Proposed Rule2022-08276
Loan Guaranty: Servicer Tier Ranking Procedures
Primary source
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Published
April 19, 2022
Issuing agencies
Veterans Affairs Department
Abstract
The Department of Veterans Affairs (VA) Loan Guaranty Service (LGY) intends to revise and finalize its temporary regulations governing the assignment of a performance-based tier ranking to each of the servicers that participate in VA's guaranteed home loan program. VA is issuing this advance notice of proposed rulemaking (ANPR) to solicit comments, questions, and information to assist VA in developing a future proposed regulation. Although VA identifies, below, specific topics and questions for discussion, it encourages commenters to discuss any other topic that will help VA develop regulations to assign performance-based tier rankings to servicers that participate in VA's guaranteed home loan program.
Full Text
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<title>Federal Register, Volume 87 Issue 75 (Tuesday, April 19, 2022)</title>
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[Federal Register Volume 87, Number 75 (Tuesday, April 19, 2022)]
[Proposed Rules]
[Pages 23152-23154]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-08276]
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DEPARTMENT OF VETERANS AFFAIRS
38 CFR Part 36
RIN 2900-AR42
Loan Guaranty: Servicer Tier Ranking Procedures
AGENCY: Department of Veterans Affairs.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The Department of Veterans Affairs (VA) Loan Guaranty Service
(LGY) intends to revise and finalize its temporary regulations
governing the assignment of a performance-based tier ranking to each of
the servicers that participate in VA's guaranteed home loan program. VA
is issuing this advance notice of proposed rulemaking (ANPR) to solicit
comments, questions, and information to assist VA in developing a
future proposed regulation. Although VA identifies, below, specific
topics and questions for discussion, it encourages commenters to
discuss any other topic that will help VA develop regulations to assign
performance-based tier rankings to servicers that participate in VA's
guaranteed home loan program.
DATES: Comments must be received on or before June 21, 2022.
ADDRESSES: Comments may be submitted through <a href="http://www.Regulations.gov">www.Regulations.gov</a>.
Comments received will be available at <a href="http://www.Regulations.gov">www.Regulations.gov</a> for public
viewing, inspection, or copies.
FOR FURTHER INFORMATION CONTACT: Andrew Trevayne, Assistant Director
for Loan Administration, 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:
[[Page 23153]]
I. Background
On February 1, 2008, VA published a final rule, Loan Guaranty: Loan
Servicing and Claims Procedures Modifications (VALERI final rule). 73
FR 6293-6368. The VALERI final rule was the result of a lengthy
business reengineering process that led to the modernization of VA's
loan servicing policies and began a phased implementation of a servicer
reporting application called the VA Loan Electronic Interface (VALERI).
In the VALERI final rule, VA established temporary procedures for
servicer tier ranking, currently codified at 38 CFR 36.4318. 73 FR
6293, 6327; 75 FR 33704-33705.
Section 36.4318(a) states that VA will assign to each servicer a
tier ranking based upon the servicer's performance in servicing
guaranteed loans. Section 36.4318(a) provides for four tiers, known as
tier one, tier two, tier three, and tier four. In the VALERI final
rule, VA explained that VA would presume each servicer to rank in tier
two until VA develops and implements, via a regulation, a final Tier
Ranking System (TRS). 73 FR 6293, 6301. After implementing a TRS, VA
would quarterly evaluate each servicer's performance, and annually rank
each servicer in tier one, two, three, or four-tier one being the
highest rated and tier four the lowest. 38 CFR 36.4318. The VALERI
final rule also established servicer loss mitigation options and
incentives, currently found at 38 CFR 36.4319 (initially codified at
Sec. 36.4819). 73 FR 6293, 6327; 75 FR 33704-33705. Section 36.4319
provides a schedule of incentive payments that VA will pay a servicer
in tiers one, two, or three following successful completion of each
applicable loss mitigation action or alternative to foreclosure. 38 CFR
36.4319. For the same type of loss mitigation action or alternative to
foreclosure, VA will pay servicers in tier one, the highest incentive
payment, which will decrease for tier two, and further decrease for
tier three. Id. A servicer in tier four will not receive any incentive
payment. Id.
