Rule: Loan Guaranty: Loan Servicing and Claims Procedures Modifications

Friday,
February 1, 2008
Part II
Department of
Veterans Affairs
38 CFR Part 36
Loan Guaranty: Loan Servicing and
Claims Procedures Modifications; Final
Rule
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6294 Federal Register / Vol. 73, No. 22 / Friday, February 1, 2008 / Rules and Regulations
DEPARTMENT OF VETERANS DATES: This rule is effective February 1, complete the foreclosure of defaulted
AFFAIRS 2008. loans; limiting the amount of interest
FOR FURTHER INFORMATION CONTACT: and other fees and charges that may be
38 CFR Part 36 Mike Frueh, Assistant Director for Loan included in a guaranty claim;
Management (261), Veterans Benefits establishing reasonable and customary
RIN 2900–AL65 Administration, Department of Veterans attorney fees allowed to be claimed
Affairs, 810 Vermont Avenue, NW., under the guaranty; establishing a
Loan Guaranty: Loan Servicing and Washington, DC 20420, at 202–461– deadline for holders to submit claims
Claims Procedures Modifications 9521. (This is not a toll-free telephone under the guaranty and to request
AGENCY: Department of Veterans Affairs. number.) reconsideration of denied claims;
SUPPLEMENTARY INFORMATION: modifying the requirements for title
ACTION: Final rule. evidence submitted to VA when the
Statutory Background holder is conveying the property to VA
SUMMARY: This document establishes a
new series for the Department of Under 38 U.S.C. chapter 37, VA following the liquidation sale;
Veterans Affairs (VA) Loan Guaranty guarantees loans made by private modifying the requirements for how
regulations, which will be phased in lenders to veterans for the purchase, long a holder must maintain records
over an approximately eleven-month construction, and refinancing of homes relating to loans for which VA has paid
timeframe, as mortgage servicing owned and occupied by veterans. a claim on the guaranty; modifying the
industry segments ‘‘go live’’ on a new requirements for holders to report key
Business Process Reengineering Review events with regard to loans being
computer-based tracking system being
Beginning in 2001, VA conducted an serviced; and repealing the requirement
established by VA. This new series
internal, in-depth review of the entire for holders to provide VA with
replicates existing regulations for most
Loan Administration process that was procedural papers in legal or equitable
aspects of the VA Loan Guaranty
effectively a business process proceedings related to a loan on the
program, but also includes changes
reengineering (BPR) effort. ‘‘Loan security property. VA published a
related to several aspects of the
Administration’’ includes the servicing supplemental notice on November 27,
servicing and liquidating of guaranteed
of existing loans, dealing with loans in 2006 (71 FR 68498), to provide specific
housing loans in default, and the
default and loans being terminated, and information regarding the computer-
submitting of guaranty claims by loan the processing of claims by loan holders based system that VA proposed to
holders. Specific topics revised in the under the guaranty after defaulted loans implement as part of the loan servicing
new 4800 series include: increasing have been foreclosed or otherwise and claims procedure modifications. VA
authority of servicers to implement loss- terminated. Loan Administration also published another supplemental notice
mitigation options, making incentive includes efforts by VA and private loan on June 1, 2007 (72 FR 30505), to
payments to servicers for successful holders to assist homeowners whose provide information on a decision to
loss-mitigation options, establishing a loans are in default to cure the default, phase-in implementation of most of the
system of measuring and ranking retain their home if possible, or find new rules, based on previous comments
servicer performance, establishing other means short of foreclosure. VA’s from the industry and the development
updated reporting requirements, BPR team recommended revising the of VA’s computer-based tracking
permitting loan holders to review Loan Administration process to reflect system.
liquidation appraisals, requiring holders changes in the loan servicing industry
to calculate the net value of the security in recent years, as well as advances in Discussion of Public Comments
property prior to foreclosure, technology. VA’s BPR team also The initial public comment period
establishing a timeframe for when recommended placing greater reliance closed on April 19, 2005. VA received
foreclosure of a defaulted loan should on private sector servicing in 51 comments from the public about
be completed, limiting the amount of accordance with VA guidelines, with various aspects of the proposed changes.
interest and other fees and charges that VA using advanced technology to The public comment period was
may be included in a guaranty claim, oversee servicing actions. reopened following publication of the
establishing allowable attorneys fees to first supplemental notice and closed
be included in the guaranty claim, Regulatory Background December 11, 2006. VA received an
establishing a deadline for the On February 18, 2005 (70 FR 8472), additional 8 comments from the public
submission of guaranty claims, VA proposed to amend its loan guaranty about the proposed reporting
modifying the requirements for title regulations in order to implement the requirements for VA’s new computer-
evidence for properties conveyed to VA following recommendations proposed based system. The public comment
following foreclosure, modifying the by the BPR team: giving servicers period was again reopened following
requirements for how long a holder increased authority to implement loss- publication of the second supplemental
must maintain records relating to loans mitigation alternatives to foreclosure notice and closed June 15, 2007. VA
for which VA has paid a claim on the and paying servicers an incentive bonus received 2 comments from the public
guaranty, and eliminating the for each successful loss-mitigation about its proposed phased
requirement for the submission of legal alternative to foreclosure; establishing a implementation and clarifications
procedural papers to VA. This performance-based tier-ranking system regarding modifications.
document also includes specific for servicers; permitting qualified loan The final rule has been revised to
revisions to three rules related to holders to review liquidation appraisals incorporate changes that VA agrees are
increased attorney fee allowances, and establish the fair market value of necessary in light of, or as the logical
establishment of a time limit for filing the property; requiring loan holders to outgrowth of, the comments provided.
a claim under the guaranty, and granting calculate the net value of properties In order to accommodate the phased
authority for the Servicer Appraisal securing loans prior to foreclosure; implementation of the new rules, VA is
Processing Program that will be effective establishing timeframes for when VA establishing a new subpart F (§§ 36.4800
for all program participants upon would expect holders, exercising through 36.4893, inclusive) of part 36
publication of these rules. reasonable diligence, should be able to that contains substantive rules identical
Federal Register / Vol. 73, No. 22 / Friday, February 1, 2008 / Rules and Regulations 6295
to those in the current rules (§§ 36.4300 affected the rights, responsibilities, or 36.4801 Definitions
through 36.4393). In addition, we obligations of program participants. Comments: VA should provide its
redesignate those current rules as The following paragraphs discuss the definitions of ‘‘repayment plans’’ and
subpart B of title 38, CFR. Subpart F comments VA received in response to ‘‘special forbearances.’’
will be effective upon publication of the proposed rules and the VA Response: When VA published
this notice only for the first segment of supplemental notices. The paragraphs the proposed rule to replace the existing
the mortgage servicing industry, as § 36.4317 with an arrangement to
are in order by the new subpart F
described in the second supplemental establish incentive payments for loss
section number and provide VA
notice published June 1, 2007 (72 FR mitigation options, VA believed that the
responses. The preamble does not
30505). The table below is similar to the mortgage industry had a common
discuss sections about which we did not
one in that notice, and provides the understanding of the basic concepts of
effective date for the first segment that receive any public comment. The
preamble also does not discuss any repayment plans and special
will be affected by these rules, as well forbearance agreements. However, while
as an indication of the time periods section that is substantively the same as
its counterpart in §§ 36.4300 through reviewing comments, and in researching
during which we expect to make these definitions established by major
rules applicable to all other segments of 36.4393. However, such a section may
contain conforming renumbering industry participants (Fannie Mae,
the industry (although these time Freddie Mac, and the Department of
periods may change due to unforeseen changes and/or technical revisions or
reorganization. This final rule includes Housing and Urban Development
circumstances). We will publish as [HUD]), VA realized that each entity has
notices in the Federal Register the three changes to subpart B in
§§ 36.4313(b)(5), 36.4321(d), and its own slightly different definition for
actual applicability dates for industry each of these terms. Accordingly, VA
segments two through nine. 36.4344a, and the comments and
has added detailed definitions of
rationale for those changes are the same
‘‘repayment plan’’ and ‘‘special
Applicability date of as those in the comments and responses
Segment No. phased-in rules (by
forbearance’’ in this final rule in
on the new final rules in corresponding
calendar year quarter) § 36.4801 to avoid any confusion as to
§§ 36.4814(b)(5), 36.4824(d), and
what is required for each of these types
1 ................................ February 1, 2008.
36.4848. of loss mitigation actions. VA is also
2 ................................ 2nd Quarter, 2008. 36.4800 Applicability of §§ 36.4800 clarifying the role of the servicer by
3 ................................ 2nd Quarter, 2008. Through 36.4893, Inclusive adding a definition to state that the
4 ................................ 4th Quarter, 2008. servicer is the entity which will be
5 ................................ 2nd Quarter, 2008. Comment: VA should consider the assigned a tier ranking based on its
6 ................................ 3rd Quarter, 2008. time needed to adapt industry servicing
7 ................................ 3rd Quarter, 2008.
performance and will receive any
8 ................................ 3rd Quarter, 2008.
systems and carefully test all aspects of incentive payment on a loan it services
9 ................................ 4th Quarter, 2008. the proposed electronic reporting for the loan holder. The definitions are
requirements. This could also include only minor clarifications of basic
special circumstances such as recent concepts customary in the loan
Subpart B will continue to be the
acquisitions, changes in servicing servicing industry and do not impose
governing rules for industry segments
platforms, or other unforeseen any new requirements or take away any
until the dates they become subject to
situations. substantive rights of program
the new subpart F. VA is aware that
VA Response: VA has carefully participants. VA has listed all of the loss
certain portions of subpart B,
considered the factors that are essential mitigation options in § 36.4819 in their
specifically §§ 36.4302 and 36.4312, are
to the success of its new electronic preferred order of consideration (i.e., a
in need of revision to match recent
reporting environment, and determined hierarchy for review), but recognizes
legislative amendments, as well as to
that a phased implementation by that individual circumstances may lead
update VA positions on certain
to ‘‘out of the ordinary’’ procedures. VA
requirements. However, in order to industry segment offers the best chance
also plans to provide more detailed
avoid confusion with those issues not for success. Accordingly, VA has
examples and advice on a number of
directly impacting the servicing and established nine industry segments for
issues, including repayment plans and
liquidating of guaranteed housing loans program participants, with each
special forbearances, as part of the
in default, and the submitting of segment ‘‘going live’’ on VA’s new
training it will provide to servicers after
guaranty claims by loan holders, those computer-based tracking system over an publishing these rules.
changes have not been included in this approximately 11-month timeframe. Comment: VA should clarify the
rulemaking. Instead, VA is preparing Each phase of implementation will payment of incentives for successful
proposed changes to §§ 36.4302 and include time for data clean-up, system loss mitigation efforts.
36.4312 in subpart B and in the modifications, defect corrections, testing VA Response: VA concurs. The holder
corresponding §§ 36.4802 and 36.4813 of interfaces and data transmission, and is the entity ultimately responsible for
in the new subpart F, and will request review of lessons learned before compliance with VA regulations and
comments from the public on those initiating the next phase. Throughout under § 36.4801 ‘‘Holder’’ includes ‘‘the
changes after the effective date of these this phase-in process, VA will remain authorized servicing agent of the lender
new rules. flexible in adjusting its implementation or assignee or transferee.’’ However, for
In our review of subpart B, we also schedule in order to accommodate purposes of tier ranking (§ 36.4818) and
identified a number of minor errors, participants’ unique circumstances, loss mitigation options and incentives
such as erroneous cross-references, such as changes in servicing platforms (§ 36.4819), VA’s intent is to measure
typographical errors, and hanging or unforeseen events. In addition, VA performance of the actual loan servicer
provisions (flush text) that needed has the authority under § 36.4838 to and reward it accordingly. In order to
reformatting, and have corrected these administratively offer relief to entities make this distinction clearer, we
wherever necessary in the new subpart not meeting VA requirements, such as provide a definition in § 36.4801 of
F. However such corrections have not electronic reporting. ‘‘servicer.’’ The authorized servicer is
either the servicing agent of a holder; or published by HUD, Fannie Mae, and establishing maximum amounts for legal
the holder itself, if the holder is Freddie Mac in 2001, to account for services in each State, and those
performing all servicing functions on a reasonable increases in living costs over amounts are intended to reimburse for
loan. The servicer is typically the entity the past several years, as well as other reasonable attorney fees. This is
reporting all loan activity to VA and cost increases since that time due to consistent with the position taken by
filing claims under the guaranty on increased labor and operational Freddie Mac, which prohibits payment
behalf of the holder. VA will generally expenses for attorneys. for referral fees, packaging or other
issue guaranty claims and other VA Response: VA concurs. VA has similar fees, and new case start-up fees
payments to the servicer, who will be carefully reviewed the proposed in its Single Family Seller/Servicer
responsible for forwarding funds to the foreclosure attorney fee schedule and Guide, Volume 2, Chapter 71, section
holder in accordance with its servicing has adjusted the amounts in accordance 71.18. Fannie Mae also notes in its 2006
agreement. Incentives under § 36.4819 with the information provided in the Servicing Guide, Part VIII, Chapter 1,
will generally be paid directly to the comments, as well as updated section 104.03, that it will not reimburse
servicer based on its performance under information obtained from other a servicer for legal fees and expenses
that section and in accordance with its sources. The table provided below, as related to actions that are essentially
tier ranking under § 36.4818. referenced in final rules servicing functions.
