bankers Association, National Delinquency Survey
Data, 2010 through 2020, https://www.mba.org/news-research-and-resources/research-and-economics/single-family-research/national-delinquency-survey.
\3\ See VBA Annual Benefits Report: Home Loan Guaranty, Fiscal
Year 2019, page 19, https://www.benefits.va.gov/REPORTS/abr/docs/2019-loan-guaranty.pdf.
---------------------------------------------------------------------------
VA requires holders of guaranteed loans to establish and maintain a
loan servicing program consistent with industry standards.\4\ If a
veteran misses one loan payment, the guaranteed loan becomes
delinquent.\5\ Once a guaranteed loan reaches 61 days delinquent,
servicers are required to report the delinquency to VA, to work with
the veteran to consider loss-mitigation options or alternatives to
foreclosure, and to report updates on the status of the guaranteed loan
to VA.\6\ Upon notification to VA, a VA loan technician will review the
case, monitor servicer activities, and intervene as needed during the
delinquency to ensure that the servicer has provided adequate servicing
and has presented all appropriate options to attempt to reinstate the
guaranteed loan or avoid foreclosure.
---------------------------------------------------------------------------
\4\ 38 CFR 36.4350(a).
\5\ VA Servicer Handbook, VA Manual 26-4, Chap. 4: Delinquent
Loan Servicing, 4.01a. (Feb. 26, 2019), https://www.benefits.va.gov/WARMS/docs/admin26/m26_04/Ch4.docx.
\6\ 38 CFR 36.4317(c)(7) (requiring an electronic default
notification (EDN) when the guaranteed loan becomes at least 61 days
delinquent).
---------------------------------------------------------------------------
Servicers are ultimately responsible for utilizing loss-mitigation
options and alternatives to foreclosure to help veterans avoid
foreclosure. VA regulations allow VA to pay an incentive to a servicer
whenever the servicer completes one of five borrower-assistance actions
(i.e., loss-mitigation options and alternatives to foreclosure).\7\
Additionally, while VA generally does not require servicers to pursue
loss-mitigation options and alternatives to foreclosure in a particular
order, VA has informed servicers of VA's preferred order of
alternatives (i.e., a hierarchy for review), as follows: Repayment
plan, special forbearance, loan modification, compromise sale, and
deed-in-lieu of foreclosure.\8\
---------------------------------------------------------------------------
\7\ 38 CFR 36.4319.
\8\ 38 CFR 36.4319(a).
---------------------------------------------------------------------------
Loss-mitigation options are pursued with the intent of bringing the
delinquent guaranteed loan current and keeping the veteran in his or
her home. As mentioned, these options include repayment plans, special
forbearances, and loan modifications. Under a repayment plan, the
borrower agrees to pay the normal monthly payment plus an agreed upon
portion of the delinquency each month to the servicer.\9\ A special
forbearance suspends or reduces a borrower's normal monthly payments
for an agreed upon period of time.\10\ A loan modification permanently
changes one or more terms of the guaranteed loan and may include re-
amortization of the balance due. While all loan modifications must meet
the requirements set forth by 38 CFR 36.4315, VA generally classifies a
loan modification as one of four types--traditional loan modification,
streamline modification, VA affordable modification, and VA disaster
modification--depending on a borrower's circumstances.\11\
---------------------------------------------------------------------------
\9\ A repayment plan is a ``written executed agreement by and
between the borrower and the holder to reinstate a loan that is 61
or more calendar days delinquent, by requiring the borrower to pay
each month over a fixed period (minimum of three months duration)
the normal monthly payments plus an agreed upon portion of the
delinquency each month.'' 38 CFR 36.4301.
\10\ A special forbearance is ``a written agreement executed by
and between the holder and the borrower where the holder agrees to
suspend all payments or accept reduced payments for one or more
months, on a loan 61 or more calendar days delinquent, and the
borrower agrees to pay the total delinquency at the end of the
specified period or enter into a repayment plan.'' 38 CFR 36.4301.
\11\ VA Servicer Handbook, VA Manual 26-4, Chap. 5: Loss
Mitigation, 5.06 (Feb. 26, 2019), https://www.benefits.va.gov/WARMS/docs/admin26/m26_04/Ch5_Loss_Mitigation.docx.
---------------------------------------------------------------------------
Servicers generally pursue compromise sales and deeds-in-lieu of
foreclosure when a traditional, private sale is not feasible and the
borrower either has no desire to retain the property or when a loss-
mitigation option is not feasible given the borrower's current
financial circumstances. Under a compromise
[[Page 79144]]
sale (sometimes called a short sale), the servicer agrees to release
the guaranteed loan obligation in exchange for the proceeds of a sale
to a third party for an amount that is less than the borrower's total
indebtedness on the guaranteed loan.\12\ Under this alternative, the
servicer recovers some portion of the unpaid balance of the guaranteed
loan through the sale. In cases where there is little or no likelihood
of a private sale or compromise sale, servicers should consider a deed-
in-lieu of foreclosure. Under this alternative to foreclosure, the
borrower voluntarily transfers title to the property to the servicer in
exchange for a release of all obligations under the guaranteed
loan.\13\ VA considers compromise sales and deeds-in-lieu of
foreclosure to be successfully completed when the servicer files a
claim under VA's guaranty.\14\
---------------------------------------------------------------------------
\12\ A compromise sale is a sale to a third party for an amount
less than is sufficient to repay the unpaid balance on the
guaranteed loan where the holder has agreed in advance to release
the lien in exchange for the proceeds of such sale. 38 CFR 36.4301.
VA requirements for a compromise sale are set forth by 38 CFR
36.4322(e).
\13\ VA requirements for a DIL of foreclosure are set forth by
38 CFR 36.4322(f).
\14\ 38 CFR 36.4319(c).
---------------------------------------------------------------------------
In cases where servicers are unable to complete a loss-mitigation
option or an alternative to foreclosure, servicers must, before
initiating a foreclosure, provide VA with the option of what is
commonly called a ``loan refund.'' This process, authorized under 38
U.S.C. 3732, is where VA takes assignment of the existing guaranteed
loan indebtedness in exchange for VA's payment to the servicer of the
unpaid principal balance, plus accrued interest.\15\ The loan is then
placed into VA's portfolio, and the veteran makes loan payments to VA.
VA's internal data from fiscal year 2015 to date indicates that VA has
completed an average of 20 loan refunds per fiscal year.
---------------------------------------------------------------------------
\15\ See 38 U.S.C. 3732(a)(2); 38 CFR 36.4320.
---------------------------------------------------------------------------
VA has employed contractors since the late 1990s to perform loan
boarding and servicing functions for VA's portfolio. VA's portfolio
currently comprises approximately 4,500 loans totaling approximately
$420 million. Notably, this amounts to about half the number of loans
that VA has held in previous years. The portfolio includes refunded
loans, as well as the loans where VA was, in contrast to its role in
the refunding program, the direct lender (as in the Native American
Direct Loan and vendee loan programs; neither of which would be
affected under this rulemaking).
B. COVID-19 Emergency and CARES Act Forbearances
By late March 2020, the COVID-19 national emergency was
significantly affecting the economy. Between March 15 and May 15, 2020,
over 35 million Americans filed initial jobless claims, and the
unemployment rate climbed to over 14 percent in April--the highest
monthly level since 1948, which is when the U.S. Bureau of Labor
Statistics started tracking this data.\16\
---------------------------------------------------------------------------
\16\ U.S. Bureau of Labor Statistics, Labor Force Statistics
from the Current Population Survey, https://www.bls.gov/ces.
---------------------------------------------------------------------------
On March 27, 2020, the President signed the CARES Act into law.
Section 4022(b) of the Act, in relevant part, states that borrowers
with a ``Federally backed mortgage loan'' (e.g., a VA-guaranteed loan)
experiencing a financial hardship due, directly or indirectly, to the
COVID-19 emergency may request forbearance on such loan, regardless of
delinquency status, by submitting a request to the borrower's servicer
and affirming that the borrower is experiencing a financial hardship
during the COVID-19 emergency. Upon such a request, servicers must,
with no additional documentation required other than the borrower's
attestation to a financial hardship caused by the COVID-19 emergency,
and with no fees, penalties, or interest (beyond the amounts scheduled
or calculated as if the borrower made all contractual payments on time
and in full under the terms of the housing loan contract) provide the
forbearance for up to 180 days.\17\ The forbearance period can be
extended for an additional period of up to 180 days at the request of
the borrower, provided that the borrower's request for an extension is
made during the covered period. Either the initial or extended period
of forbearance may be shortened at the borrower's request.\18\ While
borrowers can postpone loan payments under a CARES Act forbearance,
borrowers are still obliged to repay the forborne indebtedness. In
other words, forbearance is not forgiveness. However, many borrowers
simply have no choice but to postpone payments to weather the economic
storm. Given the broad protections afforded by CARES Act forbearances,
servicers have utilized such forbearances as a primary tool in helping
borrowers who are struggling to afford housing loan payments due to the
COVID-19 emergency.
---------------------------------------------------------------------------
\17\ Public Law 116-136, section 4022(c)(1) (Mar. 27, 2020).
\18\ Id.
---------------------------------------------------------------------------
The CARES Act does not specify how borrowers receiving CARES Act
forbearances must repay the forborne payments. To ensure that servicers
do not attempt to require immediate payment of forborne amounts upon
the borrower's exit from a CARES Act forbearance (as can be required
under a special forbearance), VA issued guidance notifying servicers
that they should not require a veteran to make a lump sum payment equal
to what would have been due if a forbearance was not in effect, after
the forbearance period ends. VA is instead encouraging servicers to
consider other loss-mitigation options, such as those described above.
As of August 1, 2020, VA's internal data showed that approximately
149,645 active guaranteed loans are in a CARES Act forbearance
(approximately 4.3 percent of all active guaranteed loans). Of those
loans, 61,795 were current as of March 1, 2020, and were also paid
current through July 31, 2020. An additional 51,043 loans were current
as of March 1, 2020, but were no longer current through July 31, 2020,
meaning the veteran missed at least one loan payment between such
dates.
C. COVID-19 Emergency: Post-Forbearance Options and Post-Delinquency
Options
VA and the servicing industry have significant experience applying
VA's current loss-mitigation policies to assist veterans struggling
financially due to major disasters, such as natural disasters like
hurricanes and floods. Nevertheless, there are many key differences
between discrete natural disasters and the widespread and long-lasting
crisis caused by the COVID-19 pandemic.
The current national emergency will likely have more far-reaching
consequences of greater magnitudes for veterans than the consequences
posed by a natural disaster, for example. Unlike a natural disaster, it
is impossible to approximate when the imminent danger caused by a
global pandemic will recede. Generally, at the outset of natural
disasters like hurricanes and floods, public policy experts can
reasonably predict the endpoint of imminent danger, after which an
assessment of the damage and impact to the borrower may be completed. A
comparable endpoint to the COVID-19 pandemic is much more difficult to
predict because multiple factors change daily, including rates of
infection and death. Rising and falling infection rates directly
influence economic factors such as employment levels and expected
borrower income. These factors are also affected by policy
[[Page 79145]]
approaches that may vary at federal, state, and local levels.
Further, unlike geographically and temporally bounded disasters,
COVID-19 has spread across the globe over the course of months,
affecting communities of all sizes and compositions. Borrowers will
likely not have safety nets in place to mitigate the harrowing
outcomes. Conversely, borrowers affected by major natural disasters
like hurricanes and floods often are covered by hazard and other
insurance policies, which can help to offset financial losses.
The duration, scope, and impact of the COVID-19 pandemic, along
with the lack of safety nets to help absorb the financial upheaval, has
created enormous challenges for the housing finance market. When
borrowers do not make their regularly scheduled monthly loan payments,
loan servicers are often contractually obligated to step in and advance
such missed amounts to the loan holder.\19\ The volume of CARES Act
forbearances in a servicer's portfolio, coupled with the protracted
length of such a forbearance (i.e., up to 360 days), has placed many
servicers in a position where they may be required to cover up to 12
months of loan payments for a significant segment of the loans they
service. Federally backed mortgages, that is, those for which servicers
must generally grant CARES Act forbearances upon a borrower's request,
account for approximately 70 percent of all housing loans in the United
States.\20\ Recent data reveals that approximately 7 percent of all
housing loans in the United States, corresponding to 3.6 million
homeowners, are currently in forbearance.\21\ This increased number of
borrowers in forbearance means that servicers can be left without
budgetary resources to offer certain loss-mitigation options to
borrowers, including veterans with VA-guaranteed loans.
---------------------------------------------------------------------------
\19\ Deloitte, Mortgage Series on Management Estimates, pg. 7,
https://www2.deloitte.com/content/dam/Deloitte/us/Documents/risk/us-aers-msme-perational-considerations-july2013r.pdf.
\20\ Urban Institute, The Price Tag for Keeping 29 Million
Families in Their Homes: $162 Billion, (Mar. 27, 2020), https://www.urban.org/urban-wire/price-tag-keeping-29-million-families-their-homes-162-billion; Mortgage Bankers Association (MBA), Share
of Mortgage Loans in Forbearance Declines Slightly to 7.20%, (Aug.
24, 2020), https://www.mba.org/2020-press-releases/august/share-of-mortgage-loans-in-forbearance-declines-slightly-to-720.
\21\ Id.
---------------------------------------------------------------------------
VA notes that most VA-guaranteed loans are not held by the lenders
that originate the loans. Rather, lenders that are issuers approved by
the Government National Mortgage Association (Ginnie Mae) often
originate VA-guaranteed loans, package them into loan pools, and issue
mortgage-backed securities (MBS) backed by such pools. Ginnie Mae can
then guarantee, to MBS investors, the timely payment of principal and
interest on such securities. Because Ginnie Mae requires servicers to
purchase such securitized loans out of the Ginnie Mae pools before
completing a loan modification, servicers facing liquidity shortages
due to, for example, covering an unprecedented amount of forborne loan
payments, may not be financially able to purchase such loans out of the
pools. This means that such servicers would not be able to offer
crucial loan modifications to veterans.
