Proposed Rule2023-14478
Loan Guaranty: Servicer Regulation Changes
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 20, 2023
Issuing agencies
Veterans Affairs Department
Abstract
The Department of Veterans Affairs (VA) is proposing to rename and clarify certain loss-mitigation terms used in VA's regulations. VA is proposing these changes to align the names and definitions with their general use in the housing finance industry. VA believes that these proposed revisions would help avoid confusion and enable servicers and veterans to address loan defaults more quickly and effectively.
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 138 (Thursday, July 20, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 138 (Thursday, July 20, 2023)]
[Proposed Rules]
[Pages 46720-46723]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-14478]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF VETERANS AFFAIRS
38 CFR Part 36
RIN 2900-AR97
Loan Guaranty: Servicer Regulation Changes
AGENCY: Department of Veterans Affairs.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Department of Veterans Affairs (VA) is proposing to rename
and clarify certain loss-mitigation terms used in VA's regulations. VA
is proposing these changes to align the names and definitions with
their general use in the housing finance industry. VA believes that
these proposed revisions would help avoid confusion and enable
servicers and veterans to address loan defaults more quickly and
effectively.
DATES: Comments must be received on or before September 18, 2023.
ADDRESSES: Comments must be submitted through <a href="http://www.regulations.gov">www.regulations.gov</a>.
Except as provided below, comments received before the close of the
comment period will be available at <a href="http://www.regulations.gov">www.regulations.gov</a> for public
viewing, inspection, or copying, including any personally identifiable
or confidential business information that is included in a comment. We
post the comments received before the close of the comment period on
the following website as soon as possible after they have been
received: <a href="http://www.regulations.gov">http://www.regulations.gov</a>. VA will not post on
<a href="http://Regulations.gov">Regulations.gov</a> public comments that make threats to individuals or
institutions or suggest that the commenter will take actions to harm an
individual. VA encourages individuals not to submit duplicative
comments. We will post acceptable comments from multiple unique
commenters even if the content is identical or nearly identical to
other comments. Any public comment received after the comment period's
closing date is considered late and will not be considered in the final
rulemaking.
FOR FURTHER INFORMATION CONTACT: Andrew Trevayne, Assistant Director
for Loan and Property Management, and Stephanie Li, Assistant Director
for Regulations, Legislation, Engagement, and Training, 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. Background
VA's Loan Guaranty Service offers home loan programs that assist
eligible veterans, service members, and certain surviving spouses
(hereinafter collectively referred to as ``veteran'') to buy, build,
improve, or refinance a home. When a VA-guaranteed loan goes into
default, the servicer may attempt to resolve the default using a loss-
mitigation option that enables the veteran to remain in their home
(e.g., repayment plan, special forbearance, or loan modification) or
avoid foreclosure through compromise sale or deed in lieu of
foreclosure.\1\
---------------------------------------------------------------------------
\1\ See 38 CFR 36.4319.
---------------------------------------------------------------------------
While regulations in 38 CFR part 36 are specific to VA-guaranteed
loans, the loss-mitigation options outlined are typical across the
housing finance industry. VA has received feedback that the names of
certain servicing terms used in VA regulations are not aligned with how
those terms are named in the housing finance industry, occasionally
leading to confusion amongst stakeholders and veterans.