Comment: VA should clarify the § 36.4313(b)(5)(ii) and Comment: VA should allow a fee to
procedures and implications of debt § 36.4814(b)(5)(ii), is reasonably cover the costs of restarting a
reductions used to ensure a property is consistent with the fees allowed by foreclosure that has been postponed, for
eligible for conveyance to VA. other agencies for comparable work, and example, by the filing of a bankruptcy
VA Response: In § 36.4823, we clarify the commitment in paragraph (b)(5)(ii) petition. This would be in addition to
the procedures to be followed to reduce to review the schedule annually will the reimbursement for obtaining relief
debts in order to gain the right to convey ensure the opportunity to timely from the bankruptcy stay.
to VA properties acquired at liquidation address any imbalance in the schedule.
VA Response: VA concurs. VA
sales. However, to avoid confusion with In addition, VA has slightly modified
the proposed language in new final recognizes that this is occurring more
multiple definitions of similar terms, we frequently, and is a true cost of doing
do not use the terms ‘‘Indebtedness’’, rules § 36.4313(b)(5)(iii) and
§ 36.4814(b)(5)(iii) to allow additional business. Therefore, VA has allowed in
‘‘Specified amount’’ and ‘‘Unguaranteed the table provided herein in accordance
portion of the indebtedness’’ in this trustee fees, above those allowed for
legal services, when the trustee with the final rules § 36.4313(b)(5)(ii)
final rule in § 36.4801; that section will and § 36.4814(b)(5)(ii) an additional
instead use the term ‘‘Total conducting the sale must be a
Government official under local law, or $350 ‘‘foreclosure restart’’ fee when a
indebtedness.’’ The terms are defined in foreclosure sale is postponed or
§ 36.4301 because they are used if an individual other than the
foreclosing attorney (or any employee of cancelled through no fault of the
primarily in §§ 36.4320 and 36.4321. servicer or its foreclosure attorney. This
However, the new final §§ 36.4823 and that attorney) is appointed as part of
judicial proceedings, and local law also includes but is not limited to
36.4824 do not contain them and refer bankruptcy, VA requested delay,
only to the total indebtedness as defined establishes the fees payable for the
services of the public or judicially property damage, hazardous conditions,
in the statute and the new final condemnation, natural disaster,
§ 36.4801. appointed trustee.
VA intends to reimburse only for property seizure, or relief under the
The other definitions included in Servicemembers Civil Relief Act.
§ 36.4801 that are different from those in attorney fees for services related to
foreclosure of loans. Most of the Comment: VA should consider
§ 36.4301 were previously proposed.
attorneys commenting on the proposed increasing its maximum allowable
36.4809 Transfer of Title by Borrower rule reported that over the past five bankruptcy fees, for reasons similar to
or Maturity by Demand or Acceleration years many servicers have been those suggested for foreclosure fees.
In § 36.4308(g), we refer to a time outsourcing the foreclosure oversight VA Response: VA concurs. VA has
period specified in § 36.4316, which in process (i.e., hiring third parties to reviewed the fees allowed by other
turn establishes a three-month waiting perform functions previously handled entities, as well as the arguments made
period prior to the filing of a notice of as part of the servicer’s routine duties), for increasing bankruptcy fees. VA
intention to foreclose. The reporting and and firms providing such outsourcing believes that a modest adjustment is
processing of defaults is handled services are charging attorney firms a fee appropriate at this time and is revising
differently under the new rules in for providing the file needed to initiate the table referenced in the final rules in
§§ 36.4800 through 36.4893, and the foreclosure action. While VA § 36.4313(b)(5)(ii) and § 36.4814(b)(5)(ii)
§ 36.4818 does not refer to a waiting understands that servicers may find to allow attorney fees of $650 (Chapter
period. Therefore, in § 36.4809(g), we do efficiencies in outsourcing certain 7) or $850 (initial Chapter 13) for
not refer to another section but rather functions, the cost for such outsourcing obtaining bankruptcy releases directly
refer to the actual time frame of three must be considered as an operating related to loan termination. For
months. expense of the firm contracting for the additional relief filed under either
outsourcing; i.e., the servicer. VA chapter, VA will allow an additional
36.4814 Advances and Other Charges cannot consider outsourcing fees to be $250. VA will continue to monitor these
Comment: VA should review its part of the cost of an attorney fee for fees on an annual basis.
proposed foreclosure attorney fee completing a foreclosure. Consistent The current legal services table is as
schedule, which is very similar to those with our proposed rule, VA is follows:
Non-judicial Judicial Deed-in-lieu of Foreclosure Chapter 13 Chapter 7

Jurisdiction foreclosure foreclosure foreclosure restart fee 2 release 3 release 3
Alabama ................................................... 550 N/A 350 350 850 650

Alaska ...................................................... 1200 N/A 350 350 850 650
Non-judicial Judicial Deed-in-lieu of Foreclosure Chapter 13 Chapter 7

Jurisdiction foreclosure foreclosure foreclosure restart fee 2 release 3 release 3
Arizona ..................................................... 625 N/A 350 350 850 650

Arkansas .................................................. 750 N/A 350 350 850 650
California .................................................. 600 N/A 350 350 850 650
Colorado ................................................... 800 N/A 350 350 850 650
Connecticut .............................................. N/A 1250 350 350 850 650
Delaware .................................................. N/A 950 350 350 850 650
District of Columbia .................................. 600 N/A 350 350 850 650
Florida ...................................................... N/A 1200 350 350 850 650
Georgia .................................................... 600 N/A 350 350 850 650
Guam ....................................................... 1200 N/A 350 350 850 650
Hawaii ...................................................... N/A 1850 350 350 850 650
Idaho ........................................................ 600 N/A 350 350 850 650
Illinois ....................................................... N/A 1100 350 350 850 650
Indiana ..................................................... N/A 1000 350 350 850 650
Iowa .......................................................... 550 850 350 350 850 650
Kansas ..................................................... N/A 850 350 350 850 650
Kentucky .................................................. N/A 1100 350 350 850 650
Louisiana .................................................. N/A 900 350 350 850 650
Maine ....................................................... N/A 1250 350 350 850 650
Maryland .................................................. 800 N/A 350 350 850 650
Massachusetts ......................................... N/A 1250 350 350 850 650
Michigan ................................................... 650 N/A 350 350 850 650
Minnesota ................................................. 650 N/A 350 350 850 650
Mississippi ................................................ 550 N/A 350 350 850 650
Missouri .................................................... 650 N/A 350 350 850 650
Montana ................................................... 600 N/A 350 350 850 650
Nebraska .................................................. 600 850 350 350 850 650
Nevada ..................................................... 600 N/A 350 350 850 650
New Hampshire ....................................... 900 N/A 350 350 850 650
New Jersey .............................................. N/A 1300 350 350 850 650
New Mexico ............................................. N/A 900 350 350 850 650
New York—Western Counties 1 ............... N/A 1250 350 350 850 650
New York—Eastern Counties .................. N/A 1800 350 350 850 650
North Carolina .......................................... 550 N/A 350 350 850 650
North Dakota ............................................ N/A 900 350 350 850 650
Ohio .......................................................... N/A 1100 350 350 850 650
Oklahoma ................................................. N/A 900 350 350 850 650
Oregon ..................................................... 675 N/A 350 350 850 650
Pennsylvania ............................................ N/A 1250 350 350 850 650
Puerto Rico .............................................. N/A 1100 350 350 850 650
Rhode Island ............................................ 900 N/A 350 350 850 650
South Carolina ......................................... N/A 850 350 350 850 650
South Dakota ........................................... 650 850 350 350 850 650
Tennessee ............................................... 550 N/A 350 350 850 650
Texas ....................................................... 550 N/A 350 350 850 650
Utah .......................................................... 600 N/A 350 350 850 650
Vermont .................................................... N/A 950 350 350 850 650
Virginia ..................................................... 600 N/A 350 350 850 650
Virgin Islands ........................................... N/A 1100 350 350 850 650
Washington .............................................. 675 N/A 350 350 850 650
West Virginia ............................................ 550 N/A 350 350 850 650
Wisconsin ................................................. N/A 1100 350 350 850 650
Wyoming .................................................. 600 N/A 350 350 850 650
1 Western Counties of New York are: Allegany, Cattaraugus, Chautauqua, Erie, Genesee, Livingston, Monroe, Niagara, Ontario, Orleans, Steu-
ben, Wayne, Wyoming, and Yates. The remaining counties are in Eastern New York.
2 When a foreclosure is stopped due to circumstances beyond control of the holder or its attorney (including, but not limited to bankruptcy, VA-
requested delay, property damage, hazardous conditions, condemnation, natural disaster, property seizure, or relief under the Servicemembers
Civil Relief Act) and then restarted, VA will allow the restart fee in addition to the base foreclosure attorney fee.
3 For each additional relief of stay under either chapter, VA will pay $250.
Comment: VA should publish a single (RLC) level in order to be updated as national schedule of fees when this can
national reimbursable fee schedule so quickly as possible when local changes be accomplished in a timely manner.
that servicers will be able to accurately occur, so that holders may be
calculate total indebtedness. VA should 36.4815 Loan Modifications
reimbursed for actual expenses as they
provide at least 30 days advance notice occur, rather than experiencing a lag Comment: VA should not require
of changes in fees to allow for system time. The current schedules provide the holders to reduce the interest rate on a
updates and procedural modifications. local fees and expenses and we believe loan modification where market interest
VA Response: VA does not concur at that this data should continue to be rates have decreased since the date of
this time because this information is provided at the local level. However, loan origination.
maintained at the Regional Loan Center VA will initiate plans to post such a
VA Response: VA does not concur, qualify for resecuritization. Under the Comment: VA should make provision
but is changing the new final rule in existing § 36.4314, the amount of the for other expenses of modification not
§ 36.4815 in an effort to make it easier guaranty does not increase upon loan being rolled into the new loan.