Servicers' decreased ability to offer loan modifications due to the
repurchase requirement discussed above is especially significant given
that veterans with large amounts of forborne indebtedness may not be
able to return to normal loan repayment under other available loss-
mitigation options. For example, while a veteran who ceased making
payments under a CARES Act forbearance for 360 days may be able to
resume making regularly scheduled monthly loan payments, post-
forbearance, the veteran may be unable to repay a whole year's worth of
missed payments under a repayment plan, in a relatively short timeframe
established by a servicer that may be facing liquidity strains.
Similarly, a special forbearance may also not be financially
feasible from the perspective of both the veteran and the servicer. A
central issue is the ability of the borrower to repay forborne
indebtedness over a relatively short period. A special forbearance
could be problematic in that the veteran would have even more forborne
indebtedness to repay, and the servicer would need to advance
additional payments without receiving any offsetting payments from the
veteran.
Given the issues described above, the unprecedented nature of the
COVID-19 emergency, its impact on the economy, and the lengthy
forbearance period authorized under the CARES Act (i.e., up to 360
days), VA is continuously evaluating how best to help veterans with
large amounts of forborne indebtedness avoid foreclosure. For example,
VA recently issued guidance clarifying that servicers may offer what
the servicing industry commonly calls loan ``deferment,'' as a novel
home retention option.\22\ Under this option, the servicer would allow
the veteran to defer repayment of forborne payments until the
guaranteed loan matures, is refinanced, or otherwise paid in full, or
when the borrower transfers the property, whichever occurs first. The
deferred indebtedness would not accrue any additional interest, and the
veteran would not incur any fees or costs associated with the deferment
option. The option would not necessarily require the servicer to modify
the existing guaranteed loan. Ordinarily, VA's regulation at 38 CFR
36.4310(a) would prohibit a final installment payment on a guaranteed
loan from exceeding two times the average of the preceding
installments. In cases where veterans have deferred several months'
worth of payments, the final installment (i.e., the total deferred
indebtedness), will often exceed the limit. However, in order to
provide veterans with a full gamut of options, VA temporarily waived
\23\ this limit for certain cases where servicers can offer a loan
deferment option that complies with VA's policy guidance.
---------------------------------------------------------------------------
\22\ VA Circular 26-20-33, Deferment as a COVID-19 Loss-
Mitigation Option for CARES Act Forbearance Cases, (Sept. 14, 2020),
https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_20_33.pdf.
\23\ See 38 CFR 36.4338(a) (authorizing VA, notwithstanding any
requirement, condition, or limitation stated in or imposed by
regulations governing guaranteed loans, to relieve undue prejudice
to a debtor, holder, or other person, which might otherwise result,
if VA finds that such action does not adversely affect the interests
of the Government or impair the vested rights of any person affected
thereby). See also Executive Order 13924, 85 FR 31353 (May 19, 2020)
(stating that agencies should, to the extent possible, address the
economic consequences of the COVID-19 emergency by rescinding,
modifying, waiving, or providing exemptions from regulations and
other requirements that may inhibit economic recovery); Executive
Order 13945, 85 FR 49935 (Aug. 8, 2020) (stating that it is the
policy of the United States to minimize, to the greatest extent
possible, residential evictions and foreclosures during the ongoing
COVID-19 national emergency).
---------------------------------------------------------------------------
While loan deferment may present the best option for certain
borrowers, many servicers are facing a liquidity crunch and lack
financial resources to float large amounts of forborne indebtedness for
what can be, depending on the case, two to three decades. As a result,
VA continues to consider innovative ways to assist veterans mitigate
the effects of the COVID-19 emergency, including options that, until
recently, were not considered or utilized in VA's home loan program.
D. The Partial Claim Loss-Mitigation Option
As part of VA's effort to analyze all possible options that could
help veterans, VA considered home retention options available to
borrowers with other types of federally backed mortgages; that is,
those available through single-family loan guarantee/insurance programs
administered by
[[Page 79146]]
FHA and USDA. Notably, both agencies offer a ``partial claim'' as part
of the suite of loss-mitigation options available to borrowers and
servicers.\24\ More recently, FHA announced COVID-19 specific
guidelines to maximize use of its partial claim option while providing
streamlined loss-mitigation for borrowers and servicers.\25\ Under
these programs, the partial claim option defers the repayment of
housing loan principal through the creation of an interest-free
subordinate loan (payable to the Government) that is generally not due
until the primary loan is paid off. During the COVID-19 emergency, both
FHA and USDA have authorized servicers to utilize the partial claim
option to cover all housing loan payments borrowers do not make while
under a CARES Act forbearance, up to 30 percent of the unpaid principal
balance, subject to certain requirements.
---------------------------------------------------------------------------
\24\ See 12 U.S.C. 1715u(b); 24 CFR 203.371. See also 42 U.S.C.
1472(h)(14); 7 CFR 3555.304(d) and 3555.307.
\25\ Mortgagee Letter 2020-06, FHA's Loss Mitigation Options for
Single Family Borrowers Affected by the Presidentially-Declared
COVID-19 National Emergency in Accordance with the CARES Act, (Apr.
1, 2020), https://www.hud.gov/sites/dfiles/OCHCO/documents/20-06hsngml.pdf; Mortgagee Letter 2020-22, FHA's COVID-19 Loss
Mitigation Options, (Jul. 8, 2020), https://www.hud.gov/sites/dfiles/OCHCO/documents/20-22hsgml.pdf.
---------------------------------------------------------------------------
III. Legal Authority
Unlike FHA and USDA, VA has never had explicit authority to
establish a partial claim option. To help veterans recover from the
financial hardships posed by the COVID-19 national emergency, VA looked
to its loan refund authority in 38 U.S.C. 3732 and the broad powers
authorized under 38 U.S.C. 3720. When read together, the text of these
two sections authorizes VA to establish the COVID-VAPCP as an emergency
measure.
Under 38 U.S.C. 3732(a), VA has the legal right to prevent a
foreclosure by purchasing indebtedness that VA has already guaranteed.
VA refers to such a purchase as a loan refund. If VA exercises the
option, the holder must assign the loan to VA. VA then steps into the
shoes of the holder and often allows for a loan modification, which
makes the terms more affordable for the veteran.
VA also has broad powers under 38 U.S.C. 3720, ``notwithstanding
the provisions of any other law,'' to purchase assets and pay any
claim, however acquired, relating to or arising from matters in the VA-
guaranteed loan program and to offer forbearances or indulgences to
veterans who have suffered loss due to disasters.\26\ In applying the
authorities as a consistent, coherent framework, VA would, by way of a
loan to the veteran, purchase from the servicer the veteran's CARES Act
indebtedness and establish repayment terms favorable to the veteran,
while leaving intact the veteran's guaranteed loan.
---------------------------------------------------------------------------
\26\ See 38 U.S.C. 3720(a), 3720(a)(3) through (5), and 3720(f).
---------------------------------------------------------------------------
IV. COVID-19 Veterans Assistance Partial Claim Payment Program
VA, therefore, proposes to establish a temporary program that would
provide a partial claim option to certain veterans who are financially
impacted by COVID-19. Under VA's proposed COVID-VAPCP, servicers would
present the partial claim option to a veteran only after evaluating the
feasibility of loss-mitigation options already available in VA's
program (i.e., repayment plan, special forbearance, and loan
modification). If the veteran qualifies and opts to move forward with a
partial claim option, VA would purchase the veteran's forborne
indebtedness, like when VA refunds a guaranteed loan. Acting as a
mortgage investor of last resort, VA would purchase the amount of
indebtedness that is necessary to bring the veteran's guaranteed loan
current (instead of the whole amount of the guaranteed loan, as would
be the case in a typical loan refund). The veteran would repay VA for
this amount, and the indebtedness would be secured as a lien against
the veteran's home upon execution and recordation of the security
instrument. The servicer would handle all aspects of the origination of
the new COVID-VAPCP loan. The new loan would be serviced under VA's
existing loan portfolio.
To ensure that veterans can benefit from a partial claim option in
ways like FHA and USDA borrowers, VA proposes to mirror requirements
from FHA's and USDA's COVID-19 partial claim programs, whenever
feasible. Therefore, like FHA's and USDA's COVID-related partial claim
programs, VA's proposed COVID-VAPCP would only be available for
guaranteed loans that were, on March 1, 2020, either current or less
than 30 days past due. Additionally, VA's partial claim payment would
only be payable to a servicer on behalf of a veteran if there remains
unpaid at least one scheduled monthly payment that the veteran missed
while under a CARES Act forbearance. VA notes that some borrowers have
continued to make their monthly loan payments despite being under a
CARES Act forbearance. A partial claim payment option would be
unnecessary for those individuals because there would be no forborne
indebtedness to resolve upon exiting the forbearance. Consistent with
FHA's COVID-19 National Emergency Standalone Partial Claim, VA would
only pay one partial claim payment per veteran and require that the
veteran occupy, as a residence, the property securing the guaranteed
loan for which the partial claim is requested. Also consistent with FHA
and USDA, VA's proposed COVID-VAPCP would require the servicer to
determine whether the veteran satisfies the program requirements,
prepare the appropriate loan documents on VA's behalf, and bring the
veteran's guaranteed loan current, prior to submitting to VA a request
for partial claim payment.
While VA's proposed COVID-VAPCP would bear many similarities to FHA
and USDA's COVID-related partial claim programs, it would not be
identical to either program. VA notes that FHA and USDA provide 100
percent and 90 percent backing on their guaranteed/insured loans,\27\
respectively, whereas VA's guaranty is typically no more than 25
percent.\28\ VA's smaller guaranty is relevant for two reasons.
---------------------------------------------------------------------------
\27\ See 12 U.S.C. 1709; 42 U.S.C. 1472(h)(2).
\28\ See 38 U.S.C. 3703(a)(1). While VA notes that the guaranty
may be higher on loans with lower balances, such as 50 percent for
loans with balances less than or equal to $45,000, the average
balance on guaranteed loans has exceeded $200,000 since 2008. See
VBA Annual Benefits Reports, Fiscal Years 2008 to 2019, https://www.benefits.va.gov/REPORTS/abr/docs/2019-loan-guaranty.pdf (Fiscal
Year 2019); https://www.benefits.va.gov/REPORTS/abr/archive.asp
(Fiscal Years 2008 to 2018).
---------------------------------------------------------------------------
First, compared to FHA- and USDA-backed loans with similar loan
balances, VA-guaranteed loans generally expose the Government to less
financial risk per loan. While VA's unique mission requires VA to
promote favorable outcomes for veterans, which might increase costs, VA
must also continue to be a responsible steward of taxpayer funds. VA
has determined that any proposed amount of assistance via a partial
claim option cannot cause VA to incur financial risk that would eclipse
the guaranty.
Therefore, while both the FHA and USDA partial claim programs
provide payment to the servicer, on the borrower's behalf, up to 30
percent of the unpaid principal balance at the time of initial
default,\29\ VA's proposed program would provide for payment to the
servicer, on the veteran's behalf, up to 15 percent of the unpaid
principal balance of the guaranteed loan as of the date the veteran
entered into a CARES
[[Page 79147]]
Act forbearance. VA notes that, based on an initial analysis of loans
in forbearance, VA believes that a 15 percent cap would provide
sufficient room for servicers to bring the guaranteed loans current,
even if a veteran invokes the maximum period of forbearance; that is,
360 days, under the CARES Act.
---------------------------------------------------------------------------
\29\ 12 U.S.C. 1715u(b)(2)(A); 42 U.S.C. 1472(h)(14)(A).
---------------------------------------------------------------------------
FHA and USDA do not charge borrowers interest on the subordinate
indebtedness that results from a partial claim payment. Also, in such
programs, no payment on the subordinate indebtedness is generally due
until such time as the property securing the insured/guaranteed loan is
transferred or sold or the insured/guaranteed loan is refinanced or
otherwise paid-in-full. However, in both programs, the partial claim is
essentially treated as an advance paid to the servicer, on behalf of
the borrower, enabling the insured/guaranteed loan to return to
current.\30\ This arrangement is to be expected given that FHA and USDA
back all, or nearly all, of the insured/guaranteed loan. VA, on the
other hand, views its partial claim payment option more like its loan
refund program. As previously discussed, under the loan refund program,
VA generally takes assignment of the guaranteed loan in exchange for
VA's payment of the unpaid balance of the obligation, plus accrued
interest. In the event VA takes the loan into its own portfolio for
servicing, no guaranty claim is paid. The veteran continues to pay
interest on the indebtedness and monthly payments as obligated, but to
VA as noteholder, not to the former loan servicer.
---------------------------------------------------------------------------
\30\ See 24 CFR 203.341, 203.371, and 203.401 (casting FHA's
partial claim as an ``application for insurance benefits''). See
also 7 CFR 3555.304(d)(8) (stating that a USDA loss claim will be
adjusted by any amount of mortgage recovery advance reimbursed to
the lender).
---------------------------------------------------------------------------
Under this rulemaking, VA proposes to make COVID-VAPCP loans on
terms extremely favorable to veterans; providing a lifeline to veterans
as they recover financially. First, VA proposes to require repayment of
the loan within 120 months of origination or upon the veteran's
transfer of title to the property, the refinancing of the guaranteed
loan with which the partial claim payment is associated, or payment in
full otherwise of such guaranteed loan. VA would also automatically
defer any monthly payments for the first 60 months of the loan. Based
on the partial claim loan balances that VA anticipates, VA believes
this time horizon would provide veterans with a reasonable path to
repayment without additional undue financial hardship.
VA also proposes to charge a nominal, fixed interest rate of 1.00
percent per annum on any loan established under the COVID-VAPCP. VA
notes that this is below what is generally charged for VA's portfolio
loans (including refunded loans) and, in fact, represents no more than
the approximate net present value of the money to be paid to servicers
on behalf of veterans.\31\ In other words, the 1.00 percent interest
rate established under the COVID-VAPCP represents roughly the 10-year
cost of borrowing money from the U.S. Treasury that would be needed to
reimburse servicers, on behalf of veterans, for partial claim payments.