Additionally, VA's inconsistency in using the terms ``written'' and
``documented'' to reference various agreements in servicing regulations
may be confusing for servicers as to whether new technologies enabling
certain loss-mitigation agreements to be established and documented in
non-written formats are acceptable to VA. For example, as part of the
final rule implementing the VA Loan Electronic Reporting Interface
(VALERI) and corresponding regulations, VA updated its regulation
pertaining to acceptance of partial payments by removing the
requirement for a repayment plan to be ``written'' and adding that it
must be ``documented.'' \2\ However, other
[[Page 46721]]
references to repayment plan and other loss-mitigation agreements, such
as loan modifications, still contain references to a ``written''
requirement.\3\
---------------------------------------------------------------------------
\2\ See 38 CFR 36.4316(b). As background, VA amended its
regulation pertaining to partial payments as part of an overhaul of
existing VA loan guaranty program requirements. On February 18, 2005
(70 FR 8472, 8475), VA proposed amendments to then-existing 38 CFR
36.4315. Thereafter, on June 1, 2007 (72 FR 30505), VA published a
supplemental proposed rule outlining VA's plan to phase-in the new
38 CFR part 36 regulations. This plan included temporarily
designating then-existing provisions found at 38 CFR 36.4300 through
36.4393 (the ``36.4300 series'') as a new subpart B and establishing
a new subpart F to include new 38 CFR 36.4800 through 36.4393 (the
``36.4800 series''). See 72 FR 30505. On February 1, 2008 (73 FR
6294), VA published a final rule establishing the 36.4800 series,
including 38 CFR 36.4816, which contained the proposed amendments to
then-existing 38 CFR 36.4315. On June 15, 2010 (75 FR 33704), VA
redesignated the 36.4800 series to replace the 36.4300 series in its
entirety. Thus, 38 CFR 36.4315 became 38 CFR 36.4816, which became
38 CFR 36.4316.
\3\ See 38 CFR 36.4301 (definitions of ``repayment plan'' and
``special forbearance''); see also 38 CFR 36.4315, 36.4316(b)(6).
---------------------------------------------------------------------------
With this proposed rulemaking, VA would make revisions throughout
38 CFR part 36 to better align certain loss-mitigation and servicing
terms with the industry. VA is also proposing amendments to clarify
that written signatures are not required in order to execute certain
loss-mitigation agreements.
II. Legal Authority
Congress has authorized VA to oversee and regulate the servicing of
VA guaranteed loans. See 38 U.S.C. 501 and chapter 37. This includes
implementing or clarifying program requirements for the mortgage
servicing industry such as determining the acceptable documentation for
a VA guaranteed loan and clarifying servicing loan procedures. During
the last several years, the mortgage servicing industry has undergone
various technological advancements which caused necessary procedural
adjustments. Therefore, VA is proposing these amendments pursuant to
its statutory authority found in section 501 and chapter 37 of title
38, United States Code.
III. Summary of Proposed Changes
A. Amend ``Compromise Sale'' to ``Short Sale''
VA is proposing to amend the term ``compromise sale'' to ``short
sale'' to be consistent with the name the housing finance industry uses
to refer to this type of transaction.\4\ Specifically, in Sec.
36.4301, VA would remove the definition for ``Compromise sale'' and add
a definition for ``Short sale'' to read as follows: ``A sale to a third
party for an amount less than is sufficient to repay the unpaid balance
on the loan where the holder has agreed in advance to release the lien
in exchange for the proceeds of such sale.'' Also, in the definition
for liquidation sale in Sec. 36.4301, VA would revise the third
sentence to refer to ``short sale'' instead of ``compromise sale.''
Similarly, VA would remove the references to compromise sale and add in
its place short sale each place it appears in Sec. Sec.
36.4317(c)(21); 36.4319(a), (b), and (c)(4); and 36.4322(e)(1),
(1)(ii), (2), and (f)(1)(iii).
---------------------------------------------------------------------------
\4\ National Association of Realtors, Short Sales &
Foreclosures, <a href="https://www.nar.realtor/short-sales-foreclosures">https://www.nar.realtor/short-sales-foreclosures</a> (last
visited Jan. 4, 2023) (``A short sale is a transaction in which the
lender, or lenders, agree to accept less than the mortgage amount
owed by the current homeowner. In some cases, the difference is
forgiven by the lender, and in others the homeowner must make
arrangements with the lender to settle the remainder of the
debt.'').
---------------------------------------------------------------------------
B. Amend ``Refund'' to ``VA Purchase''
Loan Guaranty Service regulations currently use the term ``refund''
to denote two separate types of transactions that are entirely
different in context and purpose. First, in 38 CFR 36.4320, VA uses the
term ``refund'' to refer to a transaction when VA pays a holder the
current unpaid principal balance of a VA-guaranteed loan in exchange
for transfer and assignment of the guaranteed loan to VA. Another way
of understanding this transaction is that VA purchases the loan from
the holder and becomes the new loan holder. VA also uses the term
``refund'' as it is more commonly understood when referring to
instances in which VA requires the holder to return certain monetary
amounts to a veteran.\5\
---------------------------------------------------------------------------
\5\ See, e.g., 38 CFR 36.4303(l)(1)(i)(B), 36.4353(b)(2)(v).