for servicers to administer. The existing modification, which means that the VA Response: VA concurs. The
VA regulation dealing with loan percentage of guaranty, in effect, will existing § 36.4314 makes no provision
modifications (§ 36.4314) allows no decrease if the modified loan amount is for inclusion of any expenses in the
change to the interest rate on the loan. greater than the original loan amount. modified loan amount. The proposed
In fact, another regulation (§ 36.4311(c)) This is important because all VA- rule provided that only certain items
specifically states that interest in excess guaranteed loans greater than $144,000 could be included in the modified
of the rate reported by the lender when at origination have a maximum 25% indebtedness. VA carefully reviewed the
requesting evidence of guaranty shall guaranty, and the average new loan is comments on this subject and is
not be payable. The vast majority of VA- often well above that amount. Under the clarifying § 36.4815(e) so that it
guaranteed loans are securitized in existing § 36.4314 any such loan being addresses all possible expenses of
GNMA (Government National Mortgage modified would retain the same amount modification. In addition to allowing
Association) insured pools, which of guaranty, and thus have an effective holders to include unpaid principal,
require the holder to purchase the loan percentage of guaranty less than 25% accrued interest, and deficits in the
from the pool in order to modify the whenever the modified loan amount is taxes and insurance impound accounts
loan. The proposed change recognized greater than the original loan amount. in the modified indebtedness, holders
the difficulty faced by loan servicers in This final rule in § 36.4815(h) (due to will also be allowed to capitalize
attempting to resecuritize loans with minor realignment of the section advances required to preserve their lien
interest rates well below the market paragraphs) allows the guaranty amount position, such as homeowner
average, and thus allowed for increasing on the modified loan to increase up to association fees, special assessments,
interest rates on modifications when 25% of the modified loan amount, water and sewer liens, etc. By limiting
market conditions dictate. However, VA subject to the maximum amount of the items that may be included in the
also believes it is only fair to veterans guaranty allowable under the law. This modified loan indebtedness, VA is
to similarly reduce interest rates when should be sufficient to allow repooling attempting to protect both the interests
market rates have decreased since loan in a new GNMA-insured security, and of the Government and the veteran
origination. The impact of reduced provide adequate risk sharing for the borrower by keeping the potential loan-
interest rates would be similar to the modified loan among VA, the holder, to-value (LTV) ratio as low as possible,
effect of other creditworthy borrowers and GNMA. Therefore, no further while recognizing that it may often
refinancing at lower interest rates, and revision is necessary, other than exceed 100%. In a case where
should not adversely affect VA lenders. conforming language in §§ 36.4802(h) modification is determined to be the
Therefore, VA is not departing from and 36.4824(a). best alternative early in the course of a
requiring an interest rate reduction Comment: VA should not require the default, there will be little else in the
where market interest rates have same underwriting standards for loan way of other fees and expenses that
decreased since loan origination. VA is, modifications as those used at loan need to be paid. In such a case the
however, removing the one percent cap origination. borrower should be able to handle those
on interest rate increases that had been VA Response: VA does not concur. other costs as a demonstration of
contained in the proposed rule so that VA’s existing § 36.4314(a) governing creditworthiness, and after including
modifications will become a more loan modifications requires that the the expenses allowed by the new final
widely used tool to help veterans retain holder determine that the borrower is a rule in the modified loan amount, the
their homes. VA is also slightly satisfactory credit risk, and the resulting LTV ratio may not be
modifying the language that had been in proposed rule did the same by significantly different than at loan
paragraph (c) of the proposed rule in referencing the criteria in § 36.4337. In origination. If a default has continued
§ 36.4314 to make adjustments easier, by establishing that the veteran is a for quite some time before modification
allowing the maximum interest rate to satisfactory credit risk, there must be an is deemed feasible, then it is likely that
be based on a month-end rate, rather analysis of the veteran’s income and the additional fees and costs may have
than requiring a daily adjustment as the obligations, as well as a review of the accrued to a sum equal to one or more
proposed rule had provided. Therefore, credit history. The proposed rule monthly mortgage payments. VA never
§ 36.4812(c) is changed to allow a higher specifically addressed the issue of credit envisioned that such fees and costs
interest rate on a modified loan. The history with respect to the event(s) that would be forgiven by the loan holder.
final rule in § 36.4815 is changed as led to the need for loan modification, Because the modification process
described above to remove the one and the criteria in § 36.4337 provide for involves some period when regular
percent cap on increases and to clarify the acknowledgement of compensating payments are not made on the loan, the
the date to be used in establishing the factors to address issues that might borrower should be able to accumulate
new maximum interest rate allowable otherwise preclude the extension of funds to cover the fees and costs
on a modified loan. credit. VA therefore believes the accrued during the default, rather than
Comment: VA should increase the proposed regulation was sufficiently having them rolled into the modified
guaranty on a modified loan to match flexible to accommodate the assessment loan indebtedness. This is similar to the
the percentage guaranteed at loan of the creditworthiness of borrowers HUD requirements for modifications. As
origination, rather than only allowing an who seek to modify their loans, and no for any costs associated with processing
increase in the amount of guaranty if it changes are necessary in the final the modification, VA expects that the
would otherwise provide less than 25% § 36.4815(a). A specific comment incentives paid for successful
guaranty of the modified loan amount. requested that the use of ‘‘in-file’’ credit modifications will offset such expenses,
VA Response: VA does not concur. reports be allowed to reduce costs, and and VA will not allow any processing
The proposal in § 36.4314(g) to increase VA agrees this will be in accordance costs to be charged to the borrower as
the guaranty on a modified loan to 25% with the way its underwriting criteria stated in the final § 36.4815(f).
of the loan amount was another effort to have been interpreted in order to Comment: VA should not require that
help modified VA-guaranteed loans expedite processing. all current owners occupy the property
and should pay for a title insurance However, to the extent that the 36.4817 Servicer Reporting
policy covering the modified loan. comment requests unlimited Requirements
VA Response: VA agrees that modifications without VA review, VA Comment: VA should review its need
occupancy should not be a requirement does not concur because VA has a for the requested data, should reduce
because the basic program requirements responsibility to ensure that loan the number of reportable items, and
do not require continued occupancy in modifications are fair to the borrower, should eliminate the expedited, event-
order for the guaranty to remain in effect and to protect the interests of the specific reporting.
(i.e., at some point a veteran borrower Government. The final rule in § 36.4815 VA Response: VA concurs for the
may move from the home securing the provides sufficient flexibility to address most part. VA has carefully reviewed
VA-guaranteed loan, but that does not almost all situations that may arise. the report timing and the required items
invalidate the guaranty). Hence, Although the rule cannot address every in the proposed rule in § 36.4315a in
§ 36.4815(a) will not require that all possible circumstance, it does light of industry comments,
current owners occupy the property. adequately provide for loss mitigation consultation with information
As for title insurance policies, by authorizing holders in advance to technology specialists, and review of the
existing VA regulation § 36.4828(b) does modify the vast majority of loans, while goals and operating procedures in VA’s
require that holders obtain and retain a allowing holders to seek direct approval new loan servicing environment, as well
lien of proper dignity against the from VA for unusual cases that do not as the reporting requirements of HUD,
security property, and title insurance is fit the general criteria described in the Fannie Mae, and Freddie Mac. In
often used at loan origination to satisfy regulation. conducting this review, VA identified
this requirement. If a holder decides to In order to avoid any and retained only those items for
require title insurance in connection misunderstandings about the reporting that VA determined absolutely
with a loan modification to ensure its authorizations granted, the final rule is necessary to conduct proper oversight of
lien status, then VA would not object to modified by adding paragraph (j), which servicer actions. That oversight must
a reasonable expense to the buyer for advises that the authority contained in include review of servicer actions that
this service. Since in most cases a title § 36.4815 does not create a right of a are being newly delegated by VA,
insurance policy was obtained at loan borrower to have a loan modified but servicer actions that were previously
origination, any insurance obtained at simply authorizes the loan holder to reviewed by VA utilizing extensive
modification would only need to cover modify a loan in certain situations paper reports provided by servicers, and
the period from loan origination to the without the prior approval of the servicer actions that in the past were
date of modification, and it is expected Secretary. This is in keeping with past reviewed only upon submission of
that the cost for a title endorsement, or VA policy and court decisions over the various documentation from servicers.
other form of insurance ‘‘update,’’ years that have found that VA’s Providing this information
would be considerably less than the refunding program (§ 36.4820) is not a electronically should greatly reduce the
amount paid at loan origination. The veteran’s benefit, but rather an time required for interaction between
final rule in § 36.4815(f) slightly revises administrative option established by the VA and servicers via telephone and
the proposed rule to provide this regulation to enable VA to assist a written communications that occurs
clarification. veteran when VA makes the under the present operating procedures.
Comment: VA should not require that determination that the option is VA has determined that a number of
all current owners agree to the appropriate. items (including escrow disbursements
modification. Comment: VA should include the and legal actions other than
VA Response: VA does not concur. words ‘‘or default is imminent’’ in § 36. terminations) will not be included in
VA is retaining the provision in the new 4815(a)(1). the list of what must be reported to VA.
final rule in § 36.4815(a)(5) that all VA Response: VA does not concur. We discuss these items later in this
current owners must be obligated on the The proposed rule in § 36.4314(a) document, responding to specific
loan and participate in any included those words and the second comments. In addition, remaining items
modification, because it would not be supplemental notice proposed deleting for loans not in default may all be
fair to allow a change in the terms of a them. As stated in the second reported on a monthly basis (i.e., no
loan secured by a property without first supplemental notice, because VA is later than the seventh calendar day of
notifying all parties with an ownership proposing a hierarchy of loss mitigation the month following the month in
interest in that property and obtaining options for consideration within the which the event occurred), while most
their agreement to the change. If a new regulatory package, it would not be of the items related to loan defaults will
holder encounters unusual appropriate for a holder to consider also be required on a monthly basis,
circumstances that lead it to believe a modification of a loan until after first rather than within five business days of
modification not meeting the considering a repayment plan or a an event. VA is changing these events
requirements in § 36.4815(a)(1)–(6) period of forbearance in order to allow and most of the remaining events that
would be beneficial to a veteran, then loan reinstatement. Therefore, it would must be reported expeditiously to
the case may be submitted to VA for not normally be feasible for a holder to require reporting within 7 calendar
prior approval. consider modification of a loan where days, rather than 5 business days
Comment: VA should not restrict the default is only imminent, because that because most tracking systems are not
number of times that a loan may be would not allow for prior consideration equipped to calculate business days, but
modified because other agencies/ of a repayment plan or a period of can easily handle computation of
investors have no such limits. forbearance. However, if an unusual calendar days.
VA Response: Under § 36.4314, we circumstance arises, a holder may seek As suggested by the comments, one
permit three modifications to any one direct approval from VA for approval of item previously proposed to be reported
loan without prior VA approval, but a case that does not fit the general on all loans, bankruptcy filing
also may allow unlimited modifications criteria. Therefore, the final rule in information, will only be required on
with prior VA approval. To that extent, § 36.4815(a)(1) will remain as proposed loans reported in default. Only events
we agree with the comment. in the second supplemental notice. denoting significant action on loans
reported in default (such as referral to reported data to calculate its own to VA. This should also significantly
an attorney to initiate foreclosure, estimate of equity and take appropriate reduce the cost of changes. There will
establishment of a liquidation sale date, action to ensure that veterans receive be a few additional data fields that most
advice that a sale has been held, etc.) every reasonable opportunity to salvage servicing systems will need to add over
will still need to be reported within that equity prior to loss through time, and VA realizes that there will be
seven calendar days of the event. As in foreclosure. Therefore, there is no some expenses to accomplish this, but
the past, holders will need to notify VA requirement in the final rule to calculate the result will be data that is available
within 15 calendar days of a liquidation or report substantial equity. electronically rather than manually.
sale when they desire to convey a Comment: VA should consider using While there may be some
property to VA. the HUD Single Family Default programming costs incurred by servicers
An example of one item that was in Monitoring System (SFDMS) file layout due to the additional reporting
the proposed rule § 36.4315a(c)(2) with for reporting information, rather than requirements in § 36.4817, VA expects
a five business day reporting requesting data that may not presently that servicers will benefit in a number
requirement was information on be available in many loan servicing of ways. First, with the change to
assumption of a VA-guaranteed loan. systems. electronic reporting, servicers will
Existing rule § 36.4303 presently VA Response: VA considered this greatly reduce their monthly expenses
requires reporting of information on possibility, but decided it was not of reporting defaults and loan status
approved assumptions and feasible. As VA began developing the updates via paper forms to VA, as well
unauthorized transfers of ownership. computer system that it will use to as reducing the time required by their
The first supplemental notice, which receive data from servicers, VA obtained employees to respond to written and
provided more detail on the specific considerable information about HUD’s telephone inquiries from VA. Second,
events to be reported, required file layout and other systems from a the additional data required is for
electronic reporting of transfer of leading provider of loan accounting and purposes of VA oversight, but that data
ownership (i.e., an authorized default tracking services, which is should be of considerable value to
assumption) and unauthorized transfer subcontracted to the contractor servicers in tracking their internal
of ownership. In light of the comments, developing VA’s system. As that servicing performance (for example,
VA is not, under § 36.4817(c), requiring development continued, it was clear providing greater control over insoluble
electronic reporting of unauthorized that the information VA needs to defaults and ensuring faster referral for
transfer of ownership, but is requiring monitor servicer activities that have termination, allowing closer review of
electronic reporting of authorized been delegated will require more details payment plans to monitor performance,
transfer of ownership, which will be than those obtained by HUD’s SFDMS. etc.). Third, having the data available
renamed accordingly. The final rule in This is due to different processes used electronically should eliminate many
§ 36.4803(l)(2) continues to require the by the agencies in conducting oversight, manual processes that are much more
holder to notify VA within 60 days of as well as making payments for costly. VA expects there will be many
learning of an unauthorized transfer, as incentives, acquisitions, and claims. VA more areas in which servicers will
in the existing § 36.4303(l)(2). has found that almost all of the data benefit from the availability of this new
Comment: Information on the fields it is still seeking presently exist in data.