---------------------------------------------------------------------------
\31\ VA's analysis of the net present value of partial claim
payments made in accordance with the COVID-VAPCP was based on a
review of the 10-year Treasury Yield Rate from Jan. 1, 2020, through
Aug. 28, 2020.
---------------------------------------------------------------------------
The relatively small size of VA's guaranty is also relevant because
the holder \32\ of a VA-guaranteed loan bears significantly more
financial risk for a VA-guaranteed loan than for a loan insured or
guaranteed by FHA or USDA. Due to VA's smaller guaranty percentage, the
servicer has just as much, if not more, financial interest than the
Government in seeing a delinquent VA-guaranteed loan brought current
because, unlike in FHA and USDA's programs, VA will not pay more than
25 percent of the loan. Given the holder's significant financial
incentive to offer a veteran the loss-mitigation option that is most
likely to help the veteran return to normal repayment, VA generally
does not prescribe which loss-mitigation options servicers must first
offer to a veteran before considering other options.
---------------------------------------------------------------------------
\32\ 38 CFR 36.4301 defines holder as ``[t]he lender or any
subsequent assignee or transferee of the guaranteed obligation or
the authorized servicing agent (also referred to as ``the
servicer'') of the lender or of the assignee or transferee.''
---------------------------------------------------------------------------
Therefore, where FHA has mandated that servicers consider every
owner-occupant borrower exiting a CARES Act forbearance who was current
or less than 30 days past due as of March 1, 2020, for a COVID-19
National Emergency Standalone Partial Claim, and USDA has authorized a
Disaster Mortgage Recovery Advance for similarly situated borrowers, VA
would not mandate that servicers consider veterans for a partial claim
payment option. Rather, VA would expect servicers to consider the
feasibility of loss-mitigation options before considering a partial
claim payment. Consistent with VA's existing regulations and policies,
servicers would evaluate a veteran's financial situation and, if
appropriate, offer loss-mitigation options that are within the
servicer's financial capabilities and business model.
VA further notes that, because of the way the COVID-VAPCP is
structured, the COVID-VAPCP is a standalone home retention option. In
other words, the COVID-VAPCP cannot be combined with loss-mitigation
options, such as a special forbearance or loan modification, to assist
borrowers who are exiting CARES Act forbearances. For example, a
servicer cannot tack on a special forbearance period to the end of a
CARES Act forbearance and then use the COVID-VAPCP to bring the
guaranteed loan current. When a servicer offers a special forbearance
to assist the borrower in returning to normal repayment, it indicates
that the servicer views the option as the most prudent choice based on
the circumstances. Similarly, if a servicer brings a veteran's
guaranteed loan current through a loan modification, but shortly
thereafter the veteran cannot make payments on the modified loan, the
servicer cannot then pursue a partial claim payment. A loan
modification requires servicers to ensure that the guaranteed loan
``will be reinstated to performing status by virtue of the loan
modification.'' \33\ If the servicer reinstated the guaranteed loan to
performing status by virtue of the loan modification, there would not
be any remaining ``indebtedness that [would be] necessary to bring the
guaranteed loan current,'' under VA's proposed rule text below.
---------------------------------------------------------------------------
\33\ 38 CFR 36.4315(a)(6).
---------------------------------------------------------------------------
By requiring servicers to consider loss-mitigation options before
evaluating a veteran for COVID-VAPCP, VA's proposed policy would help
ensure that veterans are afforded options that may be more advantageous
to them than a partial claim, without imposing additional
administrative requirements on servicers. For example, servicers that
have adequate resources to offer deferment \34\ as a home retention
option would be able to do so under VA's proposed program. Deferment
can present a better option for certain veterans as compared to the
COVID-VAPCP because, as explained above, the deferred amount does not
accrue interest and may provide a veteran significantly more time
before a payment would become due. Moreover, without a requirement that
certain veterans be evaluated for COVID-VAPCP, servicers willing and
able to
[[Page 79148]]
offer deferments would not have to alter their servicing process, train
employees, and possibly upgrade technology to complete such
evaluations.
---------------------------------------------------------------------------
\34\ See VA Circular 26-20-33, Deferment as a COVID-19 Loss-
Mitigation Option for CARES Act Forbearance Cases, (Sept. 14, 2020),
https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_20_33.pdf.
---------------------------------------------------------------------------
Nevertheless, the option of COVID-VAPCP assistance may very well be
necessary to ensure certain veterans can recover financially. In this
regard, as servicers evaluate their liquidity positions and other
factors, to determine how to make the advances necessary for investor
requirements, some servicers may find themselves unable to offer
certain loss-mitigation options, such as a loan modification. VA notes
that, unlike a loan modification, a partial claim payment under VA's
proposed COVID-VAPCP would not require the guaranteed loan to be
purchased out of the Ginnie Mae pools. Thus, for these servicers, and
the veterans whose guaranteed loans they service, the assistance VA is
proposing would ensure veterans are afforded an option that enables
them to retain their home, while simultaneously helping servicers avoid
liquidity crunches, thereby affording veterans prudent and
uninterrupted loan servicing.
As mentioned above, VA's proposed COVID-VAPCP would be available to
veterans whose guaranteed loan was current or less than 30 days past
due as of March 1, 2020, and who certify that they can resume making
scheduled monthly payments, on time and in full. VA, however, would
also require servicers to ensure that the veteran's monthly residual
income, as described in 38 CFR 36.4340(e), is adequate to meet living
expenses after estimated monthly shelter expenses (e.g., payments on
the guaranteed loan) have been paid and other monthly obligations have
been met. Residual income has long been a critical component of VA
underwriting.\35\ As the information collected from the veteran to
conduct this analysis coincides with the information already requested
to evaluate VA's existing loss-mitigation options, this residual income
requirement would help ensure that servicers have considered all loss-
mitigation options for feasibility before pursuing a partial claim
payment. Veterans would ultimately benefit from this additional
financial assessment because servicers would be able to evaluate the
financial impact of loss-mitigation options, such as loan modification,
compared to a partial claim option. Take, for example, a veteran who
enters a CARES Act forbearance with 300 monthly payments remaining and
an unpaid principal balance of $239,450. Given a total monthly payment
of $1,587.83, at the end of a 12-month forbearance period, the veteran
would owe $19,054 in missed guaranteed loan payments.\36\ A loan
modification at the same interest rate and a new 30-year term would
result in a $26 decrease in monthly loan payments but $39,518 in
additional interest over the life of the guaranteed loan. Conversely, a
VA partial claim payment would result in a $341.58 per month payment to
VA in years 6 through 10 but only $1,441 in additional interest over
the life of the guaranteed loan.
---------------------------------------------------------------------------
\35\ See Public Law 99-576, section 402(b) (Oct. 28, 1986); 55
FR 4829, 4869 (Feb. 12, 1990); 56 FR 9835, 9853 (Mar. 8, 1991).
\36\ This example assumes a starting guaranteed loan balance of
$245,000, fixed 3.75 percent interest rate, 360-month loan term, and
monthly escrows of $453.20.
---------------------------------------------------------------------------
In cases where the servicer could not offer a deferment but could
perhaps offer a modification, the partial claim option might present an
even more beneficial outcome for both the veteran and the servicer. As
the partial claim option would require the servicer to determine that
the veteran can meet residual income standards, the veteran would not
necessarily need the short-term savings of reduced monthly loan
payments under a loan modification. It could be more beneficial for
such a veteran to realize an overall interest savings of $38,077 under
a partial claim option.
V. Section-by-Section Analysis of the Proposed Regulatory Amendments
As previously noted, VA is proposing the COVID-VAPCP as a temporary
program to help veterans return to making normal loan payments on their
guaranteed loans after exiting a CARES Act forbearance period. VA
further noted that its existing loss-mitigation and other servicing
regulations and policies remain in effect. Thus, to avoid confusion, VA
is proposing to add a new subpart F to part 36 of the Code of Federal
Regulations (CFR) to contain the regulations that would govern this
temporary program. The following outlines VA's proposed regulations,
with further explanation of each individual section, as necessary.
A. Section 36.4800 Applicability
In proposed Sec. 36.4800, VA would note that this subpart applies
to all loans guaranteed by VA, to the extent such loans are affected by
the COVID-19 national emergency.
B. Section 36.4801 Definitions
In proposed Sec. 36.4801, VA would set forth the definitions
applicable to new subpart F.
VA would define ``alternative to foreclosure'', ``CARES Act
forbearance'', ``CARES Act indebtedness'', ``Guaranteed loan'', ``Loss-
mitigation option'', ``Secretary'', and ``Servicer'' as set out in the
regulatory text below.
C. Section 36.4802 General Purpose of the COVID-19 Veterans Assistance
Partial Claim Payment Program
In Sec. 36.4802, VA would set forth the general purpose of the
COVID-VAPCP. Intending to provide some introductory context for this
novel option within VA's home loan program, VA would state that the
COVID-VAPCP is a temporary program to help veterans who have suffered a
COVID-19 financial hardship. Notwithstanding the requirements elsewhere
in part 36 regarding payment of a guaranty claim or refunding a loan,
this proposed section would allow VA to assist a veteran exiting a
CARES Act forbearance by purchasing from the servicer the veteran's
CARES Act indebtedness. Such a purchase would be called a partial claim
payment. In exchange for VA's partial claim payment on behalf of the
veteran, the veteran would have to agree to repay the Secretary, in the
amount of such partial claim payment, upon loan terms established by
the Secretary.
D. Section 36.4803 General Requirements of the COVID-19 Veterans
Assistance Partial Claim Payment Program
In Sec. 36.4803, VA would set forth the general requirements of
the COVID-VAPCP. First, VA would require that the loan for which a
partial claim payment is requested must be a guaranteed loan that was,
on March 1, 2020, either current or less than 30 days past due. Second,
VA would require that the veteran on whose behalf VA would pay a
partial claim payment both received a CARES Act forbearance and missed
at least one scheduled monthly payment. Third, VA would require that
there remains unpaid at least one scheduled monthly payment that the
veteran did not make while under a CARES Act forbearance. Fourth, VA
would require the veteran to certify that the veteran can resume making
scheduled monthly payments, on time and in full, and that the veteran
occupies, as the veteran's residence, the property securing the
guaranteed loan for which the partial claim is requested. Fifth, VA
would require the servicer to determine and certify that the veteran's
monthly residual income, as described in Sec. 36.4340(e), will be
adequate to meet living expenses after estimated monthly shelter
expenses have been paid and
[[Page 79149]]
other monthly obligations have been met. Lastly, VA would require the
veteran to execute, in a timely manner, all loan documents necessary to
establish an obligation to repay the Secretary for the partial claim
payment.
E. Section 36.4804 Partial Claim Payment as Last Resort
In Sec. 36.4804, VA would state that a partial claim payment would
be an option of last resort. VA would reiterate that the COVID-VAPCP is
designed to address the financial hardships due, directly or
indirectly, to the COVID-19 national emergency. VA would state that
servicers must consider all possible loss-mitigation options and that
VA expects the partial claim payment option would be considered only as
a last resort, after a servicer has evaluated loss-mitigation options
for feasibility. VA would also state that the servicer would be able to
immediately proceed to offering an alternative to foreclosure if the
veteran notifies the servicer that the veteran does not want to retain
ownership of the property securing the guaranteed loan.
F. Section 36.4805 Terms of the Partial Claim Payment
In Sec. 36.4805, VA would set forth the terms of the partial claim
payment. In paragraph (a), in order for a partial claim payment to be
payable, the servicer would be required to submit to the Secretary, not
later than 90 days after the date the veteran exits the CARES Act
forbearance, a request for such payment, as prescribed in proposed
Sec. 36.4807. This would require a servicer to evaluate the veteran
for all loss-mitigation options, as well as a partial claim option, and
prepare and execute the appropriate loan documents, all before
submitting an application to VA. VA notes that 90 days is consistent
with FHA's COVID-19 loss-mitigation policies.\37\ Nevertheless, in
recognition of the fact that servicers will be faced with large numbers
of borrowers exiting forbearance in the coming year, VA is specifically
requesting comments on the proposed timeframe to complete these actions
and submit an application for partial claim payment.
---------------------------------------------------------------------------
\37\ Mortgagee Letter 2020-22, FHA's COVID-19 Loss Mitigation
Options, (Jul. 8, 2020), https://www.hud.gov/sites/dfiles/OCHCO/documents/20-22hsgml.pdf.
---------------------------------------------------------------------------
Paragraph (b) of this section would state that the amount of the
partial claim payment that VA would pay to the servicer, as calculated
under proposed paragraph (e), shall not exceed 15 percent of the unpaid
principal balance of the guaranteed loan. For the purposes of proposed
paragraph (b), the unpaid principal balance of the guaranteed loan
would mean such balance as of the date the veteran entered into a CARES
Act forbearance. Paragraph (c) would state that VA would pay only one
partial claim payment per guaranteed loan. Paragraph (d) would state
that VA would pay only one partial claim payment per veteran.
In proposed paragraph (e)(1), VA would state that because VA would
pay only one partial claim payment per guaranteed loan, and only one
partial claim payment per veteran, a servicer would be required, in
calculating the amount of partial claim payment to be paid by VA to the
servicer, to include the full amount of indebtedness that is necessary
to bring the guaranteed loan current. In paragraph (e)(2), VA would
state that to bring the guaranteed loan current, servicers must include
in the partial claim payment the full CARES Act indebtedness,
comprising (i) all scheduled but missed monthly payments of principal
and interest; and (ii) as applicable, all scheduled but missed monthly
escrow payments for real estate taxes and insurance premiums, or where
the guaranteed loan documents do not provide for monthly escrowing, all
payments the servicer made to real estate tax authorities and insurance
providers, on the veteran's behalf, during the CARES Act forbearance.