---------------------------------------------------------------------------
To avoid confusion, VA is proposing to remove the term ``refund''
and add in its place ``VA purchase'' whenever that term is used to
refer to a transaction described in Sec. 36.4320. Specifically, VA
would amend the heading for Sec. 36.4320 by removing ``Refunding'' and
adding ``VA purchase'' in its place. In Sec. 36.4320(c), VA would
remove ``refund'' and add in its place ``purchase.'' Additionally, VA
proposes to amend Sec. 36.4317(c)(30) and (31) to clarify how those
terms are used for servicer reporting requirements. In choosing the
term ``VA purchase,'' VA notes that the relevant statutory authority
for this transaction (38 U.S.C. 3732(a)) does not refer to the
transaction as a refund. Instead, section 3732(a)(2)(A) describes a
transaction where VA, at its own option, ``pay[s] the holder of the
obligation the unpaid balance of the obligation plus accrued interest
and receive[s] an assignment of the loan and security,'' which is much
more consistent with the common definition of purchase.\6\
---------------------------------------------------------------------------
\6\ Black's Law Dictionary (11th ed. 2019) (noting the
definition of purchase as ``[t]he acquisition of an interest in real
or personal property by sale, discount, negotiation, mortgage,
pledge, lien, issue, reissue, gift, or any other voluntary
transaction'').
---------------------------------------------------------------------------
C. Removing References to ``Written'' and ``Executed'' Agreements
VA is also proposing to remove the references to ``written'' and
``executed'' in regard to repayment plans and special forbearance
agreements and replace with a requirement that an agreement be
documented. A written, executed agreement can seem more specific and
limiting in its form and manner of establishment; that is, it may be
understood as a requirement for the servicer and veteran to sign the
agreement in writing. Servicers who have interpreted VA's current
regulations in such manner have indicated that this leads to additional
time and costs to prepare and execute VA loss-mitigation agreements.
VA's main concern is that there is an audit trail of the acceptance
of the agreement between the servicer and the veteran, not that the
agreement remain restricted to outmoded methods of memorializing
agreements. VA simply requires that evidence of the agreement between
the parties be presented to VA in written form, such as documentation
through email or mobile application (with e-signatures, such as
DocuSign), or during a recorded phone call (agreed verbally, then
documented in a letter/notice, and later acted upon).
Therefore, VA is proposing to clarify VA's expectations regarding
the establishment of these agreements. The proposed changes would more
clearly provide servicers and veterans flexibility in utilizing
industry-prevalent technologies to establish loss-mitigation
agreements.
More specifically, VA proposes to remove references to ``a written
executed agreement'' and ``written agreement'' in the definitions of
``repayment plan'' and ``special forbearance,'' respectively, in Sec.
36.4301 and add in those places ``a documented agreement.''
Additionally, in the definition of ``repayment plan,'' VA proposes to
make minor grammatical edits so that the text is consistent with the
framework for the definition of ``special forbearance.'' In Sec.
36.4315(a), Loan modifications, VA proposes to remove the reference to
a ``written agreement'' and add in its place ``a documented
agreement.''
In Sec. 36.4316(b)(2) through (4), VA proposes to remove the
references to ``documented'' as this term would be incorporated into
the definition of ``repayment plan'' under this proposed rule. VA also
proposes to remove the term ``written'' in Sec. 36.4316(b)(6) in
reference to a repayment plan.
In Sec. 36.4317(c)(18), VA proposes to remove the term
``agreement'' when
[[Page 46722]]
referencing a ``special forbearance'' as this term, by the proposed
definition, would be an agreement. For similar reason, in Sec.
36.4319(a), VA proposes to remove the term ``special forbearance
agreements'' and add in its place ``special forbearances.''