Servicemembers Civil Relief Act should most servicing systems. VA worked VA is well aware that considerable
only be required if that is a reason for collaboratively with the providers of the lead time is needed in order to change
delay of a foreclosure sale. most widely utilized loan servicing loan servicing systems to capture
VA Response: VA concurs with systems, and continued to reduce its additional data. VA has worked with its
deleting the requirement to report this data requirements as much as possible, contractor and subcontractor to develop
event. If the event causes delay in loan in order to develop the easiest file a phased approach to implementation of
termination, then information about it layout and method of transmission for its new, computer-based tracking
may be reported as part of the claim reporting. That layout has been posted system, the VA Loan Electronic
event reporting. on VA’s public Web site. Therefore, VA Reporting Interface (VALERI). VA will
Comment: VA should allow reporting expects that the industry will be able to implement VALERI over an
of multiple events occurring on a single easily comply with its remaining approximately 11-month timeframe,
loan during a monthly reporting period. reporting requirements in § 36.4817. with program participants grouped into
VA Response: VA agrees with this Comment: VA should consider the nine segments that will ‘‘go live’’ on
comment and the file reporting format potential cost to servicers of the VA’s new system during designated
will allow for multiple events to be additional reporting requirements, the phases of implementation. Each phase
reported on each loan. time needed to implement those of implementation will incorporate time
Comment: The requirement to report changes, and the security risks of for data clean-up, system modifications,
substantial equity (25% or more) will transmitting additional information. defect corrections, testing of interfaces
necessitate a special title search and VA Response: VA has carefully and data transmission, and review of
should be deleted, as it could require considered all of those issues in lessons learned before initiating the next
servicers to upgrade their systems to developing its final reporting rule in phase. VA is also developing a Web
load junior lien information and to § 36.4817. portal to allow manual input of
calculate the equity. VA recognizes that few changes can information that is not yet contained in
VA Response: VA concurs with be made without some costs. However, major loan servicing systems, and for
deleting this requirement. VA proposed by using a fixed width flat file layout, smaller servicers who may not utilize
this requirement in § 36.4315a(f) in VA is utilizing the simplest format servicing system providers, although the
order to ensure review of cases where currently available for reporting data. ultimate goal is automated file transfers
substantial equity could exist. However, Moreover, VA has developed a of all information.
after reviewing the other data requested methodology to reduce the amount of Data security is of the utmost
and the computing capabilities offered computations required by most loan importance to VA. Servicer suggestions
by its new computer system, VA servicing platforms when extracting to delete requests for sensitive
decided it can instead use the other data from their systems to report events information, such as Social Security
Numbers (SSNs), have been honored as rating servicer performance during the borrower financial information to
much as possible. VA will not request first year of the new program, it would determine the likelihood of loan
SSNs as part of the basic monthly not be fair to attempt to determine reinstatement. Therefore, the incentives
reporting as originally proposed. which servicers should be paid at the authorized under this section are in
Instead, the only request for SSNs will Tier I or any other level, other than the recognition of basic concepts customary
be when servicers report them for new initial Tier II rating for all servicers. in the loan servicing industry, and do
loan assumers. Those SSNs and all other While VA has had the SLMP in not impose any new requirements or
data will be encrypted during operation for many years, that program take away any substantive rights of
transmission, appropriate protocols will has not attempted to measure specific program participants. However, paying
be established with each servicer and its performance in a manner similar to the an incentive simply for executing a
loan servicing system (or provider) to proposed Servicer Tier Ranking system, repayment or forbearance agreement
ensure secure transmissions, and access and the SLMP has only allowed two loss would not serve as a true incentive for
to the data at VA and its contractors will mitigation alternatives, and not the developing a plan that is likely to
be limited to authorized users. three home retention alternatives in the succeed, but could instead encourage
new program. Accordingly, it would not plans where success is improbable.
36.4818 Servicer Tier Rankings—
be fair to grant SLMP participants a Therefore, VA will not revise its
Temporary Procedures
higher tier ranking until the criteria for program to make an incentive payable
Comment: In developing its tier performance have been established. In upon execution of a loss-mitigation
rankings, VA should consider a any event, the proposed incentive alternative and the new final rules in
methodology that is publicly payments for Tier II compare favorably §§ 36.4819 and 36.4822(e) and (f)
disseminated and can easily be to what VA allowed under SLMP, and (adjusted from (f) and (g)) remain
determined by servicers based on have been adjusted slightly to account generally as proposed. In order to clarify
information available to them. VA for the time elapsed since the initial VA’s intended use of the options and
should also incorporate some allowance publication of the proposed amounts, as alternatives, they are listed in
for the purchase of delinquent loans well as changes by other agencies § 36.4819(b) from top to bottom in their
from other servicers. during that time. Therefore, the final preferred order of consideration (i.e., a
VA Response: VA concurs to an rule in § 36.4818 remains as proposed. hierarchy for review), but VA recognizes
extent. In our development of a
36.4819 Servicer Loss Mitigation that individual circumstances may
proposed rule to implement the tier
Options and Incentives occasionally lead to ‘‘out of the
ranking system, we will consider the
ordinary’’ considerations.
negative impact of the purchase of Comment: VA should simply adopt
delinquent loans from other servicers. In Comment: VA should provide a
HUD (Department of Housing and Urban
the preamble to this proposed rule, VA Development) loss mitigation partial claim loss mitigation benefit
indicated an intent to model its tier procedures, fees, and reimbursement similar to that offered by HUD.
ranking system after that used by the schedules, including incentive payment VA Response: VA does not concur.
Federal Home Loan Mortgage upon execution of a repayment plan, Under the HUD Partial Claim option, a
Corporation (FHLMC), also known as rather than waiting for final or partial mortgagee will advance funds on behalf
Freddie Mac. After VA has collected completion of the plan to pay for the of a mortgagor in an amount necessary
data under its new reporting additional work required in analyzing to reinstate a delinquent loan (not to
requirements for six months, VA data and establishing a plan. exceed the equivalent of 12 months
intends to review the data and develop VA Response: VA does not concur. PITI). The mortgagor will execute a
the criteria for ranking servicers. Those VA carefully considered loss mitigation promissory note and subordinate
criteria will then be published in the programs developed by HUD, Fannie mortgage payable to HUD. Currently,
Federal Register for notice and Mae, Freddie Mac, and private mortgage these promissory or ‘‘Partial Claim’’
comment. Whether the final rule that insurers as part of its BPR project. notes assess no interest and are not due
implements the tier ranking system is Although most had attractive features, and payable until the mortgagor either
similar to the Freddie Mac model will no one program by itself addressed all pays off the first mortgage or no longer
depend upon the data we collect and the issues of loss mitigation in the owns the property.
the comments we receive. VA expects manner VA felt was necessary to ensure The issue of a similar VA partial
that the computer system for collecting proper assistance to veterans, while also claim program has been discussed for
data will be operational in 2008, and rewarding loan servicers in an many years within Congress and at VA.
proposed rules for tier ranking will be appropriate fashion for success in However, Congress has not specifically
published in calendar year 2009. mitigating potential losses. authorized VA to develop such a
Accordingly, the final rule in § 36.4818 As for the comment suggesting that program. As explained above, partial
remains as proposed. incentives be paid upon execution of a claim payments are actually payments
Comment: VA should consider paying repayment plan or special forbearance on behalf of homeowners to their loan
incentives at higher than the Tier II agreement because of the work involved holders, but VA has no authorization to
ranking during the first year, either due in developing the plan, VA believes this make direct loans to borrowers to cover
to some assessment of higher is part of the normal activity of servicing their delinquent payments, so a partial
performance, or else based on a a delinquent loan in order to determine claim program is not feasible. Instead,
servicer’s participation in VA’s current whether it may be reinstated or whether VA believes that by encouraging holders
Server Loss Mitigation Program (SLMP). the default is insoluble. While one to consider extended repayment plans
VA Response: VA does not concur. comment was that loss mitigation efforts or even loan modifications, borrowers
The proposed rule § 36.4316(a) provided have historically been considered should receive the assistance necessary
for four levels of tier rankings of extraordinary servicing activity, VA to retain ownership of their homes.
servicers, with all servicers in Tier II for believes that any servicer interested in Therefore, VA does not concur that a
the initial ranking period as of the properly managing its portfolio (and partial claim program should be
effective date of this rule. Because VA ensuring future servicing income) will instituted in the new final rule in
will have no published methodology for exert reasonable efforts to obtain § 36.4819.
36.4820 Refunding of Loans in Default conform to the liquidation title package supporting documents will not be
requirements. submitted with the claim under
Comment: VA should establish a VA Response: VA does not concur. guaranty, but are subject to inspection
process to extend the deadline to allow The proposed rule § 36.4318 required as provided in § 36.4833. The final rule
for recording of documents. provision of all legal documents § 36.4821 remains as proposed.
VA Response: VA does not concur. required to evidence proper loan
VA proposed in § 36.4318(c) to establish 36.4822 Loan Termination
transfer. Refunding of a loan is simply
a deadline for submission of title an assignment, rather than a liquidation, Comment: VA should adjust the
documents on refunded loans, and to and therefore does not involve timeframes for foreclosure and also
allow VA to impose a penalty for documents establishing ownership of a establish automatic extensions for many
continued failure to comply with that property. Accordingly, the title different types of delays.
deadline. VA must retain the option to document requirements for refunding VA Response: VA has reviewed all of
take appropriate action when a holder review and conveyance of properties the individual State timeframes for
has demonstrated a continued pattern of must be different. The final rule foreclosure in the proposed rule
non-compliance with VA requests for § 36.4820(c) remains as proposed. § 36.4319a(a), has taken into
timely delivery of documents that consideration the specific information
should be readily available, given the 36.4821 Service of Process provided in the comments on the
routine nature of loan transfers within Comment: VA should define processes, and is adjusting the
the industry. VA has slightly modified ‘‘procedural papers’’ in more detail—for timeframes in the final rule. In addition,
the language to clarify that in example, does this include pleadings, VA is slightly revising the final
accordance with the general rule, as claim back up, etc.? § 36.4814(f)(2) and § 36.4824(a)(3)(ii),
applied throughout VA’s regulations, VA Response: VA does not concur. which describe the calculation of the
notice to VA is deemed to be effective The existing rule § 36.4319(a) requires maximum interest payable on a
as of the date that VA receives such that all ‘‘procedural papers’’ be foreclosure, so that the calculation of
notice; notice from VA to others is provided to VA whenever a loan holder the date to which interest will be paid
deemed effective as of the date that VA institutes suit or otherwise becomes a shall include 210 calendar days from
sends or transmits such notice. If a party in any legal or equitable the due date of the last paid installment,
holder encounters an occasional delay proceeding brought on or in connection in addition to the State calendar day
due to failure by a former servicer to with the guaranteed or insured loan timeframe for foreclosure. This is in
adequately document a servicing indebtedness, or involving title to, or response to comments requesting
transfer, for example, then VA does not other lien on, the security. The final rule additional time for loss mitigation
expect to take the action authorized by § 36.4821(a) requires only that VA and efforts. It equates to the present
the proposed rule in § 36.4318(c). On the United States Attorney be provided guideline used by VA in establishing
the other hand, if a servicer routinely with process when the Secretary of interest cutoffs, in that it allows 180
fails to properly perform its duties on Veterans Affairs is actually named as a days from the date of last paid
behalf of the holder and consistently party to a legal action, which is installment (which is typically the time
fails to timely provide documents that effectively the definition of ‘‘procedural that VA requests initiation to terminate
should be readily available, and if the papers’’ that must be delivered to VA. a loan), plus 30 days (which reflects the
servicer fails to correct its practices after VA has no specific requirement for the time allowed for initiation of such
VA provides notice, then the final rule retention of pleadings or other actions action under the existing § 36.4319(f)),
in § 36.4820(c) enables VA to focus the in the normal course of a loan plus the actual time to complete
attention of the servicer to its problems termination, although the final rule in foreclosure. The timeframes will be
by temporarily withholding all § 36.4833 requires the holder to reviewed as appropriate and changes
payments until the specific deficiencies maintain a record of the amounts published in the Federal Register, and
cited by VA have been resolved. received on the obligation and maintained throughout the year on a
Therefore, the ‘‘process’’ proposed by disbursements chargeable thereto and Web site under VA’s control, such as at
the comment is not necessary and the the dates thereof, including copies of http://www.homeloans.va.gov. The
final rule in § 36.4820 remains as bills and receipts for such timeframes have been revised to reflect
proposed. disbursements. This is the type of that the timeframes are in calendar days.