VA chose to require inclusion of payments of taxes and insurance
because veterans are generally obligated, under the terms of the
documents that establish a guaranteed loan, to keep current their taxes
and insurance premiums. VA internal data shows that, in a little more
than 99 percent of the time, servicers of guaranteed loans require
borrowers to remit monthly, in addition to their principal and interest
payments, the amounts necessary to ensure payment of the full year's
tax and insurance obligations. When servicers require such monthly
remittances, they hold the funds in escrow accounts until the sums are
due. When the veteran's tax and insurance obligations become due, the
servicer takes out of the escrow accounts the amounts necessary to keep
the taxes up to date and the insurance coverage in place.
If the guaranteed loan documents provide for monthly escrow
obligations, the loan can be considered in default when such
obligations are missed. The default, and the resultant consequences of
default, are the same as if the veteran defaults on payments of
principal and interest. Because an objective of the COVID-VAPCP is to
help bring veterans' guaranteed loans current without additional
financial hardship (e.g., having to find a way to replenish escrow
accounts), VA determined the veteran's obligation could not be fully
met unless VA also included in the partial claim calculation the
amounts to cover missed escrow payments.
Also, VA is proposing under Sec. 36.4805(e)(3) that, in cases
where veterans make monthly escrow payments for taxes or insurance
premiums, or both, servicers would be required to include not just the
forborne amounts of taxes and insurance escrows, but also those amounts
that are due within 31 days of the date the veteran executes the COVID-
VAPCP note and security instrument. This is to help ensure a smooth
handoff of the full obligation, rather than to learn, perhaps months
after the fact, that an escrow payment was missed during the transfer
of paperwork.
VA recognizes that there are cases where a veteran does not make
escrow payments to the servicer for taxes or insurance premiums. In
such cases, corresponding to less than 1 percent of guaranteed loans,
the veterans make their payments directly to tax authorities and
insurance providers. In such cases, while servicers are not taking
funds from escrow accounts to make these payments, servicers still
monitor whether the veteran satisfies the veteran's tax and insurance
obligations.
Notably, VA requires servicers to obtain and retain a lien of
proper dignity; that is, a primary lien, for all guaranteed loans. In
that regard, VA can adjust its guaranty and take other actions against
servicers that allow, for example, tax authorities to jeopardize the
primacy of the guaranteed loan lien. Similarly, VA requires servicers
to ensure that the property is adequately insured. In instances where a
veteran does not pay taxes or insurance premiums timely, the servicer
will advance payments, from its own funds, to avoid a lapse in payment,
and to ensure that future guaranty payments, if any, are not
jeopardized.
In cases where servicers were forced to advance payment on a
veteran's behalf to tax authorities or insurance providers because the
veteran (who normally makes payments directly to such entities) did not
meet such obligations during a CARES Act forbearance, the veteran would
need to repay the servicer to bring the guaranteed loan current. That
is why VA proposes to require these obligations
[[Page 79150]]
in the partial claim payment.\38\ VA would not, however, authorize
inclusion of any such amounts to cover payments that were not due on
the date the veteran executes the COVID-VAPCP note and security
instrument.
---------------------------------------------------------------------------
\38\ See 38 U.S.C. 3732(a)(2)(A) (stating that VA's refund
authority includes ability to ``pay the holder of the obligation the
unpaid balance of the obligation plus accrued interest'').
---------------------------------------------------------------------------
For example, consider a veteran who pays property taxes directly to
their local tax office on a semi-annual basis (i.e., on the first of
January and of July) and elects a seven-month CARES Act forbearance
beginning May 1, 2020. Assuming the veteran does not pay the property
tax bill on July 1, 2020, the servicer would advance payment from its
own funds. The veteran then exits the CARES Act forbearance on November
1, 2020 and executes the note and security instrument, consistent with
proposed Sec. 36.4806, on December 1, 2020. The partial claim payment
amount calculated under paragraph (e) would include the amount of taxes
paid by the servicer on behalf of the veteran in July. The veteran,
however, would be responsible for paying the property tax bill due on
January 1, 2021, and no dollar amount would be included in the partial
claim payment to account for the fact that the veteran was in
forbearance five out of the six months leading up to the next property
tax bill.
The previous example contrasts with a veteran whose monthly loan
payment to the servicer includes an amount that is set aside in an
escrow account to be used for payment of property taxes. Using the same
dates as above, the servicer would still advance payment from its own
funds to cover the July property tax bill. However, the partial claim
payment amount calculated under paragraph (e) will include the monthly
scheduled amounts for taxes that should have been paid as part of the
monthly loan payments missed for May through December 2020. The
servicer would be reimbursed from this amount for the advance payment
made in July; the remaining amount would be deposited into the
veteran's escrow account and would be available for use when the
January 1, 2021, property tax bill is due.
While VA does not intend to create differences between veterans who
escrow and who do not escrow, VA notes the complexities associated with
determining and disbursing funds to the servicer to cover tax and/or
insurance bills that are not yet due and payable. In this regard,
allowing for inclusion of such amounts in a partial claim payment might
assume that veterans who opt to pay taxes or insurance premiums
directly to taxing authorities or insurance providers set aside funds
each month to save up for tax and insurance bills that come due
throughout the year. It would also put servicers in a situation where
they would be required either to remit the amount paid as part of the
partial claim directly to the veteran or make another payment on behalf
of the veteran. Both scenarios could create unnecessary confusion.
There would also be need for oversight by VA to ensure that any amounts
to cover future payments not collected as part of a scheduled monthly
loan payment are calculated correctly and ultimately used for their
intended purpose (i.e., taxes or insurance, or both).
Given VA's estimate that less than 1 percent of veterans pay their
taxes and/or insurance directly to the appropriate authority/provider,
rather than through monthly escrow payments to their servicer, VA
proposes that, for partial claim payments associated with these
veterans' guaranteed loans, a servicer can include only amounts the
servicer actually paid on behalf of the veteran during the CARES Act
forbearance period. Nevertheless, VA invites public comment on whether
VA should cover prorated amounts associated with missed guaranteed loan
payments for these veterans and, if so, how VA might best accomplish
this for veterans and servicers.
In proposed paragraph (e)(3), VA would also require servicers to
include all scheduled monthly payments (comprising principal, interest,
and escrow payments for real estate taxes and insurance premiums) that
are due within 31 days of the date the veteran executes the note and
security instrument described in proposed Sec. 36.4806. VA notes that
any such payment due within 31 days of such date may be considered part
of the veteran's obligation to bring the guaranteed loan current. As
such, VA would require servicers to include this amount in the partial
claim payment. From a practical standpoint, this means that a veteran
who executes, on January 15, 2021, a COVID-VAPCP note and security
instrument described in Sec. 36.4806, would not have a guaranteed loan
payment due to the servicer until March 1, 2021, as the February 1,
2021 payment would be due within 31 days and would need to be included
in the partial claim amount. (Note: As explained below, the veteran
would not have to begin repaying VA under the COVID-VAPCP loan until
2026.)
Additionally, as discussed below, VA proposes to allow servicers to
include, if applicable, all scheduled monthly payments (comprising
principal, interest, and escrow payments for real estate taxes and
insurance premiums) that were missed after March 1, 2020, but before
the veteran was granted a CARES Act forbearance, provided the
guaranteed loan was, as of March 1, 2020, current or less than 30 days
past due. However, in order to include these payments, the servicer
must waive any late charges and fees associated with these missed
payments.
VA recognizes that some borrowers may not have been immediately
aware of the availability of forbearance under the CARES Act, but
nevertheless missed their guaranteed loan payment(s) due to
circumstances related to the COVID-19 national emergency before
requesting forbearance. The effect of the above requirements would be
to enable veterans, whose loans meet the criteria, to bring their
guaranteed loans current via the COVID-VAPCP. In that circumstance, the
servicer would include, if applicable, certain payments not paid
between March 1, 2020, and the date the veteran entered the CARES Act
forbearance in the amount of the partial claim payment. Additionally,
under proposed paragraph (e)(3)(iii), VA would require servicers to
include the actual amount of recording fees, recording taxes, or other
charges levied by the recording authority, that must be paid in order
to record the security instrument described in proposed Sec. 36.4806.
In proposed paragraph (e)(4), VA would clarify that servicers shall
not include any amounts in the partial claim total that are not listed
by paragraph (e)(2) or (3). This means servicers could not include any
amounts, for example, for fees, penalties, or interest, beyond the
amounts scheduled or calculated as if the borrower made all contractual
payments on time and in full under the terms of the guaranteed loan, or
any late charges and fees that the veteran incurred between March 1,
2020, and the date the veteran entered the CARES Act forbearance.\39\
---------------------------------------------------------------------------
\39\ See Public Law 116-136, section 4022(b)(3) (Mar. 27, 2020)
(expressly prohibiting a servicer from charging any ``fees,
penalties, or interest beyond the amounts scheduled or calculated as
if the borrower made all contractual payments on time and in full
under the terms of the mortgage contract'').
---------------------------------------------------------------------------
In proposed paragraph (e)(5), VA would state that nothing in
proposed Sec. 36.4805 shall preclude a veteran from making an optional
payment or a servicer from waiving a veteran's indebtedness, such that
the amount of partial claim payment would not exceed
[[Page 79151]]
the 15 percent cap described in proposed paragraph (b).
As explained above, VA's initial analysis of guaranteed loans in
forbearance suggests that a 15 percent cap (based on the unpaid
principal balance as of the date the veteran entered into a CARES Act
forbearance) would provide enough room for servicers to bring the
guaranteed loans current, even if a veteran invokes the maximum period
of forbearance; that is, 360 days, under the CARES Act. In the event
that the amount needed to bring an eligible veteran's guaranteed loan
current exceeds 15 percent of the unpaid principal balance, VA would
allow a veteran to make an optional payment or a servicer to waive the
veteran's indebtedness, such that the partial claim payment would not
exceed the 15 percent cap.
In proposed paragraph (e)(6), VA would explain that if the servicer
miscalculates the partial claim amount, resulting in an overpayment to
the servicer, the amount of such overpayment shall constitute a
liability of the servicer to the United States. The servicer would be
required to remit the overpaid amount immediately to VA. In paragraph
(e)(7), VA would state that if the servicer miscalculates the partial
claim amount, resulting in underpayment (i.e., an amount insufficient
to bring the guaranteed loan current), the servicer would be required
to waive the difference.
Finally, proposed paragraph (e)(8) would prohibit servicers from
including any amounts for a monthly payment that is scheduled to be
paid on a date that is more than 31 days after the veteran executes the
note and security instrument described in Sec. 36.4806.
Under proposed paragraph (f), the servicer would be required to
prepare a note and security instrument in favor of ``the Secretary of
Veterans Affairs, an Officer of the United States''. Using the
``Department of Veterans Affairs'' or the ``United States'' is legally
incorrect. Furthermore, certain states have their own Departments of
Veterans Affairs, and without the explicit distinction made here,
confusion could result. Therefore, it is critical that the note and
security instrument read in favor of ``the Secretary of Veterans
Affairs, an Officer of the United States''.
VA would require that the note be consistent with the terms
described in proposed Sec. 36.4806 and include all borrowers who are
obligated on the guaranteed loan. The security instrument would also be
required to include all persons (borrowers, as well as non-borrowers)
who hold a title interest in the property securing the guaranteed loan.
In proposed paragraph (g), subject to the requirement that the servicer
submit the application for a partial claim payment to VA not later than
90 days after the date the veteran exits the CARES Act forbearance, VA
would require all loan documents to be fully executed not later than 90
days after the veteran exits the CARES Act forbearance. Proposed
paragraph (h) would require the servicer to record the security
instrument timely, as prescribed in Sec. 36.4807. Finally, in
paragraph (i), the servicer would be prevented from charging, or
allowing to be charged, to the veteran any fee in connection with the
COVID-VAPCP.
G. Section 36.4806 Terms of the Assistance to the Veteran
If a veteran chooses to accept VA's assistance (i.e., a partial
claim payment to the servicer, on the veteran's behalf), the veteran,
and all co-borrowers on the guaranteed loan, would be required to
execute a note and security instrument in favor of ``the Secretary of
Veterans Affairs, an Officer of the United States''. In addition, all
non-borrowers holding a title interest in the property would be
required to sign the security instrument. VA would establish the terms
of the note and security instrument. Specifically, VA would require the
note and security instrument to include the amount to be repaid to the
Secretary, by the veteran, to be the amount calculated under Sec.
36.4805(e). The interest rate on the loan created by the note and
security instrument would be required to be fixed at 1.00 percent per
annum. VA would automatically defer monthly payments for the first 60
months of the loan, meaning that there would be no payment due to the
Secretary during the period of deferment. Interest would accrue on the
loan during such deferment and a borrower could, without premium or
fee, make payments during such deferment for the entire indebtedness,
or any portion thereof, provided that such portion is not less than
what would be due for one monthly payment as calculated based on a 60-
month term. VA would require the term of the loan to be 120 months. The
loan would be amortized fully within the term of the loan in accordance
with any generally recognized plan of amortization requiring
approximately equal monthly payments. VA would require repayment in
full immediately upon the veteran's transfer of title to the property,
the refinancing, or payment in full otherwise, of the guaranteed loan
with which the partial claim payment is associated.
H. Section 36.4807 Application for Partial Claim Payment
In proposed Sec. 36.4807, VA would require the veteran and the
servicer to complete an application form prescribed by the Secretary.
Along with a complete application form, the original note (required
by proposed Sec. 36.4805) must be included when the servicer submits a
request for a partial claim. Not later than 180 days following the date
the security instrument (as required by Sec. 36.4805) is fully
executed, the servicer would be required to provide VA with the
original security instrument and evidence that the servicer recorded
such instrument. If the recording authority causes a delay, the
servicer could request an extension of time, in writing, from VA.
Servicers would utilize VA's existing loan servicing platform, the
VA Loan Electronic Reporting Interface (VALERI) system, to report the
partial claim payment event. Servicers would need to report the event
within seven days of the borrower's execution of the note required by
Sec. 36.4805. Below, VA has identified the specific data elements that
servicers must input into VALERI when reporting the partial claim
event.
