Proposed Rule2023-27068
Loan Guaranty: Minimum Property Requirements for VA-Guaranteed and Direct Loans
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Published
December 11, 2023
Issuing agencies
Veterans Affairs Department
Abstract
The Department of Veterans Affairs (VA) is requesting public comment on the minimum property requirements (MPRs) for VA-guaranteed and direct loans. VA will consider information received in response to this advance notice of proposed rulemaking (ANPRM) in implementing the Improving Access to the VA Home Loan Benefit Act of 2022 (the Act). The Act requires VA to consider making changes to MPRs in prescribing updated regulatory requirements regarding appraisals. This ANPRM seeks public input to better understand areas for improvement in MPRs, including whether VA should consider adopting an approach that aligns with other industry-wide property standards already in existence.
Full Text
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<title>Federal Register, Volume 88 Issue 236 (Monday, December 11, 2023)</title>
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[Federal Register Volume 88, Number 236 (Monday, December 11, 2023)]
[Proposed Rules]
[Pages 85863-85865]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-27068]
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DEPARTMENT OF VETERANS AFFAIRS
38 CFR Part 36
RIN 2900-AS02
Loan Guaranty: Minimum Property Requirements for VA-Guaranteed
and Direct Loans
AGENCY: Department of Veterans Affairs.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The Department of Veterans Affairs (VA) is requesting public
comment on the minimum property requirements (MPRs) for VA-guaranteed
and direct loans. VA will consider information received in response to
this advance notice of proposed rulemaking (ANPRM) in implementing the
Improving Access to the VA Home Loan Benefit Act of 2022 (the Act). The
Act requires VA to consider making changes to MPRs in prescribing
updated regulatory requirements regarding appraisals. This ANPRM seeks
public input to better understand areas for improvement in MPRs,
including whether VA should consider adopting an approach that aligns
with other industry-wide property standards already in existence.
DATES: Comments must be received on or before February 9, 2024.
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="https://www.regulations.gov">https://www.regulations.gov</a>. VA will not post on
<a href="http://www.regulations.gov">www.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: Stephanie Li, Assistant Director for
Regulations, Legislation, Engagement and Training, and Terry Rouch,
Assistant Director for Loan Policy and Valuation, 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: VA must ensure that any property financed
through a VA-guaranteed or direct loan is suitable for dwelling
purposes.\1\ Additionally, any loan for either the purchase or
construction of a residential property, in which construction was
completed within one year of the loan, must meet or exceed minimum
requirements for planning, construction, and general acceptability, as
prescribed by VA.\2\ Also, any direct housing loan made by VA under the
Native American Direct Loan (NADL) program must meet minimum
requirements for planning, construction, improvement, and general
acceptability, as prescribed by VA.\3\
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\1\ 38 U.S.C. 3710(b)(4); see also 38 U.S.C. 3711.
\2\ 38 U.S.C. 3704(a).
\3\ 38 U.S.C. 3762(c)(2).
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In 38 CFR 36.4351 and 36.4527(c)(4), VA implemented the above noted
statutory requirements, and in the Lenders Handbook, VA maintains a
list of MPRs.\4\ The following table reflects that list.\5\
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\4\ Lenders Handbook, VA Pamphlet 26-7, <a href="https://www.benefits.va.gov/warms/pam26_7.asp">https://www.benefits.va.gov/warms/pam26_7.asp</a>.
\5\ Id.
Table 1--VA Pamphlet 26-7, Lenders Handbook, Chapter 12--Minimum Property Requirements
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Topic Topic name Topic Topic name
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1..................................... Minimum Property Requirement Procedures. 23...................... Heating.
2..................................... Marketable Real Estate Entity. 24...................... Leased Mechanical Systems and Equipment.
3..................................... Space Requirements. 25...................... Alternative Energy Equipment.
4..................................... Access. 26...................... Roof Covering.
5..................................... Encroachments. 27...................... Attics.
6..................................... Drainage and Topography. 28...................... Crawl Spaces.
7..................................... Geological or Soil Instability, 29...................... Basements.
Subsidence, and Sinkholes.
8..................................... Special Flood Hazard Area. 30...................... Swimming Pools.