Comment: VA should make the title ‘‘claim backup’’ referenced in The timeframes effective as of the date
document requirements for refunding § 36.4824(d)(5), which provides that of this rule are as follows:
Time frame
Jurisdiction Procedure Final event (calendar
days)
Alabama ................................................... Non-Judicial ............................................. Sale ......................................................... 60

Alaska ...................................................... Non-Judicial ............................................. Sale ......................................................... 120
Arizona ..................................................... Non-Judicial ............................................. Sale ......................................................... 120
Arkansas .................................................. Non-Judicial ............................................. Sale ......................................................... 90
California .................................................. Non-Judicial ............................................. Sale ......................................................... 150
Colorado .................................................. Non-Judicial ............................................. Sale ......................................................... 150
Connecticut .............................................. Judicial ..................................................... Sale (Vesting Date) ................................. 180
Delaware .................................................. Judicial ..................................................... Confirmation/Ratification ......................... 240
District of Columbia ................................. Non-Judicial ............................................. Sale ......................................................... 60
Florida ...................................................... Judicial ..................................................... Confirmation/Ratification ......................... 150

Georgia .................................................... Non-Judicial ............................................. Sale ......................................................... 90
Guam ....................................................... Non-Judicial ............................................. Sale ......................................................... 180
Hawaii ...................................................... Judicial ..................................................... Confirmation ............................................ 240
Idaho ........................................................ Non-Judicial ............................................. Sale ......................................................... 180
Time frame
Jurisdiction Procedure Final event (calendar
days)
Illinois ....................................................... Judicial ..................................................... Sale ......................................................... 300

Indiana ..................................................... Judicial ..................................................... Sale ......................................................... 270
Iowa ......................................................... Judicial ..................................................... Sale ......................................................... 180
Non-Judicial ............................................. Sale (Filing of Affidavit) ........................... 60
Kansas ..................................................... Judicial ..................................................... Sale ......................................................... 150
Kentucky .................................................. Judicial ..................................................... Confirmation ............................................ 150
Louisiana ................................................. Judicial ..................................................... Sale ......................................................... 180
Maine ....................................................... Judicial ..................................................... Sale ......................................................... 300
Maryland .................................................. Non-Judicial ............................................. Ratification Date ...................................... 90
Massachusetts ......................................... Judicial Order .......................................... Sale ......................................................... 180
Michigan .................................................. Non-Judicial ............................................. Sale ......................................................... 90
Minnesota ................................................ Non-Judicial ............................................. Sale ......................................................... 90
Mississippi ............................................... Non-Judicial ............................................. Sale ......................................................... 90
Missouri ................................................... Non-Judicial ............................................. Sale ......................................................... 60
Montana ................................................... Non-Judicial ............................................. Sale ......................................................... 150
Nebraska ................................................. Judicial ..................................................... Confirmation ............................................ 180
Non-Judicial ............................................. Sale ......................................................... 120
Nevada .................................................... Non-Judicial ............................................. Sale ......................................................... 150
New Hampshire ....................................... Non-Judicial ............................................. Sale ......................................................... 90
New Jersey .............................................. Judicial ..................................................... Sale ......................................................... 300
New Mexico ............................................. Judicial ..................................................... Confirmation ............................................ 180
New York—Western Counties 1 .............. Judicial ..................................................... Sale ......................................................... 240
New York—Eastern Counties .................. Judicial ..................................................... Sale ......................................................... 270
North Carolina ......................................... Non-Judicial ............................................. Sale ......................................................... 120
North Dakota ........................................... Judicial ..................................................... Sale ......................................................... 240
Ohio ......................................................... Judicial ..................................................... Confirmation ............................................ 360
Oklahoma ................................................ Judicial ..................................................... Confirmation ............................................ 210
Oregon ..................................................... Non-Judicial ............................................. Sale ......................................................... 150
Pennsylvania ........................................... Judicial ..................................................... Sale ......................................................... 270
Puerto Rico .............................................. Judicial ..................................................... Confirmation ............................................ 450
Rhode Island ........................................... Non-Judicial ............................................. Sale ......................................................... 90
South Carolina ......................................... Judicial ..................................................... Sale ......................................................... 180
South Dakota ........................................... Judicial ..................................................... Sale ......................................................... 150
Non-Judicial ............................................. Sale ......................................................... 90
Tennessee ............................................... Non-Judicial ............................................. Sale ......................................................... 60
Texas ....................................................... Non-Judicial ............................................. Sale ......................................................... 90
Utah ......................................................... Non-Judicial ............................................. Sale ......................................................... 150
Vermont ................................................... Judicial ..................................................... Sale ......................................................... 300
Virginia ..................................................... Non-Judicial ............................................. Sale ......................................................... 60
Virgin Islands ........................................... Judicial ..................................................... Sale ......................................................... 540
Washington .............................................. Non-Judicial ............................................. Sale ......................................................... 150
West Virginia ........................................... Non-Judicial ............................................. Sale ......................................................... 60
Wisconsin ................................................ Judicial—Abandoned ............................... Confirmation ............................................ 210
Judicial—Tenant Occupied ..................... Confirmation ............................................ 240
Judicial—Owner Occupied ...................... Confirmation ............................................ 330
Wyoming .................................................. Non-Judicial ............................................. Sale ......................................................... 90
1 Western Counties of New York are: Allegany, Cattaraugus, Chautauqua, Erie, Genesee, Livingston, Monroe, Niagara, Ontario, Orleans, Steu-
ben, Wayne, Wyoming, and Yates. The remaining counties are in Eastern New York.
As for automatic extensions of When VA receives notice of a discretion to treat such delays as
timeframes due to delays beyond the bankruptcy filing, the system should exceptions and then to allow the holder
control of the holder, VA has been automatically allow up to 180 calendar to justify charging additional interest if
developing its system to accomplish days to enable the servicer to obtain the delays extend completion of the
this, based on event updates provided relief from the bankruptcy. VA believes liquidation past the timeframe
by holders. In determining those events this should be sufficient for most single calculated under § 36.4824(a)(3). Given
that are beyond the control of the filings and may cover some multiple this discretionary authority, we do not
holder, VA considered the policy of bankruptcy cases. If more time is find it necessary to incorporate specific
HUD and the other comments provided. needed, the servicer can request rules as to infrequent events.
VA believes the largest factor causing approval from VA for additional time Furthermore, VA does not believe that
delays in foreclosures is the filing of due to delays caused by multiple additional interest should be payable for
bankruptcy petitions, and by receiving bankruptcy filings. delays that are generally within the
information on such actions as part of VA believes that many of the other control of the loan holder, such as title
the normal event reporting, VA will events mentioned in the comments as issues or missing documents that the
have on hand the information to beyond the control of the holder are holder should have resolved in the
very infrequent and do not require a normal course of business, rather than
automatically adjust the interest
process to automatically account for waiting until termination to seek
computation date when calculating the
those delays in claim calculation. First, resolution. However, we recognize that
claim payable under § 36.4824.
this final rule provides VA the some delays may require detailed
review and exchange of information to case of a compromise claim, VA’s procedural nature to allow for
establish whether they were beyond the requirement that the credit to the reasonable accommodations.
control of the holder. VA’s regulations indebtedness equals or exceeds the net Comment: VA should withdraw the
are flexible enough to allow for this. value of the property will generally proposal to require three year warranties
Comment: VA should eliminate the ensure cost savings as compared to when conveying property to VA, due to
requirement for a promissory note in foreclosure, but even in the rare case the additional burden this would place
connection with deeds-in-lieu of when this does not occur, the benefit to on servicers and foreclosure attorneys,
foreclosure and compromise sales. the veteran of avoiding foreclosure who would bear the cost of insuring title
VA Response: VA concurs. VA through a private sale of the home is to the property without receiving
reviewed the proposed rule, more than enough to justify acceptance adequate compensation.
§ 36.4319a(f)(v), (g)(vi), and (h), which of a compromise offer. The final rule in VA Response: VA concurs. VA’s goal
required a promissory note in § 36.4822 incorporates the changes in the proposed § 36.4320(c) was to
connection with certain deeds-in-lieu of discussed in this section along with standardize and reduce the
foreclosure and compromise sales, as those not changed from the proposed documentation required as evidence of
well as the comments concerning the rule. acceptable title on properties conveyed
additional work required in calculating to the Secretary. The comments received
whether a promissory note would be 36.4823 Election to Convey Security to the proposed rule provided
required, and the work necessary to Comment: VA should clarify the additional insight on many aspects of
actually obtain such a note. Because the procedures and implications of debt the present processes that were not
purpose in authorizing deeds and reductions used to ensure that a clearly evident to VA previously. For
compromise sales is to expedite the property is eligible for conveyance to example, in many jurisdictions VA was
processing of such alternatives, and VA. paying for title insurance policies, but
because VA has the authority in had little occasion to seek indemnity
VA Response: VA has revised the
§ 36.4826(e)(1) to approve a complete under those policies and believed that
applicable portions of the new final rule
release of the Secretary’s right to collect purchasing title policies was not cost
in § 36.4823 to clarify the procedures to
a debt related to payment of a claim effective. However, the comments
be followed to reduce debts in order to
under the loan guaranty, and the law disclosed that many title issues were
gain the right to convey to VA
governing the program provides in 38 resolved through the title examination
properties acquired at liquidation sales.