Data Element Definitions
----------------------------------------------------------------------------------------------------------------
Event name Data elements Business definition of data element
----------------------------------------------------------------------------------------------------------------
Partial claim................. Principal amount............. Total dollar amount of all scheduled but missed
monthly payments of principal, as described in
Sec. 36.4805(e)(2)(i) and (e)(3)(ii), and all
scheduled monthly payments of principal due
within 31 days of the date the veteran executes
the note and security instrument described in
Sec. 36.4806.
Partial claim................. Interest amount.............. Total dollar amount of all scheduled but missed
monthly payments of interest, as described in
Sec. 36.4805(e)(2)(i) and (e)(3)(ii), and all
scheduled monthly payments of interest due
within 31 days of the date the veteran executes
the note and security instrument described in
Sec. 36.4806.
[[Page 79152]]
Partial claim................. Tax payments missed amount... Total dollar amount of all scheduled but missed
monthly escrow payments for real estate taxes,
as described in Sec. 36.4805(e)(2)(ii) and
(e)(3)(ii), and all scheduled monthly escrow
payments for real estate taxes due within 31
days of the date the veteran executes the note
and security instrument described in Sec.
36.4806.
Partial claim................. Insurance payments missed Total dollar amount of all scheduled but missed
amount. monthly escrow payments for insurance premiums,
as described in Sec. 36.4805(e)(2)(ii) and
(e)(3)(ii), and all scheduled monthly escrow
payments for insurance premiums due within 31
days of the date the veteran executes the note
and security instrument described in Sec.
36.4806.
Partial claim................. Tax advance amount........... Total dollar amount of all payments the servicer
made to real estate tax authorities on the
veteran's behalf, as described in Sec.
36.4805(e)(2)(ii).
Partial claim................. Tax advance date............. The date on which the servicer made the tax
advance on the veteran's behalf, as described in
Sec. 36.4805(e)(2)(ii).
Partial claim................. Insurance advance amount..... Total dollar amount of all payments the servicer
made to insurance providers on the veteran's
behalf, as described in Sec.
36.4805(e)(2)(ii).
Partial claim................. Insurance advance date....... The date on which the servicer made the insurance
advance on veteran's behalf, as described in
Sec. 36.4805(e)(2)(ii).
Partial claim................. Recording fees............... Total dollar amount of recording fees, recording
taxes, or other charges levied by the recording
authority, that must be paid in order to record
the security instrument, as described in Sec.
36.4805(e)(3)(iii).
Partial claim................. Partial claim origination The date the borrower executes the note required
date. by Sec. 36.4805.
Partial claim................. Partial claim first payment The date on which the first payment on the
due date. partial claim loan is due to the Secretary.
Partial claim................. Partial claim maturity date.. The date on which the final payment on the
partial claim loan is due to the Secretary.
Partial claim................. Partial claim P&I payment The monthly payment corresponding to principal
amount. and interest on the partial claim loan.
Partial claim................. Partial claim legal The legal description of the property.
description.
Partial claim................. Partial claim lien position.. The lien position of the partial claim loan.
Partial claim................. Second borrower birth date... The birth dates of all co-borrowers.
----------------------------------------------------------------------------------------------------------------
VA has proposed VA Standard Form 26-10213, Application for a COVID-
19 Veterans Assistance Partial Claim Payment (COVID-VAPCP), to collect
basic information necessary to identify the borrower(s), the servicer,
and the VA loan number for the guaranteed loan for which partial claim
payment is being requested. This form would also collect information
regarding the date the veteran entered into a CARES Act forbearance,
along with the unpaid principal balance on that date, the latter of
which is necessary to determine the maximum amount of the partial claim
payment under proposed Sec. 36.4805. VA proposes that the servicer
must indicate, on the proposed form, the date on which the borrower
will resume monthly guaranteed loan payments to the servicer, along
with the amount of those monthly payments. The servicer would then
provide the amount of partial claim payment being requested, along with
the date the note and security instrument were executed, as required
under proposed Sec. 36.4805. Finally, both the borrower and servicer
would sign statements certifying to the elements required under
proposed Sec. 36.4803.
Further documentation would only be reviewed under VA's existing
auditing and oversight processes.
I. Section 36.4808 No Effect on the Servicing of the Guaranteed Loan
In Sec. 36.4808, VA would require servicers to continue to service
the guaranteed loan in accordance with subpart B of part 36. The
liability of the United States for any guaranteed loan would decrease
or increase pro rata with any decrease or increase of the amount of the
unpaid portion of the guaranteed loan. A partial claim payment would
not affect the guaranty percentage established at the time the
guaranteed loan was made. Receipt of a partial claim payment would not
eliminate a servicer's option under 38 U.S.C. 3732, to convey to the
Secretary the security for the guaranteed loan in the event such loan
is foreclosed or if the veteran executes a deed-in-lieu of foreclosure.
J. Section 36.4809 Expiration of the COVID-19 Veterans Assistance
Partial Claim Payment Program
In proposed Sec. 36.4809, VA would note that the Secretary will
not accept a request for a partial claim payment after the date that is
180 days after the date the COVID-19 national emergency ends (as
provided under the National Emergencies Act), unless a veteran's CARES
Act forbearance does not end until after such date. In cases where a
veteran's CARES Act forbearance ends after the subject date, the
Secretary could still accept a request for a partial claim payment,
provided that such request is submitted to the Secretary not later than
90 days after the date the veteran exits the CARES Act forbearance.
However, in no event would the Secretary accept a request for a partial
claim payment after September 9, 2021.
In proposing September 9, 2021, as the last date on which VA could
accept a request for a partial claim payment, VA notes that this date
is 180 days from the one-year anniversary of the President's March 13,
2020 COVID-19 national emergency declaration. Under the National
Emergencies Act, any ``national emergency declared by the President . .
. not otherwise previously terminated, shall terminate on the
anniversary of the declaration of that emergency if, within the ninety-
day period prior to each anniversary date, the President does not
publish in the Federal Register and transmit to the Congress a notice
stating that such emergency is to continue . . .'' \40\ Without clear
indication of whether the national emergency will be extended beyond
its one-year anniversary, and the future state of the economy and
lending
[[Page 79153]]
industry, VA finds it prudent to publish a termination date that is
tied to the one-year anniversary and also provides sufficient notice
for VA and servicers to close out any actions related to the program.
It also provides sufficient time for VA to extend the sunset date via
rulemaking, depending on VA's continued monitoring of the national
emergency and its impact on veterans.
---------------------------------------------------------------------------
\40\ 50 U.S.C. 1622(d).
---------------------------------------------------------------------------
K. Section 36.4810 Oversight of the COVID-19 Veterans Assistance
Partial Claim Payment Program
In proposed Sec. 36.4810, VA would set forth the parameters for
oversight of the COVID-VAPCP. It is an almost verbatim restatement of
38 U.S.C. 3704(d). Specifically, subject to notice and opportunity for
a hearing, whenever the Secretary finds with respect to a partial claim
payment that any servicer has failed to maintain adequate loan
accounting records, or to demonstrate proper ability to service loans
adequately or to exercise proper credit judgment or has willfully or
negligently engaged in practices otherwise detrimental to the interest
of veterans or of the Government, the Secretary could refuse either
temporarily or permanently to guarantee or insure any loans made by
such servicer and may bar such servicer from servicing or acquiring
guaranteed loans.\41\ Notwithstanding the above, but subject to Sec.
36.4328, the Secretary would not refuse to pay a guaranty or insurance
claim on guaranteed loans theretofore entered into in good faith
between a veteran and such servicer.\42\ The Secretary could also
refuse either temporarily or permanently to guarantee or insure any
loans made by a lender or holder refused the benefits of participation
under the National Housing Act pursuant to a determination of the
Secretary of Housing and Urban Development.\43\
---------------------------------------------------------------------------
\41\ 38 U.S.C. 3704(d).
\42\ Id.
\43\ Id.
---------------------------------------------------------------------------
As noted above, VA would utilize its existing loan refund process
to handle applications for partial claim payments via the VA Loan
Electronic Report Interface (VALERI). Upon receipt of an application,
VA would conduct a two-tier review and approval of the partial claim
payment, utilizing information already in its VALERI systems to verify
that the servicer has brought the veteran's guaranteed loan current,
that the amount requested is consistent with other proposed
requirements, and that VA has received all necessary documentation.
Partial claim payments would also be subject to VA's oversight and
audit activities as part of VA's regular monitoring related to adequacy
of loan servicing. If VA determines, during an audit, that a servicer
did not follow VA's requirements when participating in the COVID-VAPCP,
proposed Sec. 36.4810 would expressly authorize appropriate
enforcement actions.
L. Conforming Technical Amendments
VA proposes to add new section 38 CFR 36.4336 that would reiterate
VA's parameters for oversight of loan servicing. This technical
amendment is necessary to ensure that servicers adhere to the
parameters outlined in Sec. 36.4804, wherein the servicer must
consider the partial claim payment option after evaluating loss-
mitigation options in subpart B for feasibility. As with proposed Sec.
36.4810, it would include an almost verbatim restatement of 38 U.S.C.
3704(d). Under this new section, subject to notice and opportunity for
a hearing, whenever the Secretary finds that any servicer has failed to
maintain adequate loan accounting records, or to demonstrate proper
ability to service loans adequately or to exercise proper credit
judgment or has willfully or negligently engaged in practices otherwise
detrimental to the interest of veterans or of the Government, the
Secretary may refuse either temporarily or permanently to guarantee or
insure any loans made by such servicer and may bar such servicer from
servicing or acquiring guaranteed loans.\44\ Notwithstanding the above,
but subject to Sec. 36.4328, the Secretary would not refuse to pay a
guaranty or insurance claim on guaranteed loans theretofore entered
into in good faith between a veteran and such servicer.\45\ The
Secretary may also refuse either temporarily or permanently to
guarantee or insure any loans made by a lender or holder refused the
benefits of participation under the National Housing Act pursuant to a
determination of the Secretary of Housing and Urban Development.\46\ VA
also proposes to amend 38 CFR 36.4333(a)(2) to ensure that records
referenced in proposed Sec. Sec. 36.4336 and 36.4810 are included in
VA's maintenance of record requirements. Currently, holders are
required to ``maintain records supporting their decision to approve any
loss-mitigation option for which an incentive is paid in accordance
with Sec. 36.4319(a).'' \47\ VA proposes to delete the phrase ``for
which an incentive is paid in accordance with Sec. 36.4319(a).'' To
ensure that VA's partial claim payment option is covered, VA would add
a sentence noting that the holder would be required to maintain records
supporting their decision to pursue a partial claim payment under the
COVID-19 Veterans Assistance Partial Claim Payment program as
established by proposed subpart F. Regarding the length of the
recordkeeping requirement, VA proposes to retain an element of the
status quo, namely that such records shall be retained a minimum of
three years from the date of any incentive paid in accordance with
Sec. 36.4319(a) or the date the veteran's guaranteed loan is made
current via the COVID-VAPCP, whichever is later. Finally, VA proposes
to amend the specific authority for Sec. 36.4333 to include 38 U.S.C.
3704(d), as this section requires the maintenance of adequate loan
accounting records.
---------------------------------------------------------------------------
\44\ 38 U.S.C. 3704(d).
\45\ Id.
\46\ Id.
\47\ 38 CFR 36.4333(a)(2).
---------------------------------------------------------------------------
VI. Specific Questions for Comment
While VA welcomes comments on all aspects of this proposed rule, VA
specifically requests comments on the following:
1. Is the servicer's 90-day deadline as proposed by Sec. 36.4805
to submit the request for partial claim payment reasonable? If not,
what would be a reasonable timeframe, recognizing VA's goal of ensuring
that veterans exiting a CARES Act forbearance are evaluated and
processed for home retention actions in a timely manner?
2. Is information collected as part of a complete loss-mitigation
evaluation adequate to determine a borrower(s) monthly residual income
as described by 38 CFR 36.4340(e)? If not, what additional information
would be needed from the borrower(s)?
3. Understanding that many veterans and servicers are in need of
VA's assistance, but also that veterans, servicers, and other
stakeholders would need time to understand and implement VA's proposed
regulatory requirements, VA seeks public comment as to how a final rule
that is not effective for 30 or 60 days following publication might
negatively impact veterans, servicers, and other stakeholders. VA also
requests input as to whether there would be enough time for industry
implementation of the partial claim payment program if VA were to
publish a final rule that is effective 7 days after publication. Please
be specific in communicating any concerns, including any additional
costs associated with accelerated timetables for training, technology
upgrades, etc.
[[Page 79154]]
4. In the case of a veteran who pays real estate taxes and/or
insurance premiums directly to a tax authority or insurance provider,
should VA allow the partial claim payment to include amounts
corresponding to what will be due on tax and/or insurance bills, where
the bills were not due and payable during the veteran's CARES Act
forbearance? If so, should such amounts be prorated to correspond only
to the months during which the veteran was under forbearance? How
should servicers handle monies in cases where such future tax and
insurance premium payments are not due and payable at the time of the
partial claim payment, resulting in an excess of funds being paid to
the servicer? Should servicers remit such amounts directly to the
veteran? Or should servicers be required to hold such amounts in escrow
until the bills become due and payable? How should VA conduct oversight
of these activities?
VII. Explanation of Comment Period
VA is issuing this proposed rule with a 30-day public comment
period. The Administrative Procedure Act (APA) does not specify the
length of the comment period, requiring only that an agency give the
public an ``opportunity to participate.'' \48\ Agencies commonly allow
30 to 60 days for comment on a proposed rule. VA is shortening the
comment period to 30 days because this rule is proposed in response to
heightened concerns surrounding the COVID-19 national emergency and
outcomes for veterans as they exit CARES Act forbearance periods.
---------------------------------------------------------------------------
\48\ 5 U.S.C. 553(c).
---------------------------------------------------------------------------
Under section 4022 of the CARES Act, enacted on March 27, 2020,
borrowers may obtain up to 180 days of forbearance on their Federally
backed loans.\49\ VA-guaranteed loans are considered Federally backed.