9..................................... Coastal Barrier Resources System. 31...................... Burglar Bars.
10.................................... Lava Flow Hazard Areas. 32...................... Lead-Based Paint.
11.................................... Non-Residential Use. 33...................... Wood Destroying Insects/Fungus/Dry Rot.
12.................................... Zoning. 34...................... Radon Gas.
13.................................... Local Housing/Planning Authority Code 35...................... Potential Environmental Problem.
Enforcement.
14.................................... Utilities. 36...................... Stationary Storage Tanks.
15.................................... Water Supply and Sanitary Facilities. 37...................... Mineral, Oil and Gas Reservations or
Leases.
16.................................... Individual Water Supply. 38...................... High Voltage Electric Transmission Lines.
17.................................... Individual Sewage Disposal. 39...................... High Pressure Gas and Liquid Petroleum
Pipelines.
18.................................... Shared Wells. 40...................... Properties Near Airports.
19.................................... Community Water Supply/Sewage Disposal 41...................... Manufactured Home Classified as Real
Requirements. Estate.
20.................................... Hazards. 42...................... Modular Homes.
21.................................... Defective Conditions. 43...................... Energy Conservation and Sustainability.
22.................................... Mechanical Systems. 44...................... Requests for Waiver of MPR Repairs.
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In addition to MPRs being a legal requirement, they also serve as a
safeguarding function by exposing potential defects or maintenance
issues that could have a significant effect on a property's value.
Section 3 of the Act \6\ directs the Secretary to consider making
changes applicable to MPRs.\7\ Therefore, VA is issuing this ANPRM to
request public comment as the agency considers regulatory amendments
pertaining to MPRs. While VA welcomes all comments regarding MPRs, VA
is particularly interested in hearing from the public on the below
noted questions.
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\6\ Public Law 117-308, 136 Stat. 4393.
\7\ Id.
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Questions for Comment
(1)(a) What are the advantages and/or disadvantages of VA MPRs
noted in the above table as compared with similar requirements found in
other Federal housing programs and conventional sources of financing
(e.g., property condition requirements)?
(b) What policies or processes specific to VA MPRs could be
streamlined, modified, or eliminated to enhance your experience with
the VA home loan program?
(c) Please also provide any general suggestions for improvement or
comments on the current VA MPRs.
(2)(a) Should VA replace the above noted VA MPRs with the property
condition ratings outlined in Fannie Mae's Selling Guide or Freddie
Mac's Single-Family Seller/Servicer Guide, and included in the Uniform
Appraisal Dataset (UAD) \8\
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\8\ Selling Guide: Fannie Mae Single Family, B4-1.3-06, Fannie
Mae, (Aug. 2, 2023), <a href="https://selling-guide.fanniemae.com">https://selling-guide.fanniemae.com</a>; The
Single-Family Seller/Servicer Guide, Exhibit 36 Condition and
Quality Ratings and Level of Updating Definitions, Freddie Mac, (May
31, 2017), <a href="https://guide.freddiemac.com/app/guide/exhibit/36">https://guide.freddiemac.com/app/guide/exhibit/36</a>;
Uniform Appraisal Dataset, Freddie Mac, <a href="https://sf.freddiemac.com/tools-learning/uniform-mortgage-data-program/uad#business-resources">https://sf.freddiemac.com/tools-learning/uniform-mortgage-data-program/uad#business-resources</a>
(last visited Aug. 23, 2023).
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(b) If VA were to guarantee or make loans only on properties with a
condition rating of C1, C2, C3, or C4, either based on the initial
appraisal or following repairs, what would be the advantages and/or
disadvantages for a borrower? For VA and taxpayers? For lenders and
servicers?
(c) Could the below noted property condition ratings be used by VA
in another way to determine MPRs?
By way of background, the UAD defines all fields required for an
appraisal submission for specific appraisal forms (e.g., Fannie Mae
Form 1004) and standardizes definitions and responses for a key subset
of fields. When completing an appraisal that conforms to the UAD, the
appraiser assigns one of the standardized condition ratings pursuant to
the definitions in the Fannie Mae Selling Guide or Freddie Mac Seller/
Servicer Guide and presented in Table 2 below. These ratings identify
the condition of the improvements for the subject property and
comparable sales.