U.S.C. 3703(e) that the majority of required prior to issuance of the
Under the law (38 U.S.C. 3732(c)), if the
veterans will not be liable for such policies. Moreover, many attorneys
calculation by the holder shows that the
indebtedness following loan default, VA commented that the compensation
net value is less than the unguaranteed
has decided to automatically determine received for their participation in the
that the cooperation of the borrower in portion of the loan (i.e., the eligible sale of title insurance served to reduce
completing a deed-in-lieu of foreclosure indebtedness minus VA’s maximum the cost they charged for foreclosure
or a compromise sale is sufficient to claim payable under the guaranty), then services. It appears that if VA were to
justify VA waiver of collection of any the property may not be conveyed to eliminate title insurance as an option to
indebtedness. Accordingly, the final VA. VA has had a longstanding policy, establish acceptability of title on
version of § 36.4822 does not require the however, of allowing holders to bring properties conveyed to VA, foreclosure
holder to obtain a promissory note in such a conveyance into statutory attorney fees would increase and many
connection with a deed-in-lieu of compliance by ‘‘buying down’’ the debt title issues would not be discovered
foreclosure or a compromise sale. to a level where the unguaranteed until well after conveyance, which
VA has also removed the portion of indebtedness is less than the could cause considerable interruption in
requirements proposed in net value. In these situations, holders VA’s resale efforts. Accordingly, VA is
§§ 36.4319a(f)(iii) and 36.4319a(g)(iv) must waive any liability a veteran might withdrawing the proposed requirement
that the holder determine that the have otherwise with regard to the for a three year warranty, and will
estimated guaranty payment following a amount of indebtedness bought down. instead attempt to standardize
deed-in-lieu of foreclosure or This policy would have continued document requirements nationwide as
compromise would not exceed the under the proposal, but it would have much as possible, which in most cases
estimated payment if the loan been the holder, rather than VA, that will still include an owner’s title
proceeded to foreclosure. VA believes was responsible for calculating the buy- insurance policy issued after loan
there will almost always be cost savings down, if any, prior to a liquidation sale. termination in the name of the Secretary
associated with deeds-in-lieu of VA received a number of comments along with minimal other documents,
foreclosure and compromise sales, and expressing concern about the impact such as the state-specific foreclosure
therefore will not require the holder to that any miscalculation would have on document, the original deed of trust or
perform an additional calculation as the holder, the servicer, and the veteran, mortgage, special warranty deed from
part of the approval process. Cost and has therefore revised the final rule the holder to the Secretary, an original
savings will typically accrue from the in § 36.4823, so that a holder may wait or a copy of mortgagee’s title policy,
reduced cost of a deed versus a until after the liquidation sale to loan assignments, and appointment of
foreclosure action, the likelihood that determine the amount that must be substitute trustee. This information is
the borrower will be more cooperative bought down. To make sure the veteran maintained at the RLC level and will
in vacating a home after giving a deed is fully informed, the holder will be continue to be available in the same
instead of being foreclosed upon, and required to send the borrower notice no manner. Accordingly, the proposal to
the probability that the home will be in later than 15 calendar days after receipt change § 36.4320(c) to require a three
better condition after the borrower gives of VA’s guaranty claim payment that the year warranty on a conveyance is not
a deed and arranges an orderly transfer indebtedness in excess of the net value included in the new final rule § 36.4823.
of custody to the holder or VA’s agent, and VA’s claim payment has been Comment: VA should require and pay
rather than the property being waived. In addition, VA is revising the for a title insurance policy in
abandoned due to foreclosure and final rule in § 36.4838 to designate the connection with a deed-in-lieu of
subject to possible vandalism. In the conveyance as of an administrative or foreclosure.
VA Response: VA concurs. VA agrees and submit a claim within one year of for audits, as this will greatly increase
that requiring a title policy in the completion of the loan termination their costs.
connection with a deed-in-lieu of process, even if a redemption period VA Response: VA does not concur.
foreclosure is necessary and would exists in the particular jurisdiction. Servicers are presently required by VA
expedite the process of conveying a However, if there is some valid reason policy and the authority in § 36.4330 to
property to VA and the subsequent why an individual claim is not timely submit paper documentation with all
marketing of that property. Therefore, submitted, we will reserve the right to claims under the guaranty. That
VA is revising the final rule in pay a late claim. Accordingly, VA involves copying all documents related
§ 36.4823(c)(4) to provide § 36.4838(a)(3) includes the failure to to payments received on a loan,
reimbursement for a title policy when a timely file a claim as a provision of an disbursements chargeable thereto, and
property is subsequently conveyed to administrative or procedural nature that the dates thereof, including copies of
VA by deed-in-lieu of foreclosure. may be waived by an official named in bills and receipts for such
§ 36.4845. The final rules in § 36.4321(f) disbursements, which may require
36.4824 Guaranty Claims; Subsequent
and § 36.4824(d) retain the requirement conversion of electronic documents to
Accounting
to submit a claim within one year after paper form. VA proposed instead in
Comment: VA should incorporate in the liquidation sale. VA § 36.4335 is not § 36.4321(d) that servicers submit the
its rule that any errors found in post modified to include failure to timely file information in those documents in an
claim audits will not be extrapolated a claim as a provision of an electronic format when filing a claim,
over a servicer’s prior claim administrative or procedural nature while retaining the supporting
submissions in an effort to recover claim because all servicers will be under the documents in the event of a post-claim
payments that have not been actually new subpart F requirements in less than audit by VA. Post-claim audits by VA
identified. one year, so the need to grant relief will typically involve only a percentage
VA Response: VA does not concur, as under subpart B will not be necessary. sampling of submitted claims, so the
VA does not believe that such a
36.4828 Partial or Total Loss of number of cases for which
restrictive rule in § 36.4824 would be in
Guaranty or Insurance documentation will eventually be
the best interests of the taxpayers
submitted to VA will be greatly reduced.
supporting the VA home loan program. Comment: The proposed rules did not
Extrapolation is basically the practice of VA does not specify how servicers must
discuss any plans to implement retain documents in order to comply
reviewing a small sample of cases, penalties for late or faulty reporting.
determining an error rate, and then with this or any other regulatory and
VA Response: The ability to impose
applying that error rate across an entire statutory requirements, but will allow a
penalties already exists. Final rule
population of claims. While VA does reasonable period of time for access to
§ 36.4828, based on current § 36.4325,
not expect to routinely extrapolate in the documents upon request. The
allows VA to adjust claims to the extent
such a manner, this is a generally proposed requirement to submit
that any failure to comply with a
accepted tool of auditing that must be electronically only the documents on
regulation increases the ultimate
preserved. cases selected for post-audit should be
liability of the Secretary. Therefore, no
Before VA would reach the point of much less of a burden on servicers,
further provision is needed to establish
exercising this option, it would first because even if converting a document
VA’s right to impose a penalty when a
follow-up with a holder/servicer to to electronic format may be more costly
servicer’s failure causes increased
address errors that occurred on a routine than making a paper copy, the overall
liability to VA. The new final rule
basis, and would provide extensive reduction in the number of documents
§ 36.4828(b) is slightly different from
notice of errors discovered that might that must be submitted should result in
the existing § 36.4325(b) in order to
lead to the extrapolation of errors across lower costs. Therefore, VA finds no
improve its structure. In addition, while
all claim submissions. VA does not basis for changing the proposal in the
the proposed rule stated that in
expect that extrapolation will be applied final rule § 36.4833.
§ 36.4325 two citations (§ 36.4325(b)(5)
except in the most egregious cases. Comment: The proposed exception to
and (6)) would be deleted and replaced
Hence, we make no changes based on allow submission of paper documents
by one new citation for electronic
this comment. based on size of servicing portfolio is
reporting, in the final rule § 36.4828(b),
Comment: VA should not impose a confusing.
the one citation for electronic reporting
one-year deadline for filing claims, or (§ 36.4828(b)(4)) actually replaces what VA Response: VA concurs and has
should at least make the penalty more are three citations in the existing deleted this exception in the final rule
reasonable, because the penalty far § 36.4325(b)(4), (5) and (6). § 36.4833. The fast-paced growth in
outweighs the impact of late filing. In technology has resulted in its wider
addition, VA should wait until the end 36.4833 Maintenance of Records availability at ever decreasing costs, so
of any redemption period before starting Comment: Servicers should not be the requirement for electronic
the one-year deadline. required to submit audit documentation submission of documents to VA will not
VA Response: VA does not concur. to VA in a particular imaged format as create a significant burden for a servicer
The proposed rule § 36.4321(d) required a condition of doing business with VA. of any size.
submission of a claim under guaranty VA Response: VA concurs. VA did VA has also corrected erroneous dates
no later than one year after the not intend to require a specific imaging that appeared in the proposed
liquidation sale. To ensure accuracy in format, but inadvertently did so by § 36.4330(c). When the rule was being
the Federal budget process, VA needs to citing only three specific formats in the drafted it was hoped that it could be
know within a reasonable time that proposed rule. This has been changed in effective October 1, 2005, and that date
specific loans for particular cohort years the final § 36.4833 to provide that was intended to apply to both types of
have been terminated and that costs will required documents sent to VA documentation required, even though
be incurred. With the highly automated electronically be in .jpg, .gif, .pdf, or a the second date was shown as October
processes that are being implemented, similarly widely accepted format. 1, 2004. In the final § 36.4833 both dates
VA believes that holders should be able Comment: Servicers should not be are shown as the effective date of the
to ascertain all necessary information required to provide imaged documents new rule.
36.4836 [Reserved] employing enough qualified staff VA Response: VA concurs. Since the
The corresponding § 36.4333 titled appraisal reviewers to handle 95% of time of the proposed rule change to
‘‘Satisfaction of indebtedness’’ will not new appraisals, there should be no § 36.4346(i)(2), events such as Hurricane
be included in subpart F. This is shortage of reviewers available to Katrina have demonstrated the difficulty
because the new final § 36.4817(c)(1) handle the much lower volume of in mandating loan termination due to
liquidation appraisals. the appearance of the potential for
requires electronic reporting of loans
Servicers should have no concerns extraordinary waste. VA has even issued
paid in full, thereby obviating the need
about VA reconveying properties due to guidance to holders following Katrina to
for instructions on paper notification of value increases made by staff appraisal exercise additional caution before
payment in full. This § 36.4836 will be reviewers, as VA regulations do not deciding that a property in a major
shown as reserved for future use. provide for such a practice. As disaster area could be subject to
36.4838 Supplementary contained in the proposed rule, the final additional waste because of an apparent
Administrative Action rule in §§ 36.4344a(d) and 36.4848(d) lack of care, since many people were
does retain the right for VA to be displaced without the resources to
In response to several comments
indemnified for additional loss caused quickly return and attempt repairs to
about the need for discretion on the
by an increase in value made by the their homes. Therefore, VA is deleting
exercise of new authorities in the new
servicer that was unwarranted, or that part of the proposed rule that
subpart F, VA is including in the new
arbitrary and capricious. The final rule would have added ‘‘extraordinary waste
final § 36.4838 additional items of an in §§ 36.4344a(h) and 36.4848(h) also or hazard’’.
administrative or procedural nature, retains provisions to withdraw, for The first two sentences of the existing
including some which replace existing proper cause, authority of servicers to rule § 36.4346(i)(2) describe actions to
items in the corresponding section of determine reasonable values, such as be taken when a holder obtains
subpart B. determination of a pattern of appraisal information that ‘‘indicates’’ a property
36.4848 Servicer Appraisal Processing reviews being conducted in a careless or may be abandoned, and the proposed
Program negligent manner, especially after being rule change was primarily to conform
called to the servicer’s attention. Such reporting requirements to the proposed
Comment: Servicers expressed
withdrawal of authority would simply rule § 36.4315a. VA believes that while
concern about accepting the risk that
return servicers to the position of the term abandoned may be somewhat
VA might later determine that values waiting for VA staff appraisers to review subjective, there are obvious situations,
rendered by the Servicer Appraisal liquidation appraisals and establish such as when the borrower mails in the
Processing Program (SAPP) were too reasonable values, rather than being able keys and advises the holder that no
high and then adjust claims or even to more quickly establish fair market further payments will be made, in
reconvey properties. Servicers also value and determine the net value of the which a holder will have no doubt that
expressed concern that they would be property for liquidation purposes. the property is abandoned. The existing
unable to employ sufficient numbers of Accordingly, we make no changes based rule calls for action that should lead to
staff review appraisers, and instead on this comment. confirmation of whether or not a
want to rely only on values provided by property is actually abandoned. Thus,
VA-approved appraisers. 36.4850 Servicing Procedures for
the final rule in § 36.4850(i)(2) will
VA Response: VA believes that Holders
retain the mandate to report
servicers should not be concerned about Comment: VA should adjust the abandonment in accordance with
these matters. VA presently prescribes timeframe for reporting abandoned § 36.4817(c)(10) as a change in
uniform qualifications for appraisers in properties in relation to the date on occupancy status and initiate
accordance with 38 U.S.C. 3731. which inspections will be required. VA termination when abandonment has
However, that same section requires should also retain the 15-day reporting been confirmed.
review by VA of appraisal reports prior schedule rather than the proposed 5-day Comment: In changing the
to determining the reasonable value of rule. requirement for provision of an annual
a property that is the security for a VA- VA Response: VA concurs. In the statement for income tax purposes, VA
guaranteed loan. Public Law 100–198, proposed § 36.4346(i) VA intended should be consistent with Internal
enacted December 21, 1987, authorized simply to ensure prompt notice when a Revenue Service (IRS) requirements.
the Lender Appraisal Processing holder learns of an abandoned property, VA Response: VA concurs. It was
Program (LAPP), which enables VA to which could occur prior to verification VA’s intent in the proposed revision to
permit qualified lenders to review loan- through a required property inspection. § 36.4346(c) to change from 60 days to
origination appraisals, ensure adherence However, VA agrees that the majority of 30 days to achieve that consistency.