Section 4022 also provides borrowers the option of extending the
forbearance for an additional 180 days.\50\ Section 4022 allows
borrowers to shorten their periods of forbearance. This means that some
borrowers may have already exited CARES Act forbearances and more
borrowers could do so at any time.
---------------------------------------------------------------------------
\49\ Public Law 116-136, section 4022(b)(2) (Mar. 27, 2020).
\50\ Id.
---------------------------------------------------------------------------
As initial CARES Act forbearance periods near their end, VA
stakeholders confront numerous decisions that have far-reaching
consequences. Many veterans, for example, must decide whether to
request additional forbearance and watch their forborne indebtedness
grow, or attempt to resume their regularly scheduled monthly payments,
despite potential hardships and uncertainties caused by the national
emergency. VA's partial claim assistance may well be the determining
factor for certain veterans, affecting the extent to which they can
recover financially from the crisis. Similarly, servicers must evaluate
their liquidity positions and other factors to determine how to make
the advances necessary for investor requirements. Some servicers may
even be questioning whether they can stay afloat, which ultimately
harms not just the servicer, but also the veterans whose guaranteed
loans are being serviced. Many of these servicers will find that the
assistance VA is proposing for veterans may simultaneously be the
servicer's lifeline, thereby affording veterans prudent and
uninterrupted loan servicing.
Despite the urgency noted above, VA strongly believes that the
novelty of this program, including the differences between VA's
proposed partial claim payment program and other federal agencies'
partial claim programs, necessitates an opportunity for public input
before finalization and implementation. VA did consider implementing
this program via an interim final rule but decided stakeholder feedback
was needed in advance of implementation in a number of specific areas,
as addressed in section VI above. Further, VA recognizes that allowing
for servicers to communicate potential concerns with VA's rule ahead of
implementation would ensure veterans are better served when the final
rule goes into effect. Balancing the need for a final regulation
against the need for public input on this new partial claim option, VA
believes that a 30-day public comment period is appropriate to ensure
VA can gather input from interested parties while accelerating the
process toward a final rule to assist veterans.
Executive Orders 12866 and 13563
Executive Orders 12866 and 13563 direct agencies to assess the
costs and benefits of available regulatory alternatives and, when
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, and other advantages; distributive impacts;
and equity). Executive Order 13563 (Improving Regulation and Regulatory
Review) emphasizes the importance of quantifying both costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
The Office of Information and Regulatory Affairs has determined that
this rule is an economically significant regulatory action under
Executive Order 12866.
VA's impact analysis can be found as a supporting document at
http://www.regulations.gov, usually within 48 hours after the
rulemaking document is published. Additionally, a copy of the
rulemaking and its Regulatory Impact Analysis (RIA) are available on
VA's website at http://www.va.gov/orpm/, by following the link for ``VA
Regulations Published From FY 2004 Through Fiscal Year to Date.''
Regulatory Flexibility Act
The Secretary hereby certifies that this proposed rule will not
have a significant economic impact on a substantial number of small
entities as they are defined in the Regulatory Flexibility Act (5
U.S.C. 601-612). To assess whether the proposed rule can be expected to
have a ``significant economic impact'' on small entities, VA considers
the annual cost of the rule for small entities compared to their annual
revenue. VA was able to determine the size of 89 out of 108 companies
that service VA-guaranteed loans in CARES Act forbearances, where the
borrowers could likely qualify for assistance via a partial claim. VA
made this determination using the size standards from the Small
Business Administration (SBA).51 52 VA used data from
InfoUSA and Factiva (two business data providers) along with data from
the Federal Deposit Insurance Corporation (FDIC) and the National
Credit Union Administration (NCUA). Out of the 89 servicers for which
VA has sufficient data to determine their size, 26 (or 29.21 percent)
are considered small by SBA standards. The average annual revenue of
those 26 small servicers is $11.98 million.\53\
---------------------------------------------------------------------------
\51\ VA uses data from InfoUSA and Factiva to determine the
industry (as identified by the primary NAICS code) for the active
VA-guaranteed loan servicers. For industries where size standards
are determined by the average annual revenue, VA compares the
revenue of each servicer in these industries, as reported in InfoUSA
and Factiva, to the SBA annual revenue threshold for small
businesses. For industries where size standards are determined by
assets, VA compares the relevant SBA threshold for small businesses
to asset data from the FDIC for servicers with primary NAICS codes
522110 (Commercial Banking) and 522120 (Savings Institutions), and
asset data from the NCUA for lenders with a primary NAICS code of
522130 (Credit Unions).
\52\ U.S. Small Business Administration, SBA Table of Size
Standards, (2019), https://www.sba.gov/sites/default/files/2019-08/SBA%20Table%20of%20Size%20Standards_Effective%20Aug%2019%2C%202019_Rev.pdf.
\53\ VA averages the sales volumes from Factiva for all
servicers considered small, including those primarily considered
commercial banks, savings institutions, and credit unions.
---------------------------------------------------------------------------
[[Page 79155]]
To determine the economic burden of the proposed rule on small
entities, VA compares the average annual costs of the rule that fall on
small servicers to the average annual revenue of the small servicers.
The costs of the rule come from rule familiarization and the Paperwork
Reduction Act (PRA) costs, which include the costs for servicers to
complete the VA form 26-10213 and prepare and execute the original note
and security instrument. The cost of rule familiarization is $99.90 for
each guaranteed loan servicer, including the small servicers. The PRA
cost estimates vary across servicers depending on how many CARES Act
forbearance loans they service that either meet or could potentially
meet COVID-VAPCP requirements.
As described in the impact analysis, the lower and upper bound
estimates for the number of borrowers who will likely qualify for
assistance via a partial claim are 33,644 and 60,512, respectively. VA
estimates that 28.538 percent of those loans are serviced by small
entities, or between 9,601 and 17,269 loans. Given the total PRA cost
for servicers of $54.96 per loan, the total PRA cost per average small
servicer is $20,295.04 at the lower bound and $36,504.01 at the upper
bound.
The total cost of this rule per average small VA-guaranteed loan
servicer ranges from $20,395 ($99.90 + $20,295.04) to $36,604 ($99.90 +
$36,504.01), while the average annual revenue to small servicers is
$11.98 million. VA considers a rule to have a ``significant economic
impact'' when the total annual cost associated with the rule for a
small entity is equal to or exceeds 1 percent of annual revenue. The
total upper bound cost to small servicers is 0.30 percent of the
average annual revenue to small servicers. This ratio is calculated
using the total costs on small servicers, rather than the total annual
costs. In subsequent years, absent the rule familiarization costs and
with the dispersion of the PRA costs, the average annual cost to small
servicers is even below that level. Thus, the rule is not expected to
have a significant economic impact on the small servicers.
To assess whether the rule can be expected to affect a
``substantial number of small entities,'' VA considers a ratio that
captures the incidence of small VA servicers in the potential universe
of servicers. Specifically, VA uses the ratio of small VA servicers
with guaranteed loans in CARES Act forbearance that are likely to
participate in the partial claim program to the total number of VA
servicers with guaranteed loans in CARES Act forbearance that are
likely to participate in the partial claim program. As described above,
26 VA servicers out of the 89 servicers with sufficient data available
are small (29.21 percent). Therefore, the proposed rule is expected to
affect a substantial number of small entities.
While the proposed rule is expected to affect a substantial number
of small entities, the impact will not be economically significant. On
this basis, the Secretary certifies that the adoption of this proposed
rule will not have a significant economic impact on a substantial
number of small entities as they are defined in the Regulatory
Flexibility Act. Therefore, pursuant to 5 U.S.C. 605(b), the initial
and final regulatory flexibility analysis requirements of 5 U.S.C. 603
and 604 do not apply.
Unfunded Mandates
The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C.
1532, that agencies prepare an assessment of anticipated costs and
benefits before issuing any rule that may result in the expenditure by
State, local, and tribal governments, in the aggregate, or by the
private sector, of $100 million or more (adjusted annually for
inflation) in any one year. This proposed rule would have no such
effect on State, local, and tribal governments, or on the private
sector.
Paperwork Reduction Act
This proposed rule includes provisions constituting both revised
and new collections of information under the Paperwork Reduction Act of
1995 (44 U.S.C. 3501-3521) that require approval by the Office of
Management and Budget (OMB). Accordingly, under 44 U.S.C. 3507(d), VA
has submitted a copy of this rulemaking action to OMB for review.
OMB assigns control numbers to collections of information it
approves. VA may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid OMB control number. Proposed Sec. Sec. 36.4333,
36.4336, 36.4803, 36.4805, 36.4806, 36.4807, and 36.4810 contain
collections of information under the Paperwork Reduction Act of 1995.
If OMB does not approve the collections of information as requested, VA
will immediately remove the provisions containing a collection of
information or take such other action as is directed by OMB.
Comments on the collections of information contained in this
proposed rule should be submitted to the Office of Management and
Budget, Attention: Desk Officer for the Department of Veterans Affairs,
Office of Information and Regulatory Affairs, Washington, DC 20503 or
submitted through www.Regulations.gov. Comments should indicate that
they are submitted in response to ``RIN 2900-AR05.''
OMB is required to make a decision concerning the collections of
information contained in this proposed rule between 30 and 60 days
after publication of this document in the Federal Register. Therefore,
a comment to OMB is best assured of having its full effect if OMB
receives it within 30 days of publication.
The Department considers comments by the public on proposed
collections of information in--
Evaluating whether the proposed collections of information
are necessary for the proper performance of the functions of the
Department, including whether the information will have practical
utility;
Evaluating the accuracy of the Department's estimate of
the burden of the proposed collections of information, including the
validity of the methodology and assumptions used;
Enhancing the quality, usefulness, and clarity of the
information to be collected; and
Minimizing the burden of the collections of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, such as permitting
electronic submission of responses.
The collections of information contained in 38 CFR 36.4333,
36.4336, and 36.4810 are described immediately following this
paragraph, under its respective title.
Title: Maintenance of Records.
OMB Control No.: 2900-0515.
CFR Provisions: 38 CFR 36.4333, 36.4336, and 36.4810.
Summary of collection of information: These requirements are
covered under OMB control number 2900-0515. VA proposes to revise this
information collection to include the proposed revisions to Sec.
36.4333 and new proposed Sec. Sec. 36.4336 and 36.4810. Under current
38 CFR 36.4333, VA requires holders to maintain and lenders to retain
all records pertaining to loans guaranteed by VA. Under this same
authority, VA has a right to inspect, examine, or audit, at a
reasonable time and place, such records to ensure program participants
are in compliance with applicable laws, regulations, policies,
procedures, and contract provisions. The revised collection of
information in proposed 38 CFR
[[Page 79156]]
36.4333 would require holders to maintain records supporting their
decision to approve any home retention option exercised by the servicer
and borrower. The holder would also be required to maintain records
supporting their decision to pursue a partial claim payment under the
COVID-19 Veterans Assistance Partial Claim Payment program. VA would
require those records to be retained a minimum of 3 years from the date
of any incentive paid in accordance with Sec. 36.4319(a) or, in the
case of a partial claim payment under the COVID-19 Veterans Assistance
Partial Claim Payment program, the date the veteran's guaranteed loan
is made current under such program, whichever is later, and 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 the holder's decision. In Sec. 36.4336, VA would be
authorized to take action if it found that a servicer failed to
maintain adequate loan accounting records, to demonstrate proper
ability to service loans adequately, to exercise proper credit
judgment, or has willfully or negligently engaged in practices
otherwise detrimental to the interest of veterans or of the Government.
In Sec. 36.4810, VA would extend that authority to a partial claim
payment.
Description of need for information and proposed use of
information: The information collected as a result of revisions
associated with this rulemaking will be used by VA to conduct servicer
oversight, including the COVID-19 Veteran Assistance Partial Claim
Payment program.
Description of likely respondents: The respondent population under
the current information collection is comprised of holders and lenders,
particularly, the individuals with oversight roles in the company, such
as a compliance officer. There is no change to this section as a result
of this rulemaking.
Estimated number of respondents: Under the current information
collection, VA estimates an ongoing hour burden associated with holders
and lenders submitting files to VA in association with normal audit
activities. VA also estimates an hour burden associated with lenders
who may voluntarily submit loan records to VA in a computable data
format as it begins to pilot that technology. VA does not anticipate
additional submissions as a result of the proposed revisions to
Sec. Sec. 36.4333, 36.4336, and 36.4810.
Estimated frequency of responses: Under the current information
collection, VA estimates a one-time response to an audit request or
voluntary electronic submission. VA does not anticipate an increase in
the frequency of responses.
Estimated average burden per response: The revisions proposed in
this rule would neither increase nor decrease the average burden per
response, which in this case would be the time a servicer spends
uploading records requested by VA in conjunction with servicer audit
and oversight activities. Similarly, VA notes that recordkeeping
requirements related to servicing and loss-mitigation activities are
consistent with customary and usual business practices for loan holders
(servicers); VA therefore assigns no additional time burden to
servicers in maintaining such records, including those contemplated by
the revisions proposed in this rule.
Estimated total annual reporting and recordkeeping burden: VA does
not, with this proposed rulemaking, anticipate any change in the total
annual reporting and recordkeeping burden. In that regard, VA's
proposed revisions to this existing information collection merely
expand the documentation/information that servicers must keep in their
records in regard to existing VA-guaranteed loans and loss-mitigation
activities associated with those loans, the cost of which falls within
customary and usual business practices. Moreover, VA would request such
records for the purpose of conducting oversight of VA's proposed COVID-
VAPCP under existing audit and oversight programs with no anticipated
impact in the number of loans for which servicers will have to provide
VA with additional information.
Estimated cost to respondents per year: VA anticipates no
additional costs to respondents based on proposed revisions associated
with this rulemaking.
The collections of information contained in 38 CFR 36.4803,
36.4805, 36.4806, and 36.4807 are described immediately following this
paragraph, under its respective title.