As noted in the VALERI final rule (and its accompanying proposed
rule), VA intended to fully operationalize VALERI, and collect
specific, servicer-reported loan servicing and claims data to develop
its TRS. 73 FR 6293, 6301. However, due to competing priorities and
VALERI reporting limitations, VA has delayed the development and
implementation of a TRS. In the meantime, VA continues to presume each
servicer to rank in tier two and pays them incentive payments
accordingly. See 38 CFR 36.4318, 36.4319. Considering a recent re-
design of the VALERI application, which includes enhanced reporting
functionality, VA is ready to develop and implement its TRS. By
implementing a TRS, VA intends to further encourage its servicers to
provide the best level of default resolution and foreclosure avoidance
efforts to its borrowers.
II. Questions for Comment
Once VA's TRS is effective, VA would use the TRS to calculate a
quarterly performance score (quarterly score) for each servicer based
on servicing data from the prior quarter. 38 CFR 36.4318(c)(1). VA
would notify each servicer of its quarterly score. Id. After four
quarters, VA would aggregate the quarterly scores to derive the annual
performance score (annual score) for each servicer. 38 CFR
36.4318(c)(2). Based on the servicer's annual score, VA would assign
each servicer a performance tier rank (tier rank) one, two, three, or
four. 38 CFR 36.4318(a). Finally, this tier rank would determine the
amount of incentive payment that each servicer would receive for each
applicable loss mitigation or alternative to foreclosure action that
the servicer would complete in the following year. 38 CFR 36.4319. The
purpose of this performance-based scoring and tier ranking, and tier-
rank-based incentive payments, is to recognize and reward servicers
based on their level of efforts to help borrowers resolve default and
avoid foreclosure. Further, it would help identify servicers who may
need additional training or assistance in improving their loss
mitigation and foreclosure avoidance efforts. Timely default resolution
helps borrowers retain their homes, and foreclosure avoidance helps
them mitigate the negative impact on their chances of future
homeownership.
VA's objective is to develop a TRS that accurately and effectively
assesses the performance of each servicer's loss mitigation and
foreclosure avoidance efforts. Consequently, the tier-based incentive
payments would encourage servicers to timely perform loss mitigation
actions that are in the best interest of participants in VA's
guaranteed home loan program. With this objective, VA invites comments
on the specific questions set forth in this ANPR, and on any other
issues that commenters think should be addressed as part of the
rulemaking that would establish VA's TRS.
Question 1: Are there concerns VA should be made aware of that
could hinder the implementation of the TRS?
VA would like to know whether ongoing financial effects of the
COVID-19 National Emergency should affect the timing of a TRS
implementation. Are there other possible considerations, burdens, or
obstacles VA should be made aware of in the implementation of the TRS?
Question 2: Should VA consider a servicer's volume of VA loans in
developing the TRS?
For servicers who service a small number of VA loans, the
performance of one or few seriously delinquent loan(s) would most
likely have a volatile effect, good or bad, on the servicer's
quarterly/annual score and/or the tier ranking. Should VA consider
establishing separate requirements for scoring and ranking servicers
who service a small number of VA loans? If yes, what volume of loans
would be an appropriate definition of ``small'' and why? What
information is relevant to understand whether VA should establish
separate requirements for this type of servicer? Alternatively, is
there another way VA could/should differentiate smaller servicers
(i.e., number of annual foreclosure claims)?
Question 3: Should VA expand the scope of the TRS to include
consideration of factors beyond a servicer's performance in the areas
of default resolution and foreclosure avoidance?
As described above, VA would use the TRS to evaluate and score a
servicer's performance during default resolution and foreclosure
avoidance. Further, the tier ranking assigned would be used to
determine the amount of incentive paid to the servicer for completing a
loss mitigation activity or alternative to foreclosure. With that in
mind, should VA limit its entire process of scoring, ranking, and
calculating incentive payments to monthly servicer-reported data
related to default resolution and foreclosure avoidance, or should VA
consider additional factors in its TRS that are not necessarily shown
in default resolution and foreclosure avoidance rates? Such factors
might include, for example, timely, accurate, and complete reporting of
monthly servicer-reported data. Please elaborate on which factors
should/should not be included and describe how VA would confirm the
successful completion of such factors.