to VA-published minimum property notices about abandoned property will However, the comment pointed out that
requirements, and set the reasonable be the result of property inspections, IRS requires annual statements be sent
value of properties for purposes of which will not typically be received no later than January 31st of each year,
determining the maximum loan VA until a loan is at least 60 days so VA’s requirement of 30 days would
could guarantee. delinquent, and is therefore changing be different. Accordingly, the final rule
VA’s experience is that delegating the final rule accordingly. Reporting of § 36.4850(c) has been changed to require
appraisal reviews to lenders under the this event will fall under the provisions an annual statement be provided before
LAPP has worked well and often of the final rule in 38 CFR February 1st of each calendar year.
expedites the loan-origination process. 36.4817(c)(10), which will require
About 95% of all new appraisals are reporting no later than the 7th calendar 36.4979 Payment of Insurance
reviewed under LAPP. The number of day of the month following the month As with § 36.4809, this requires a
appraisals required for loan liquidation the occupancy status change was conforming amendment in the final
purposes is significantly lower than the verified. rule. The existing rule in § 36.4374
number related to new loan Comment: VA should reconsider the refers to a time period specified in
originations, amounting to about 15% of requirements related to abandonment § 36.4316, which is three months.
total appraisals reviewed. With lenders and extraordinary waste or hazard. Because reporting and processing of
defaults are handled differently in the therefore the 30-day delayed effective Unfunded Mandates
new rules in §§ 36.4800 through date would not affect any segment other The Unfunded Mandates Reform Act
36.4893, inclusive, there is not a similar than the first. VA is also prepared to of 1995 requires, at 2 U.S.C. 1532, that
waiting period specified in § 36.4818. accept electronic reporting upon agencies prepare an assessment of
Therefore, the final rule in § 36.4879 publication of the new rules, and anticipated costs and benefits before
will replace the reference to another veterans will begin to benefit from the issuing any rule that may result in an
section with the actual time frame of new rules as soon as they are effective. expenditure by State, local, and tribal
three months. There is a similar Any delays will be financially costly to governments, in the aggregate, or by the
situation with a reference in § 36.4374 the Government, both in terms of private sector, of $100 million or more
to reporting under § 36.4317, and in this additional contracting support required (adjusted annually for inflation) in any
case the final rule in § 36.4879 will refer until final implementation, and with given year. This final rule will have no
to the applicable reporting required by respect to the loss of savings expected such effect on State, local, and tribal
§§ 36.4817 and 36.4850. for the program under the new rules. governments, or on the private sector.
Restructuring of and Authority for Part The changing economic situation,
with increasing numbers of foreclosures Executive Order 12866
36
nationwide, also contributes to the need Executive Order 12866 directs
In order to make it easier to refer to for immediate implementation of the
the new §§ 36.4800 through 36.4893, agencies to assess all costs and benefits
new rules for several reasons. The new of available regulatory alternatives and,
inclusive, VA is designating those environment for servicing VA-
sections as subpart F of part 36. VA is when regulation is necessary, to select
guaranteed home loans created by these regulatory approaches that maximize
grouping other portions of part 36 into
rules will encourage earlier additional net benefits (including potential
appropriate subparts as shown in this
loss mitigation efforts by private economic, environmental, public health
notice. Also, to make it easier to identify
servicers in place of the present and safety, and other advantages;
the appropriate authority for each
Government outreach at later stages of distributive impacts; and equity). The
section of the new subpart F, VA is
loan default. These earlier efforts should Executive Order classifies a ‘‘significant
revising the citation for the authority of
result in more veterans being able to regulatory action,’’ requiring review by
part 36 to refer only to the general
reinstate delinquent loans and avoiding the Office of Management and Budget
authorities, and is including the specific
foreclosure. This will also result in (OMB) unless OMB waives such review,
appropriate authority for each section in
the new subpart F. fewer claims paid by VA, while the as any regulatory action that is likely to
claims actually paid will be less under result in a rule that may: (1) Have an
Administrative Procedures Act the new rules due to the standardized annual effect on the economy of $100
Pursuant to 5 U.S.C. 553(d)(3), we timeframes for completing termination million or more or adversely affect in a
find that there is good cause to dispense in those cases where it is unavoidable. material way the economy, a sector of
with the 30-day delayed effective date In addition, the increased legal fees for the economy, productivity, competition,
requirement. The public has received termination allowed under the new jobs, the environment, public health or
extensive knowledge of the changes rules will ensure that VA-guaranteed safety, or State, local, or tribal
effected by the new rules through the loans receive the same priority as those governments or communities; (2) create
initial publication of the proposed rules of other guarantors, insurers and a serious inconsistency or otherwise
and two supplemental notices of investors in the termination process, interfere with an action taken or
revisions to the initial proposals, and thereby avoiding the costs associated planned by another agency; (3)
VA has received advice that the public with undue delays. materially alter the budgetary impact of
is anxious for the new rules to be Due to the issues described above, it entitlements, grants, user fees, or loan
effective. is imperative that the new rules become programs or the rights and obligations of
One of the primary changes in the effective immediately upon publication. recipients thereof; or (4) raise novel
new rules is the implementation of Accordingly, there is good cause under legal or policy issues arising out of legal
electronic reporting of information on section 553(d)(3) to dispense with the mandates, the President’s priorities, or
VA-guaranteed home loans. Due to the 30-day delayed effective date the principles set forth in the Executive
extensive time required for information requirement. Order.
technology system changes, industry The economic, interagency,
Paperwork Reduction Act of 1995
participants in the VA home loan budgetary, legal, and policy
program initiated development work on This final rule contains provisions implications of this final rule have been
the system changes soon after the first that constitute collections of examined, and it has been determined
supplemental notice provided sufficient information under the Paperwork to be a significant regulatory action
details. The first industry segment Reduction Act (44 U.S.C. 3501–3521). In under Executive Order 12866.
under the planned phased the preamble of the proposed rule, we
implementation is prepared to begin described the information collections Regulatory Flexibility Act
operations under the proposed changes that would need OMB approval and The Secretary hereby certifies that
immediately upon publication of the provided a comment period. OMB has this final rule would not have a
new rules, and any delays in approved those proposed collections significant economic impact on a
implementation would create financial and has assigned control numbers 2900– substantial number of small entities as
burdens as they continue to operate 0021, 2900–0045, 2900–0112, 2900– they are defined in the Regulatory
under the old rules while maintaining 0362, and 2900–0381. OMB assigns Flexibility Act, 5 U.S.C. 601 et seq. The
additional system capability for control numbers to collections of vast majority of VA loans are serviced
operations under the new rules. information it approves. VA may not by very large financial companies. Only
Moreover, all other industry segments conduct or sponsor, and a person is not a handful of small entities service VA
will not be subject to these electronic required to respond to, a collection of loans and they service only a very small
reporting rules for more than 30 days information unless it displays a number of loans. This rule, which only
after these rules become effective, and currently valid OMB control number. impacts veterans, other individual
obligors with guaranteed loans, and § 36.4313 Advances and other charges. under the guaranty no later than 1 year
companies that service VA loans, will * * * * * after the completion of the liquidation
have very minor impact on a very small (b) * * * sale. For purposes of this section, the
number of small entities servicing such (5)(i) Fees for legal services actually liquidation sale will be considered
loans. Therefore, pursuant to 5 U.S.C. performed, not to exceed the reasonable completed when:
605(b), this rule is exempt from the and customary fees for such services in (A) The last act required under State
initial and final regulatory flexibility the State where the property is located, law is taken to make the liquidation sale
analysis requirements of sections 603 as determined by the Secretary. final, but excluding any redemption
and 604. (ii) In determining what constitutes period permitted under State law;
the reasonable and customary fees for (B) If a holder accepts a voluntary
Catalog of Federal Domestic Assistance conveyance of the property in lieu of
legal services, the Secretary shall review
The Catalog of Federal Domestic allowances for legal fees in connection foreclosure, the date of recordation of
Assistance program number and title for with the foreclosure of single-family the deed to the holder or the holder’s
this program is 64.114, Veterans housing loans, including bankruptcy- designee; or
Housing Guaranteed and Insured Loans. related services, issued by HUD, Fannie (C) In the case of a sale of the property
Mae, and Freddie Mac. The Secretary to a third party for an amount less than
List of Subjects in 38 CFR Part 36 is sufficient to repay the unpaid balance
will review such fees annually and, as
Condominiums, Handicapped, the Secretary deems necessary, publish on the loan where the holder has agreed
Housing, Indians, Individuals with in the Federal Register a table setting in advance to release the lien in
disabilities, Loan programs—housing forth the amounts the Secretary exchange for the proceeds of such sale,
and community development, Loan determines to be reasonable and the date of settlement of such sale.
programs—Indians, Loan programs— customary. The table will reflect the (ii) With respect to any liquidation
veterans, Manufactured homes, primary method for foreclosing in each sale completed prior to February 1,
Mortgage insurance, Reporting and state, either judicial or non-judicial, 2008, all claims must be submitted no
recordkeeping requirements, Veterans. with the exception of those States where later than February 2, 2009.
(2) If additional information becomes
Approved: October 24, 2007. either judicial or non-judicial is
known to a holder after the filing of a
Gordon H. Mansfield, acceptable. The use of a method not
guaranty claim, the holder may file a
Acting Secretary of Veterans Affairs. authorized in the table will require prior
supplemental claim provided that such
approval from VA. This table will be
Editorial Note: This document was supplemental claim is filed within the
available throughout the year on a VA
received at the Office of the Federal Register time period specified in paragraph (f)(1)
controlled Web site, such as at
on January 23, 2008. of this section.
www.homeloans.va.gov. (3) No claim under a guaranty shall be
■ For the reasons set out in the (iii) If the foreclosure attorney has the payable unless it is submitted within
preamble, 38 CFR part 36 is amended as discretion to conduct the sale or to the time period specified in paragraph
set forth below. name a substitute trustee to conduct the (f)(1) of this section.
sale, the combined total paid for legal (4) In the event that VA does not
PART 36—LOAN GUARANTY fees under paragraph (b)(5)(i) of this approve payment of any item submitted
■ 1. The authority citation for part 36 is section and trustee’s fees pursuant to under a guaranty claim, VA shall notify
revised to read as follows: paragraph (b)(4) of this section shall not the holder what items are being denied
exceed the applicable maximum and the reasons for such denial. The
Authority: 38 U.S.C. 501 and as otherwise allowance for legal fees established
noted. holder may, within 30 days after the
under paragraph (b)(5)(ii) of this section. date of such denial notification, submit
■ 2. Remove the undesignated center If the trustee conducting the sale must a request to VA that one or more items
heading preceding § 36.4201 and the be a Government official under local that were denied be reconsidered. The
authority citation directly below that law, or if an individual other than the holder must present any additional
center heading. foreclosing attorney (or any employee of information justifying payment of items
that attorney) is appointed as part of denied.
■ 3. A heading for subpart A is added
judicial proceedings, and local law also
preceding § 36.4201 to read as follows: * * * * *
establishes the fees payable for the
services of the public or judicially ■ 8. Add § 36.4344a to read as follows:
Subpart A—Guaranty of Loans to
Veterans to Purchase Manufactured appointed trustee, then those fees will § 36.4344a Servicer appraisal processing
Homes and Lots, Including Site not be subject to the maximum program (SAPP).
Preparation established for legal fees under (a) Delegation of authority to servicers
paragraph (b)(5)(ii) of this section and to review liquidation appraisals and
* * * * * may be included in the total determine reasonable value. Based on
■ 4. Remove the undesignated center indebtedness. the reasonable value, the servicer will
heading preceding § 36.4300 and the * * * * * be able to determine net value.
authority citation directly below that ■ 7. Amend § 36.4321 by adding (1) To be eligible for delegation of
center heading. paragraph (f) immediately before the authority to review VA liquidation
■ 5. A heading for subpart B is added authority citation at the end of the appraisals and determine the reasonable
preceding § 36.4300 to read as follows: section to read as follows: value for liquidation purposes on
properties secured by VA guaranteed or
Subpart B—Guaranty or Insurance of § 36.4321 Computation of guaranty claims; insured loans, a lender must—
Loans to Veterans subsequent accounting. (i) Have automatic processing

* * * * * authority under 38 U.S.C. 3702(d), and
* * * * * (f)(1)(i) Except as provided in (ii) Employ one or more Staff
■ 6. Revise § 36.4313(b)(5) to read as paragraph (f)(1)(ii) of this section, a Appraisal Reviewers (SAR) acceptable
follows: holder shall file a claim for payment to the Secretary.