Title: Application for a COVID-19 Veterans Assistance Partial Claim
Payment (COVID-VAPCP).
OMB Control No.: 2900-XXXX (NEW).
CFR Provisions: 38 CFR 36.4803, 36.4805, 36.4806, and 36.4807.
Summary of collection of information: The new collection of
information in proposed 38 CFR 36.4803 would require the veteran to
certify that the veteran can resume making scheduled monthly payments,
on time and in full, and that the veteran occupies, as the veteran's
residence, the property securing the guaranteed loan for which the
partial claim is requested. In Sec. 36.4803, the servicer would be
required to certify that the veteran's monthly residual income, as
described in Sec. 36.4340(e), will be adequate to meet living expenses
after estimated monthly shelter expenses have been paid and other
monthly obligations have been met. In Sec. 36.4805, the servicer would
be required to prepare a note and security instrument in favor of ``the
Secretary of Veterans Affairs, an Officer of the United States''. VA
would require that the note be consistent with the terms described in
Sec. 36.4806 and include all borrowers who are obligated on the
guaranteed loan. The security instrument would be required to include
all persons (borrowers, as well as non-borrowers) who have a title
interest in the property securing the guaranteed loan. The servicer
would be required to record the security instrument timely, as
prescribed in Sec. 36.4807.
In Sec. 36.4806, VA would require the veteran, and all co-
borrowers on the guaranteed loan, to execute a note and security
instrument in favor of ``the Secretary of Veterans Affairs, an Officer
of the United States''. VA would require specific terms in the note and
security instrument. Specifically, VA would require the note and
security instrument to include the amount to be repaid to the
Secretary, by the veteran, to be the amount calculated under Sec.
36.4805(e). The interest rate on the loan created by the note and
security instrument would be required to be fixed at 1.00 percent per
annum. VA would automatically defer monthly payments for the first 60
months of the loan, meaning that there would be no payment due to the
Secretary during the period of deferment. A borrower could, without
premium or fee, make payments during such deferment for the entire
indebtedness, or any portion thereof, provided that such portion is not
less than what would be due for one monthly payment as calculated based
on a 60-month term. VA would require the term of the loan to be 120
months. The loan would be amortized fully within the term of the loan
in accordance with any generally recognized plan of amortization
requiring approximately equal monthly payments. VA would require
repayment in full immediately upon the veteran's transfer of title to
the property, the refinancing, or payment in full
[[Page 79157]]
otherwise, of the guaranteed loan with which the partial claim payment
is associated.
In Sec. 36.4807, VA would require the veteran and the servicer to
complete an application form prescribed by the Secretary. VA would also
state that along with the completed form, the servicer must provide VA
with the original note required by Sec. 36.4805. Not later than 180
days following the date the security instrument, required by Sec.
36.4805, is fully executed, the servicer would be required to provide
VA with the original security instrument and evidence that the servicer
recorded such instrument. If the recording authority causes a delay, VA
would allow the servicer to request an extension of time, in writing,
from VA. The servicer would also be required to report information
related to the partial claim application to VA electronically.
VA proposes to collect information for the partial claim payment
application, including the certifications outlined in 36.4803, through
use of a new standardized form. Proposed VA form 26-10213, Application
for a COVID-19 Veterans Assistance Partial Claim Payment (COVID-VAPCP),
would collect basic information necessary to identify the borrower(s),
the servicer, and the VA loan number for the guaranteed loan for which
partial claim payment is being requested. This form would also collect
information regarding the date the veteran entered into a CARES Act
forbearance, along with the unpaid principal balance on that date, the
latter of which is necessary to determine the maximum amount of the
partial claim payment under Sec. 36.4805. VA proposes on this form
that the servicer must indicate, on the proposed form, the date on
which the borrower will resume monthly guaranteed loan payments to the
servicer, along with the amount of those monthly payments. The servicer
would then provide the amount of partial claim payment being requested,
along with the date the note and security instrument were executed, as
required under Sec. 36.4805. Finally, both the borrower and servicer
would sign statements certifying to those elements required under Sec.
36.4803.
Description of need for information and proposed use of
information: The information will be used by VA to determine if the
veteran qualifies for a partial claim payment and, if qualified, to
administer the payment.
Description of likely respondents: Veterans and servicers pursuing
a partial claim payment.
Estimated number of respondents: VA notes that due to the
unprecedented nature of the current national emergency and the novelty
of VA's partial claim payment program, there is some uncertainty as to
how many respondents would be impacted by this proposed rulemaking. As
discussed in VA's regulatory impact analysis, VA has estimated a lower/
upper bound of estimated partial claim payments associated with this
temporary program that corresponds directly to those who would be
subject to the paperwork requirements associated with this rulemaking.
VA has further estimated a distribution of these partial claim payments
(or respondents) over fiscal years 2021 and 2022. Given that this
proposed temporary program is limited to help veterans recover
financially from the COVID-19 national emergency, VA does not
anticipate any partial claim payments (or applications) will be
received in FY 2023 and beyond. To ensure that VA's paperwork burden
estimate coincides with its regulatory impact analysis, VA has
presented a range of paperwork burden estimates. However, for purposes
of calculating annual reporting and recordkeeping costs, VA will
utilize the average of these estimates, annualized over two years (FY
2021 and 2022).
Using the lower/upper bound from VA's regulatory impact analysis,
VA estimates the total number of respondents would fall between 33,644
and 60,512. Over the two-year period of this information collection,
the annual number of respondents is therefore estimated to fall between
16,822 and 30,256, with an average annual number of respondents equal
to 23,539.
Estimated frequency of responses: One time per application for
partial claim payment.
Estimated average burden per response: 60 minutes for veterans
(includes 15 minutes to complete VA form 26-10213, 15 minutes to gather
and submit any additional financial information needed to enable the
servicer to make an assessment under 38 CFR 36.4340(e), and 30 minutes
to understand and execute the original note and security instrument).
90 minutes for servicers (includes 15 minutes to complete VA form 26-
10213, 15 minutes to review additional financial information provided
by the veteran to assess residual income under 38 CFR 36.4340(e), and 1
hour to prepare and execute the original note and security instrument).
Estimated total annual reporting and recordkeeping burden: VA
estimates the total annual reporting and recordkeeping burden falls
between 42,055 and 75,640 burden hours. Using VA's average annual
number of respondents (23,539), VA estimates a total annual reporting
and recordkeeping burden of 58,847 hours (23,539 hours for veterans;
35,308 hours for servicers).
Estimated cost to respondents per year: VA estimates the annual
cost to respondents falls between $1,357,198 and $2,441,053. Using VA's
average annual number of respondents, VA estimates the total cost to
all respondents to be $1,899,108 per year.\54\ (23,539 burden hours for
veterans x $25.72 per hour) + (35,308 burden for servicers x $36.64 per
hour).
---------------------------------------------------------------------------
\54\ To estimate costs associated with servicer respondent
burden, VA used the Bureau of Labor Statistics (BLS) median hourly
wage for loan officers (occupation code 13-2072) of $36.64 per hour.
To estimate costs associated with veteran respondent burden, VA used
the median hourly wage for all occupations of $25.72 per hour. This
information is available at https://www.bls.gov/oes/current/oes_nat.htm#13-0000.
---------------------------------------------------------------------------
Title: VA Loan Electronic Reporting Interface (VALERI) System.
OMB Control No.: 2900-0021.
CFR provisions: 38 CFR part 36, subpart B, and 38 CFR 36.4807.
Summary of collection of information: The information collection
requirements under 38 CFR part 36, subpart B, which include reporting
requirements for servicers, are currently assigned OMB control number
2900-0021 and set to expire on November 30, 2020. In proposed Sec.
36.4807, VA would require servicers to report a partial claim event to
VA through its existing electronic loan servicing system. This new
reporting requirement therefore requires revisions to the existing
information collection under control number 2900-0021. VA therefore
seeks to renew and revise this information collection, to include
proposed revisions to Sec. 36.4807.
The servicer is already required to report information associated
with reinstating the loan as current, as outlined at 38 CFR
36.4317(c)(15), and covered by the existing information collection. VA
proposes to revise its information collection to collect new data
elements specific to the servicer executing a partial claim. This new
information would be transmitted through a VALERI Events Bulk Upload
template.
Description of need for information and proposed use of
information: Regarding the information requested under proposed 38 CFR
36.4807, the information will be used by VA to determine if the veteran
qualifies for a partial claim option and, if qualified, to administer
the payment to the servicer on behalf of the veteran. It will also
serve as a way for VA to track the occurrence of the partial claim home
retention event.
[[Page 79158]]
Description of likely respondents: The renewal encompasses all
servicers reporting servicing activity on loans to VA. The revisions
encompass a subset of this group; specifically, servicers requesting a
partial claim payment on behalf of a veteran.
Estimated number of respondents: VA does not anticipate any change
in the estimated number of respondents based on VA's renewal request or
proposed revisions to this information collection requirement. The
current estimated number of respondents reflects the estimated number
of VA servicers required to submit loan servicing information to VA
annually. As such, the servicers who will submit information in
conjunction with the partial claim payment option are contemplated in
the current estimated respondent population.
Estimated frequency of responses: VA does not anticipate any change
in the estimated frequency of responses based on VA's renewal request
or proposed revisions to this information collection as servicers are
required to report activity on every VA-guaranteed loan in their
servicing portfolio, regardless of the home retention options pursued.
Estimated average burden per response: VA does not anticipate any
change in the average burden per response based on VA's renewal request
or proposed revisions to this information collection. Under the
existing information collection, VA estimates a one-minute respondent
burden as the information reported through VALERI is automated.
Estimated total annual reporting and recordkeeping burden: VA does
not anticipate any change in the total annual reporting and
recordkeeping burden currently associated with this information
collection. VA's proposed revisions to this existing information
collection merely expand the list of possible home retention events to
be reported by servicers to include the partial claim option.
Estimated cost to respondents per year: There are no new or
increased costs to respondents based on this renewal request or
proposed revisions to this information collection. As noted above,
there is no change in the estimated average number of respondents and
average burden per response for reporting activities associated with
this information collection. VA acknowledges that servicers will be
required to incorporate new information into the VALERI Events Bulk
Upload template within their current servicing platforms. However, VA
estimates a de minimis cost for servicers because servicers already
utilize VALERI and the Events Bulk Upload template format to report all
servicing activity to VA.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance number and title for the
program affected by this document is 64.114, Veterans Housing--
Guaranteed and Insured Loans.
List of Subjects in 38 CFR Part 36
Condominiums, Housing, Individuals with disabilities, Loan
programs--housing and community development, Loan programs--veterans,
Manufactured homes, Mortgage insurance, Reporting and recordkeeping
requirements, Veterans.
Signing Authority
The Secretary of Veterans Affairs, or designee, approved this
document and authorized the undersigned to sign and submit the document
to the Office of the Federal Register for publication electronically as
an official document of the Department of Veterans Affairs. Brooks D.
Tucker, Assistant Secretary for Congressional and Legislative Affairs,
Performing the Delegable Duties of the Chief of Staff, Department of
Veterans Affairs, approved this document on October 15, 2020, for
publication.
Jeffrey M. Martin,
Assistant Director, Office of Regulation Policy & Management, Office of
the Secretary, Department of Veterans Affairs.
For the reasons stated in the preamble, the Department of Veterans
Affairs proposes to amend 38 CFR part 36 as set forth below:
PART 36--LOAN GUARANTY
0
1. The authority citation for part 36 continues to read as follows:
Authority: 38 U.S.C. 501 and 3720.
0
2. Amend Sec. 36.4333 by revising paragraph (a)(2) and the two
parenthetical sentences at the end of the section to read as follows:
Sec. 36.4333 Maintenance of records.
(a) * * *
(2) The holder shall maintain records supporting their decision to
approve any loss mitigation option. The holder shall maintain records
supporting their decision to pursue a partial claim payment under the
COVID-19 Veterans Assistance Partial Claim Payment program established
under subpart F of this part. Such records shall be retained a minimum
of 3 years from the date of any incentive paid in accordance with Sec.
36.4319(a) or, in the case of a partial claim payment under the COVID-
19 Veterans Assistance Partial Claim Payment program, the date the
veteran's guaranteed loan is made current under such program, whichever
is later, and shall include, but not be limited to, credit reports,
verifications of income, employment, assets, liabilities, and other
factors affecting the obligor's credit worthiness, work sheets, and
other documents supporting the holder's decision.
* * * * *
(The Office of Management and Budget has approved the information
collection requirements in this section under control number XXXX-
XXXX)
(Authority: 38 U.S.C. 3703(c)(1), 3704(d))
0
3. Add Sec. 36.4336 to read as follows:
Sec. 36.4336 Oversight of servicing.
(a) Subject to notice and opportunity for a hearing, whenever the
Secretary finds that any servicer has failed to maintain adequate loan
accounting records, or to demonstrate proper ability to service loans
adequately or to exercise proper credit judgment or has willfully or
negligently engaged in practices otherwise detrimental to the interest
of veterans or of the Government, the Secretary may refuse either
temporarily or permanently to guarantee or insure any loans made by
such servicer and may bar such servicer from servicing or acquiring
guaranteed loans.
(b) Notwithstanding paragraph (a) of this section, but subject to
Sec. 36.4328, the Secretary will not refuse to pay a guaranty or
insurance claim on guaranteed loans theretofore entered into in good
faith between a veteran and such servicer.
(c) The Secretary may also refuse either temporarily or permanently
to guarantee or insure any loans made by a lender or holder refused the
benefits of participation under the National Housing Act pursuant to a
determination of the Secretary of Housing and Urban Development.
(The Office of Management and Budget has approved the information
collection requirements in this section under control number 2900-
0515)
(Authority: 38 U.S.C. 3703, 3704(d), 3720)
0
4. Add subpart F to read as follows:
Subpart F--COVID-19 Recovery Measures
Sec.
36.4800 Applicability.
36.4801 Definitions.
36.4802 General purpose of the COVID-19 Veterans Assistance Partial
Claim Payment program.