VA appraisers utilize industry-standard forms to complete
appraisals for VA-guaranteed loans. As such, VA already collects
information regarding the UAD property condition rating as part of a VA
appraisal.\9\ As VA considers how to streamline the appraisal process,
one option could be to utilize this existing appraisal information to
determine whether a property is suitable for dwelling purposes rather
than provide appraisers with a lengthy list of specific MPRs to
evaluate. In reviewing the UAD property condition ratings, VA believes
that properties rated C1 through C4 would best align with VA's
statutory requirement and existing MPRs, but is open to public feedback
on this issue.
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\9\ This information collection is approved by the Office of
Management and Budget (OMB) under Control Number 2900-0890.
Table 2--Uniform Appraisal Dataset (UAD) Property Condition Ratings
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Description in Fannie Mae Selling and Freddie
Rating Mac Seller/Servicer Guides
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C1....................... The improvements have been very recently
constructed and have not previously been
occupied. The entire structure and all
components are new and the dwelling features
no physical depreciation.
C2....................... The improvements feature no deferred
maintenance, little or no physical
depreciation, and require no repairs.
Virtually all building components are new or
have been recently repaired, refinished, or
rehabilitated. All outdated components and
finishes have been updated and/or replaced
with components that meet current standards.
Dwellings in this category either are almost
new or have been recently completely
renovated and are similar in condition to
new construction.
C3....................... The improvements are well-maintained and
feature limited physical depreciation due to
normal wear and tear. Some components, but
not every major building component, may be
updated or recently rehabilitated. The
structure has been well-maintained.
C4....................... The improvements feature some minor deferred
maintenance and physical deterioration due
to normal wear and tear. The dwelling has
been adequately maintained and requires only
minimal repairs to building components/
mechanical systems and cosmetic repairs. All
major building components have been
adequately maintained and are functionally
adequate.
C5....................... The improvements feature obvious deferred
maintenance and are in need of some
significant repairs. Some building
components need repairs, rehabilitation, or
updating. The functional utility and overall
livability are somewhat diminished due to
condition, but the dwelling remains useable
and functional as a residence.
C6....................... The improvements have substantial damage or
deferred maintenance with deficiencies or
defects that are severe enough to affect the
safety, soundness, or structural integrity
of the improvements. The improvements are in
need of substantial repairs and
rehabilitation, including many or most major
components.
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(3) VA is interested in hearing how the current MPRs may be
impacting certain groups of veteran borrowers, including those
traditionally underserved in the housing finance industry. As VA
considers changes to the MPRs, VA is exploring how best to ensure all
eligible individuals for the VA home loan benefit are served.
(a) Please describe any needs of groups of veterans who might be
underserved due to the current MPRs and how the VA home loan program
could address those needs.
(b) Please describe any VA MPRs that might restrict utilization by
any group(s) of veterans that are traditionally underserved in the
housing finance industry. What changes could VA make to its MPRs to
encourage more utilization by these groups?
(4) VA is interested in hearing how changes to the MPRs might
affect lender participation which, in turn, could affect a veteran
borrower's access to the benefit.
(a) As an interested stakeholder, in your opinion, what type(s) of
MPRs are helpful in protecting veteran borrowers, lenders, servicers,
and VA?
(b) What type(s) of changes related to MPRs would encourage more
lenders
[[Page 85865]]
and broker/agent entities to increase their participation in the VA
home loan program?
(5)(a) As an interested stakeholder, in your opinion, are waivers
of certain MPRs necessary in the VA home loan buying process? If so,
please explain.
(b) Would your answer change if VA adopted a more generalized
approach to MPRs, such as the property condition ratings in the Fannie
Mae Selling Guide or Freddie Mac Seller/Servicer Guide and UAD, versus
the current MPRs?
Executive Orders 12866, 13563 and 14094
Executive Order 12866 (Regulatory Planning and Review) directs
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
rule is 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>.
Signing Authority
Denis McDonough, Secretary of Veterans Affairs, approved and signed
this document on December 4, 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.
[FR Doc. 2023-27068 Filed 12-8-23; 8:45 am]
BILLING CODE 8320-01-P
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