Question 4: During the testing phase of the TRS, would servicers
like to know their quarterly performance scores? If yes, for how many
quarters prior to the TRS becoming effective?
Once the TRS is effective, VA would evaluate an existing servicer's
performance for at least four full
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quarters to assign the servicer an annual tier ranking. Until then,
based on current Sec. 36.4318, VA will continue to presume each
servicer to rank in tier two. VA is not planning to implement a TRS
pilot. However, leading up to the TRS becoming effective, VA intends to
test certain aspects of the TRS internally with live servicer-reported
data. To the extent that VA is able, would there be any benefits to
servicers if VA were to provide this information to servicers on a
quarterly basis?
Question 5: What would be the anticipated burden for a servicer to
participate in an error resolution process? Should VA provide servicers
with such option in developing the TRS?
To derive the quarterly performance scores for each servicer, the
TRS would apply a range of calculations onto a considerable volume of
data. VA is considering a number of different criteria upon which to
base the quarterly score on servicer performance, including:
Delinquency rate, roll rate, default resolution rate percentage,
quality of service, foreclosure timeline management, data quality and
regulatory infractions, and recidivism rate. Subsequently, for each
servicer, the TRS would aggregate the quarterly scores to calculate the
annual score, and finally, the TRS would use the annual score to assign
a tier ranking. It is conceivable that, due to inaccurate or incomplete
data, the quarterly score, the annual score, and/or the annual tier
ranking could be incorrect.
VA might, within a certain number of days, allow a servicer to
contest a quarterly or annual score or annual tier ranking by
submitting supporting evidence to VA. VA is interested in understanding
the potential burden to servicers to prepare such supporting evidence
and submit it to VA.
Question 6: Should VA consider providing a new VA servicer with a
provisional tier ranking after 12 months of servicing has elapsed?
For a new servicer, including a new servicer who acquires a
portfolio of existing VA loans, VA is considering whether to presume
the new servicer to rank in tier two until at least 12 months and four
full quarters of servicing has elapsed. Once the new servicer completes
at least 12 months and four full quarters of servicing, VA could
continue to presume the new servicer to rank in tier two until VA next
completes its annual scoring and tier ranking of all servicers. In some
cases, this could result in VA presuming a new servicer to rank in tier
two for up to 23 months. Alternatively, after the new servicer
completes at least 12 months and four full quarters of servicing, VA
could assign the new servicer a provisional tier rank based on the
quarterly scores of four prior full quarters. The provisional tier rank
would be in place until VA next completes its annual scoring and tier
ranking of all servicers. VA invites comments as to which approach the
public finds more reasonable and why.
Question 7: Are there other servicer tier ranking systems that VA
should review and consider, in part or full, for developing its TRS?
Please describe.
Question 8: Based on other servicer tier ranking system(s) that
servicers may have implemented, approximately how long does it take a
servicer to review and understand a new servicer tier ranking system?
Question 9: Based on other servicer tier ranking system(s) that
servicers may have implemented, as an estimate, what costs and burdens
do servicers expect to incur for implementing a new servicer tier
ranking system? Please describe the type(s) of cost(s) and provide
dollar figures, if available.
Question 10: Based on other servicer tier ranking system(s) that
servicers may have implemented, what impact, if any, would a lower tier
ranking (and smaller incentive payments) have on servicer participation
in the VA home loan program? Would smaller incentive payments, due to a
lower tier ranking, result in any costs for borrowers, either existing
or new?
Signing Authority
Denis McDonough, Secretary of Veterans Affairs, approved this
document on April 12, 2022, 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.
Luvenia Potts,
Regulations Development Coordinator, Office of Regulation Policy &
Management, Office of General Counsel, Department of Veterans Affairs.
[FR Doc. 2022-08276 Filed 4-18-22; 8:45 am]
BILLING CODE 8320-01-P
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