[[Page 79159]]
36.4803 General requirements of the COVID-19 Veterans Assistance
Partial Claim Payment program.
36.4804 Partial claim payment as last resort.
36.4805 Terms of the partial claim payment.
36.4806 Terms of the assistance to the veteran.
36.4807 Application for partial claim payment.
36.4808 No effect on the servicing of the guaranteed loan.
36.4809 Expiration of the COVID-19 Veterans Assistance Partial Claim
Payment program.
36.4810 Oversight of the COVID-19 Veterans Assistance Partial Claim
Payment program.
Sec. 36.4800 Applicability.
This subpart applies to all loans guaranteed by VA, to the extent
such loans are affected by the COVID-19 national emergency.
(Authority: 38 U.S.C. 3703(c), 3720, 3732)
Sec. 36.4801 Definitions.
The following definitions of terms apply to this subpart:
Alternative to foreclosure means an alternative to foreclosure for
which the Secretary may pay an incentive under Sec. 36.4319. These
alternatives include compromise sale (sometimes called a short sale)
and deed-in-lieu of foreclosure.
CARES Act forbearance means forbearance of scheduled monthly
guaranteed loan payments, as granted to a veteran under section 4022 of
the Coronavirus Aid, Relief, and Economic Security Act (Pub. L. 116-
136).
CARES Act indebtedness means the dollar amount the veteran is
obligated to pay under the guaranteed loan terms, but that is not
collected during a CARES Act forbearance.
Guaranteed loan means a loan guaranteed under chapter 37 of title
38, United States Code.
Loss-mitigation option means a loss-mitigation option for which the
Secretary may pay an incentive under Sec. 36.4319. These options
include a repayment plan, special forbearance, and loan modification.
Secretary means the Secretary of Veterans Affairs, or any employee
of the Department of Veterans Affairs (VA) authorized to act in the
Secretary's stead.
Servicer means, for the purposes of this subpart, the holder,
servicer, or servicing agent, as defined in Sec. 36.4301. The terms
can apply jointly or severally, or jointly and severally.
(Authority: 38 U.S.C. 3703(c), 3720, 3732)
Sec. 36.4802 General purpose of the COVID-19 Veterans Assistance
Partial Claim Payment program.
The COVID-19 Veterans Assistance Partial Claim Payment program is a
temporary program to help veterans who have suffered a COVID-19
financial hardship. Notwithstanding the requirements elsewhere in this
part regarding payment of a guaranty claim or refunding a loan, VA may
assist a veteran exiting a CARES Act forbearance by purchasing from the
servicer the veteran's CARES Act indebtedness. Such a purchase is
called a partial claim payment. In exchange for VA's partial claim
payment on behalf of the veteran, the veteran must agree to repay the
Secretary, in the amount of such partial claim payment, upon loan terms
established by the Secretary.
(Authority: 38 U.S.C. 3703(c), 3720, 3732)
Sec. 36.4803 General requirements of the COVID-19 Veterans Assistance
Partial Claim Payment program.
The following general requirements must be met before the Secretary
will allow for participation in the COVID-19 Veterans Assistance
Partial Claim Payment program:
(a) The loan for which a partial claim payment is requested must be
a guaranteed loan that was, on March 1, 2020, either current or less
than 30 days past due;
(b) The veteran on whose behalf VA will pay a partial claim payment
both received a CARES Act forbearance and missed at least one scheduled
monthly payment;
(c) There remains unpaid at least one scheduled monthly payment
that the veteran did not make while under a CARES Act forbearance;
(d) The veteran certifies that the veteran can resume making
scheduled monthly payments, on time and in full, and that the veteran
occupies, as the veteran's residence, the property securing the
guaranteed loan for which the partial claim payment is requested;
(e) The servicer determines and certifies that the veteran's
monthly residual income, as described in Sec. 36.4340(e), will be
adequate to meet living expenses after estimated monthly shelter
expenses have been paid and other monthly obligations have been met;
and
(f) The veteran executes, in a timely manner, all loan documents
necessary to establish an obligation to repay the Secretary for the
partial claim payment.
(The Office of Management and Budget has approved the information
collection requirements in this section under control number XXXX-
XXXX)
(Authority: 38 U.S.C. 3703(c), 3720, 3732)
Sec. 36.4804 Partial claim payment as last resort.
(a) The Veterans Assistance Partial Claim Payment program is
designed to address the financial hardships due, directly or
indirectly, to the COVID-19 national emergency. Servicers must consider
all possible loss-mitigation options. VA expects that the partial claim
payment option will be considered only as a last resort, after a
servicer has evaluated loss-mitigation options for feasibility.
(b) If the veteran notifies the servicer that the veteran does not
want to retain ownership of the property securing the guaranteed loan,
the servicer may immediately proceed to offering an alternative to
foreclosure.
(Authority: 38 U.S.C. 3703(c), 3720, 3732)
Sec. 36.4805 Terms of the partial claim payment.
(a) In order for a partial claim payment to be payable, the
servicer must submit to the Secretary, not later than 90 days after the
date the veteran exits the CARES Act forbearance, a request for such
payment, as prescribed in Sec. 36.4807.
(b) The amount of the partial claim payment that VA will pay to the
servicer, as calculated under paragraph (e) of this section, shall not
exceed 15 percent of the unpaid principal balance of the guaranteed
loan. For the purposes of this paragraph (b), the unpaid principal
balance of the guaranteed loan means such balance as of the date the
veteran entered into a CARES Act forbearance.
(c) VA will pay only one partial claim payment per guaranteed loan.
(d) VA will pay only one partial claim payment per veteran.
(e)(1) Because VA will pay only one partial claim payment per
guaranteed loan, and only one partial claim payment per veteran, a
servicer must, when calculating the amount of partial claim payment to
be paid by VA to the servicer, include the full amount of indebtedness
that is necessary to bring the guaranteed loan current.
(2) To bring the guaranteed loan current, servicers must include
the full CARES Act indebtedness, comprising--
(i) All scheduled but missed monthly payments of principal and
interest; and
(ii) As applicable, all scheduled but missed monthly escrow
payments for real estate taxes and insurance premiums, or where the
guaranteed loan documents do not provide for monthly escrowing, all
payments the servicer made to real estate tax authorities and insurance
providers, on the veteran's behalf, during the CARES Act forbearance.
[[Page 79160]]
(3) Also in bringing the guaranteed loan current, servicers must
include--
(i) All scheduled monthly payments (comprising principal, interest,
and escrow payments for real estate taxes and insurance premiums) due
within 31 days of the date the veteran executes the note and security
instrument described in Sec. 36.4806;
(ii) If applicable, all scheduled monthly payments (comprising
principal, interest, and escrow payments for real estate taxes and
insurance premiums) that were missed after March 1, 2020, but before
the veteran was granted the CARES Act forbearance; and
(iii) The actual amount of recording fees, recording taxes, or
other charges levied by the recording authority, that must be paid in
order to record the security instrument described in Sec. 36.4806.
(4) Except for amounts identified in paragraphs (e)(2) and (3) of
this section, servicers shall not include any amounts (e.g., fees,
penalties, or interest) beyond the amounts scheduled or calculated as
if the borrower made all contractual payments on time and in full under
the terms of the guaranteed loan.
(5) Nothing in this section shall preclude a veteran from making an
optional payment or a servicer from waiving a veteran's indebtedness,
such that the amount of partial claim payment would not exceed the 15
percent cap described in paragraph (b) of this section.
(6) If the servicer miscalculates the partial claim amount,
resulting in an overpayment to the servicer, the amount of such
overpayment shall constitute a liability of the servicer to the United
States. The servicer must remit the overpaid amount immediately to VA.
(7) If the servicer miscalculates the partial claim amount,
resulting in underpayment (i.e., an amount insufficient to bring the
guaranteed loan current), the servicer must waive the difference.
(8) Servicers shall not include any amounts for a monthly payment
that is scheduled to be paid on a date that is more than 31 days after
the veteran executes the note and security instrument described in
Sec. 36.4806.
(f) The servicer must prepare a note and security instrument in
favor of ``the Secretary of Veterans Affairs, an Officer of the United
States''.
(1) The note must be consistent with the terms described in Sec.
36.4806 and include all borrowers who are obligated on the guaranteed
loan; and
(2) The security instrument must include all persons (borrowers, as
well as non-borrowers) who hold a title interest in the property
securing the guaranteed loan.
(g) Subject to paragraph (a) of this section, all loan documents
must be fully executed not later than 90 days after the veteran exits
the CARES Act forbearance.
(h) The servicer must record the security instrument timely, as
prescribed in Sec. 36.4807.
(i) The servicer must not charge, or allow to be charged, to the
veteran any fee in connection with the COVID-19 Veterans Assistance
Partial Claim Payment program.
(The Office of Management and Budget has approved the information
collection requirements in this section under control number XXXX-
XXXX)
(Authority: 38 U.S.C. 3703(c), 3720, 3732)
Sec. 36.4806 Terms of the assistance to the veteran.
(a) If a veteran chooses to accept VA's assistance (i.e., a partial
claim payment to the servicer, on the veteran's behalf), the veteran,
and all co-borrowers on the guaranteed loan, must execute a note and
security instrument in favor of ``the Secretary of Veterans Affairs, an
Officer of the United States''.
(b) Specific terms of the note and security instrument shall
include the following:
(1) The amount to be repaid to the Secretary, by the veteran, is
the amount calculated under Sec. 36.4805(e);
(2) The interest rate on the loan created by the note and security
instrument must be fixed at 1.00 percent per annum;
(3)(i) Monthly payments are automatically deferred for the first 60
months of the loan, meaning that there is no payment due to the
Secretary during the period of deferment;
(ii) Interest will accrue on the loan during such deferment; and
(iii) A borrower may, without premium or fee, make payments during
such deferment for the entire indebtedness, or any portion thereof
provided that such portion is not less than what would be due for one
monthly payment as calculated based on a 60-month term;
(4) The term of the loan must be 120 months;
(5) The loan shall be amortized fully within the term of the loan
in accordance with any generally recognized plan of amortization
requiring approximately equal monthly payments; and
(6) Repayment in full is required immediately upon--
(i) The veteran's transfer of title to the property; or
(ii) The refinancing, or payment in full otherwise, of the
guaranteed loan with which the partial claim payment is associated.
(The Office of Management and Budget has approved the information
collection requirements in this section under control number XXXX-
XXXX)
(Authority: 38 U.S.C. 3703(c), 3720, 3732)
Sec. 36.4807 Application for partial claim payment.
(a) The veteran and the servicer must complete an application form
prescribed by the Secretary.
(b) Along with a complete application form, the servicer must
provide VA with the original note required by Sec. 36.4805. Not later
than 180 days following the date the security instrument, required by
Sec. 36.4805, is fully executed, the servicer must provide VA with the
original security instrument and evidence that the servicer recorded
such instrument. If the recording authority causes a delay, the
servicer may request an extension of time, in writing, from VA.
(c) Servicers must report a partial claim event to VA through VA's
existing electronic loan servicing system within seven days of the
borrower's execution of the note required by Sec. 36.4805.
(The Office of Management and Budget has approved the information
collection requirements in this section under control numbers XXXX-
XXXX and XXXX-XXXX)
(Authority: 38 U.S.C. 3703(c), 3720, 3732)
Sec. 36.4808 No effect on the servicing of the guaranteed loan.
(a) Servicers must continue to service the guaranteed loan in
accordance with subpart B of this part.
(b) The liability of the United States for any guaranteed loan
shall decrease or increase pro rata with any decrease or increase of
the amount of the unpaid portion of the guaranteed loan. A partial
claim payment does not affect the guaranty percentage established at
the time the guaranteed loan was made.
(c) Receipt of a partial claim payment shall not eliminate a
servicer's option under 38 U.S.C. 3732 to convey to the Secretary the
security for the guaranteed loan.
(Authority: 38 U.S.C. 3703(c), 3720, 3732)
Sec. 36.4809 Expiration of the COVID-19 Veterans Assistance Partial
Claim Payment program.
(a) Subject to paragraph (b) of this section, the Secretary will
not accept a request for a partial claim payment after the date that is
180 days after the date the COVID-19 national emergency ends (as
provided under the National Emergencies Act).
[[Page 79161]]
(b) If a veteran's CARES Act forbearance does not end until after
the date described in paragraph (a) of this section, the Secretary may
still accept a request for a partial claim payment, provided that such
request is submitted to the Secretary not later than 90 days after the
date the veteran exits the CARES Act forbearance.
(c) Notwithstanding paragraphs (a) and (b) of this section, the
Secretary will not accept a request for a partial claim payment after
September 9, 2021.
(Authority: 38 U.S.C. 3703(c), 3720, 3732)
Sec. 36.4810 Oversight of the COVID-19 Veterans Assistance Partial
Claim Payment program.
(a) Subject to notice and opportunity for a hearing, whenever the
Secretary finds with respect to a partial claim payment that any
servicer has failed to maintain adequate loan accounting records, or to
demonstrate proper ability to service loans adequately or to exercise
proper credit judgment or has willfully or negligently engaged in
practices otherwise detrimental to the interest of veterans or of the
Government, the Secretary may refuse either temporarily or permanently
to guarantee or insure any loans made by such servicer and may bar such
servicer from servicing or acquiring guaranteed loans.
(b) Notwithstanding paragraph (a) of this section, but subject to
Sec. 36.4328, the Secretary will not refuse to pay a guaranty or
insurance claim on guaranteed loans theretofore entered into in good
faith between a veteran and such servicer.
(c) The Secretary may also refuse either temporarily or permanently
to guarantee or insure any loans made by a lender or holder refused the
benefits of participation under the National Housing Act pursuant to a
determination of the Secretary of Housing and Urban Development.
(The Office of Management and Budget has approved the information
collection requirements in this section under control number XXXX-
XXXX)
(Authority: 38 U.S.C. 3703, 3704(d), 3720)
[FR Doc. 2020-26964 Filed 12-8-20; 8:45 am]
BILLING CODE 8320-01-P