D. Technical Amendment To Update Information Collection Reference
Finally, VA proposes to use this rule as an opportunity to correct
an outdated reference to an approved information collection in Sec.
36.4320. Currently, Sec. 36.4320 states the Office of Management and
Budget (OMB) has approved the information collection requirements in
this section under control number 2900-0362. However, in 2010, VA
submitted to OMB a request to incorporate the information collected in
Sec. 36.4320 (specifically, VA Form 26-1874, Claim Under Loan
Guaranty, and VA Form 26-1874a, Claim Form Addendum--Adjustable Rate
Mortgages), into another information collection under OMB control
number 2900-0021.\7\ VA's request was approved in March 2011, and the
information collection remains active. VA, therefore, proposes to
update the OMB control number to 2900-0021.
---------------------------------------------------------------------------
\7\ See 75 FR 17832 (Apr. 7, 2010); 75 FR 33898 (June 15, 2010).
---------------------------------------------------------------------------
Executive Orders 12866, 13563 and 14094
Executive Order 12866 (Regulatory Planning and Review) 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. Executive Order 14094 (Executive Order on
Modernizing Regulatory Review) supplements and reaffirms the
principles, structures, and definitions governing contemporary
regulatory review established in Executive Order 12866 of September 30,
1993 (Regulatory Planning and Review), and Executive Order 13563 of
January 18, 2011 (Improving Regulation and Regulatory Review). The
Office of Information and Regulatory Affairs has determined that this
rulemaking is not a significant regulatory action under Executive Order
12866, as amended by Executive Order 14094. The Regulatory Impact
Analysis associated with this rulemaking can be found as a supporting
document at <a href="http://www.regulations.gov">www.regulations.gov</a>.
Regulatory Flexibility Act
The Secretary hereby certifies that this proposed rule would 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). However, this rulemaking would have a direct impact on
a number of industries that service VA loans. VA defines a servicer as
a mortgage company that collects funds for a debt incurred by a
borrower to purchase a home. When a loan becomes delinquent after a
borrower misses one or more mortgage payments, servicers are
responsible for servicing delinquent loans and working with the
borrower to reach an agreement that will bring the loan current or
avoid foreclosure whenever feasible.
A recent analysis indicated there are currently 450 servicers in
varying industries that will be impacted by this rulemaking. This
proposed rule would impose a one-time rule familiarization cost to
servicers in 2024, estimated at $55.91 per servicer regardless of size.
The $55.91 cost is derived by dividing the cost of rule
familiarization, which is estimated to be $25,157, by the 450 servicers
VA currently works with. To estimate the one-time rule familiarization
cost, VA multiplies the number of servicers by the time needed for in-
house or retained legal counsel to review and ensure compliance with
the rule and their compensation rate. VA assumes that it would take 30
minutes for a lawyer to review the rulemaking. The compensation rate of
the lawyers is estimated by multiplying their hourly wage rate ($78.74)
by the fringe benefits factor, 1.42. Multiplying the number of
servicers (450) by the time to review the rule (30 minutes) and their
total compensation rate ($111.81 per hour) results in a one-time total
cost of $25,157 in FY2024. This one-time cost in FY2024 is offset by
the long-term cost savings of this rulemaking from reduced agreement
preparation and sharing efforts.
VA considers a rulemaking to have a ``significant economic impact''
when the impact associated with the rulemaking for a small entity
equals or exceeds 1 percent of annual revenue. Thus, this rulemaking is
not expected to have a significant economic impact on the participating
small servicers. After the first year of implementation, there will be
a monetary benefit realized by servicers due to the reduction in burden
this rulemaking will accomplish. Therefore, under 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
Although this proposed rule contains collections of information
under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C.
3501-3521), there are no provisions associated with this rulemaking
constituting any new collection of information or any revisions to the
existing collection of information. The collections of information for
38 CFR 36.4317, 36.4319, and 36.4320 are currently approved by OMB and
have been assigned OMB control number 2900-0021.
List of Subjects in 38 CFR Part 36
Condominiums, Housing, Indians, Individuals with disabilities, Loan
programs--housing and community development, Loan programs--Indians,
Loan programs--veterans, Manufactured homes, Mortgage insurance,
Reporting and recordkeeping requirements, Veterans.
Signing Authority
Denis McDonough, Secretary of Veterans Affairs, approved and signed
this document on June 23, 2023, 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.
Jeffrey M. Martin,
Assistant Director, Office of Regulation Policy & Management, Office of
General Counsel, 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:
[[Page 46723]]
PART 36--LOAN GUARANTY
Subpart B--Guaranty or Insurance of Loans to Veterans With
Electronic Reporting
0
1. The authority citation for part 36, subpart B continues to read as
follows:
Authority: 38 U.S.C. 501 and 3720.
0
2. Amend Sec. 36.4301 by:
0
a. Removing the definition of ``Compromise sale'';
0
b. Revising the third sentence of ``Liquidation sale'';
0
c. Revising the definition of ``Repayment plan'';
0
d. Adding, in alphabetical order, the definition for ``Short sale'';
and
0
e. Revising the definition of ``Special forbearance''.
The revisions and addition read as follows:
Sec. 36.4301 Definitions.
* * * * *
Liquidation sale. * * * This term also includes a short sale.
* * * * *
Repayment plan. This is a documented 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.
* * * * *
Short sale. A sale to a third party for an amount less than is
sufficient to repay the unpaid balance on the loan where the holder has
agreed in advance to release the lien in exchange for the proceeds of
such sale.
Special forbearance. This is a documented 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.
* * * * *
Sec. 36.4315 [Amended]
0
3. Amend Sec. 36.4315(a) by removing ``written'' and adding in its
place ``a documented''.
Sec. 36.4316 [Amended]
0
4. Amend Sec. 36.4316 by:
0
a. Removing ``documented'' in paragraphs (b)(2), (3), and (4); and
0
b. Removing ``written'' in paragraph (b)(6).
0
5. Amend Sec. 36.4317 by:
0
a. Removing ``agreement'' in paragraph (c)(18);
0
b. Removing ``Compromise sale'' and ``compromise sale'' and adding
``Short sale'' and ``short sale'', respectively, in paragraph (c)(21);
and
0
c. Revising paragraphs (c)(30) and (31).
The revisions read as follows:
Sec. 36.4317 Servicer reporting requirements.
* * * * *
(c) * * *
(30) Basic claim information--when the servicer files a claim under
guaranty. The servicer shall report this event within 365 calendar days
of loan termination for non-VA purchase claims, and within 60 calendar
days of the approval date for VA purchase claims.
(31) VA purchase settlement--when VA purchases a loan and the
servicer reports the tax and insurance information. The servicer shall
report this event within 60 calendar days of the VA purchase approval
date.
* * * * *
Sec. 36.4319 [Amended]
0
6. Amend Sec. 36.4319 by:
0
a. Removing ``special forbearance agreements'' and ``compromise sales''
and adding their place ``special forbearances'' and ``short sales'',
respectively, in paragraph (a);
0
b. Removing ``Compromise Sale'' and adding in its place ``Short Sale''
in the table in paragraph (b); and
0
c. Removing ``compromise sale'' and adding in its place ``short sale''
in paragraph (c)(4).
Sec. 36.4320 [Amended]
0
7. Amend Sec. 36.4320 by:
0
a. Removing ``Refunding'' and adding in its place ``VA purchase'' in
the heading;
0
b. Removing ``refund'' and adding in its place ``purchase'' in
paragraph (c); and
0
c. Removing ``2900-0362'' and adding in its place ``2900-0021'' in the
parenthesis at the end of the section.
Sec. 36.4322 [Amended]
0
8. Amend Sec. Sec. 36.4322(e)(1), (1)(ii), (2), and (f)(1)(iii) by
removing ``compromise sale'' each place it appears and adding ``short
sale'' in its place.
[FR Doc. 2023-14478 Filed 7-19-23; 8:45 am]
BILLING CODE 8320-01-P
</pre></body>
</html>Indexed from Federal Register on July 20, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.