(2) To qualify as a servicer’s staff jurisdictional location without prior data must be attached to the appraisal
appraisal reviewer an applicant must be submission to VA and issuance by VA report. All adjustments, comments,
a full-time member of the servicer’s of a notice of value. Where the servicer’s corrections, justifications, etc., to the
permanent staff and may not be reviewer cannot readily meet the appraisal report must be made in a
employed by, or perform services for, jurisdictional review requirement, the contrasting color, be clearly legible, and
any other mortgagee. The individual SAR applicant may request that VA signed and dated by the staff appraisal
must not engage in any private pursuits expand the geographic area of reviewer.
in which there will be, or appear to be, consideration. VA will accommodate (2) Processing appeals. The authority
any conflict of interest between those such requests if practicable. The initial provided under 38 U.S.C. 3731(d) which
pursuits and his/her duties, office case review requirement may be permits a lender to obtain a VA fee
responsibilities, and performance as a expanded by VA if acceptable panel appraiser’s report which VA is
SAPP staff appraisal reviewer. Three performance has not been demonstrated. obligated to consider in an appeal of the
years of appraisal related experience is After satisfaction of the initial office established reasonable value shall not
necessary to qualify as a servicer’s staff case review requirement, routine apply to cases processed under the
appraisal reviewer. That experience reviews of SAPP cases will be made by authority provided by this section. All
must demonstrate knowledge of, and the VA staff based upon quality control appeals of VA fee appraiser’s estimated
ability to apply industry-accepted procedures established by the Under market values or servicer’s reasonable
principles, methods, practices and Secretary for Benefits. Such review will value determinations above the amount
techniques of appraising, and the ability be made on a random sampling or specified in the separate instructions
to competently determine the value of performance related basis. issued by VA must be submitted, along
property. The individual must (4) Certifications required from the with the servicer’s recommendations, if
demonstrate the ability to review the servicer will be specified with any, to VA for processing and final
work of others and to recognize particularity in the separate instructions determination. Unless otherwise
deviations from accepted appraisal issued by the Secretary, as noted in authorized in the separate instructions
principle, practices, and techniques, paragraph (b) of this section. servicers must also submit appeals,
error in computations, and unjustifiable (b) Instructions for SAPP Procedures. regardless of the amount, to VA in all
and unsupportable conclusions. The Secretary will publish separate cases where the staff appraisal reviewer
instructions for processing appraisals has made an adjustment during their
(3) Servicers that have a staff under the Servicer Appraisal Processing initial review of the appraisal report to
appraisal reviewer determined Program. Compliance with these the fee appraiser’s market value
acceptable to VA, will be authorized to regulations and the separate instructions estimate. The fee appraiser’s estimated
review liquidation appraisals and make issued by the Secretary is deemed by market value or servicer’s reasonable
reasonable value determinations for VA to be the minimum exercise of due value determination may be increased
liquidation purposes on properties that diligence in processing SAPP cases. Due only when such increase is clearly
are the security for VA guaranteed or diligence is considered by VA to warranted and fully supported by real
insured loans. Additionally, servicers represent that care, as is to be properly estate market or other valid data
must satisfy initial VA office case expected from, and ordinarily exercised considered adequate and reasonable by
review requirements prior to being by, a reasonable and prudent servicer professional appraisal standards and the
allowed to determine reasonable value who would be dependent on the servicer’s staff appraisal reviewer
without VA involvement. The initial property as security to protect its clearly and fully justifies the reasoning
office case review requirement must be investment. and basis for the increase in writing on
satisfied in the VA regional loan center (c) Adjustment of value the appraisal report form or an
in whose jurisdiction the servicer’s staff recommendations. The amount of addendum. The staff appraisal reviewer
appraisal reviewer is located before the authority to upwardly adjust the fee must date and sign the written
SAPP authority may be utilized by that appraiser’s estimated market value justification and must cite within it the
servicer in any other VA office’s during the servicer staff appraisal data used in arriving at the decision to
jurisdiction. To satisfy the initial office reviewer’s initial review of the appraisal make the increase. All such data shall
case review requirement, the first five report or to subsequently process an be attached to the appraisal report form
cases of each servicer staff appraisal appeal of the servicer’s established and any addendum.
reviewer involving properties in the reasonable value will be specified in the (d) Indemnification. When the
regional office location where the staff separate instructions issued by VA as Secretary has incurred a loss as a result
appraisal reviewer is located will be noted in § 36.4344a(b). The amount of a payment of claim under guaranty
processed by him or her up to the point specified must not in any way be and in which the Secretary determines
where he or she has made a reasonable considered an administrative an increase made by the servicer under
value determination and fully drafted, adjustment figure which may be applied paragraph (c) of this section was
but not issued, the servicer’s notice of indiscriminately and without valid basis unwarranted, or arbitrary and
value. At that point, and prior to loan or justification. capricious, the lender shall indemnify
termination, each of the five cases will (1) Adjustment during initial review. the Secretary to the extent the Secretary
be submitted to the VA regional loan Any adjustment during the staff determines such loss was caused or
center having jurisdiction over the appraisal reviewer’s initial review of the increased, by the increase in value.
property. After a staff review of each appraisal report must be fully and (e) Affiliations. A servicer affiliated
case, VA will issue a notice of value clearly justified in writing on the with a real estate firm, builder, land
which the servicer may use to compute appraisal report form or, if necessary, on developer or escrow agent as a
the net value of the property for an addendum. The basis for the subsidiary division, or in any other
liquidation purposes. If these five cases adjustment must be adequate and entity in which it has a financial interest
are found to be acceptable by VA, the reasonable by professional appraisal or which it owns may not use the
servicer’s staff appraisal reviewer will standards. If real estate market or other authority for any cases involving the
be allowed to fully process subsequent valid data was utilized in arriving at the affiliate unless the servicer
appraisals for properties regardless of decision to make the adjustment, such demonstrates to the Secretary’s
satisfaction that the servicer and its knowledge of industry accepted evidence, present witnesses and
affiliate(s) are essentially separate appraisal principles, techniques and confront any witness the Veterans
entities that operate independently of practices; or the lack of technical Benefits Administration presents. The
each other, free of all cross-influences competence to review appraisal reports Under Secretary for Benefits will
(e.g., a formal corporate agreement and make value determinations in appoint a hearing officer or panel to
exists which specifically sets forth this accordance with those requirements); conduct the hearing. When such
fact). substantive or repetitive errors (i.e., any additional proceedings are necessary,
(f) Quality control plans. The servicer error(s) of a nature that would the Under Secretary for Benefits shall
must have an effective self-policing or materially or significantly affect the base the determination on the facts as
quality control system to ensure the determination of reasonable value or found, together with any information
adequacy and quality of their SAPP staff condition of the property; or a number and argument submitted by the servicer.
appraisal reviewer’s processing and, or series of errors that, considered (3) In actions based upon a conviction
that its activities do not deviate from individually, may not significantly or civil judgment, or in which there is
high standards of integrity. The quality impact the determination of reasonable no genuine dispute over material facts,
control system must include frequent, value or property condition, but which the Under Secretary for Benefits shall
periodic audits that specifically address when considered in the aggregate would make a decision on the basis of all the
the appraisal review activity. These establish that appraisal reviews or SAPP information in the administrative
audits may be performed by an case processing are being performed in record, including any submission made
independent party, or by the servicer’s a careless or negligent manner), or by the servicer.
independent internal audit division continued instances of disregard for VA (4) Withdrawal of the SAPP authority
which reports directly to the firm’s chief requirements after they have been called will require that VA make subsequent
executive officer. The servicer must to the servicer’s attention. determinations of reasonable value for
agree to furnish findings and (1) Withdrawal of authority by the the servicer. Consequently, VA staff will
information under this system to VA on Loan Guaranty Officer may be either for review each appraisal report and issue
demand. While the quality control an indefinite or a specified period of a Notice of Value which can then be
personnel need not be appraisers, they time. For any withdrawal longer than 90 used by the servicer to compute the net
should have basic familiarity with days a reapplication for servicer value of properties for liquidation
appraisal theory and techniques and the authority to process appraisals under purposes.
ability to prescribe appropriate these regulations will be required. (5) Withdrawal by VA of the servicer’s
corrective action(s) in the appraisal Written notice will be provided at least SAPP authority does not prevent VA
review process when discrepancies or 30 days in advance of withdrawal from also withdrawing automatic
problems are identified. The basic unless the Government’s interests are processing authority or taking
elements of the system will be described exposed to immediate risk from the debarment or suspension action based
in separate instructions issued by the servicer’s activities in which case the upon the same conduct of the servicer.
Secretary. Copies of the lender’s quality withdrawal will be effected (Authority: 38 U.S.C. 3731)
control plan or self-policing system immediately. The notice will clearly
evidencing appraisal related matters and specifically set forth the basis and ■ 9. Remove the undesignated center
must be provided to the VA office of grounds for the action. There is no right heading preceding § 36.4400 and the
jurisdiction with the servicer’s to a formal hearing to contest the authority citation directly below that
application of SAPP authority. withdrawal of SAPP processing center heading.
(g) Fees. The Secretary will require privileges. However, if within 15 days ■ 10. A heading for subpart C is added
servicers to pay a $100.00 application after receiving notice the servicer preceding § 36.4400 to read as follows:
fee for each SAR the servicer nominates requests an opportunity to contest the
for approval. The application fee will withdrawal, the servicer may submit, in Subpart C—Assistance to Certain
also apply if the SAR begins work for person, in writing, or through a Disabled Veterans in Acquiring
another servicer. representative, information and Specially Adapted Housing
(h) Withdrawal of servicer authority. argument to the Loan Guaranty Officer
The authority for a servicer to determine * * * * *
in opposition to the withdrawal. The
reasonable value may be withdrawn by Loan Guaranty Officer will make a ■ 11. Remove the undesignated center
the Loan Guaranty Officer when proper recommendation to the Regional Loan heading preceding § 36.4500 and the
cause exists. A servicer’s authority to Center Director who shall make the authority citation directly below that
make reasonable value determinations determination as to whether the action center heading.
shall be withdrawn when the servicer should be sustained, modified or ■ 12. A heading for subpart D is added
no longer meets the basic requirements rescinded. The servicer will be informed preceding § 36.4500 to read as follows:
for delegating the authority, or when it in writing of the decision.
can be shown that the servicer’s (2) The servicer has the right to appeal Subpart D—Direct Loans
reasonable value determinations have the Regional Loan Center Director’s * * * * *
not been made in accordance with VA decision to the Undersecretary for ■ 13. Remove the undesignated center
regulations, requirements, guidelines, Benefits. In the event of such an appeal, heading preceding § 36.4600 and the
instructions or applicable laws, or when the Under Secretary for Benefits will authority citation directly below that
there is adequate evidence to support review all relevant material concerning center hearing.
reasonable belief by VA that a particular the matter and make a determination
■ 14. A heading for subpart E is added
unacceptable act, practice, or that shall constitute final agency action.
preceding § 36.4600 to read as follows:
performance by the servicer or the If the servicer’s submission of
servicer’s staff has occurred. Such acts, opposition raises a genuine dispute over Subpart E—Sale of Loans, Guarantee
practices, or performance include, but facts material to the withdrawal of SAPP of Payment, and Flood Insurance
are not limited to: Demonstrated authority, the servicer will be afforded
technical incompetence (i.e., conduct an opportunity to appear with a * * * * *
which demonstrates an insufficient representative, submit documentary ■ 15. Add subpart F to read as follows:
Subpart F—Guaranty or Insurance of Loans 36.4855 Loans, first, second, or unsecured. A period of more than 180 days. For
to Veterans With Electronic Reporting 36.4856 Tax, special assessment and other the purposes of sections 3707 and
Sec. liens. 3702(a)(2)(C) of title 38 U.S.C., the term
36.4800 Applicability of this subpart. 36.4857 Combination residential and a period of more than 180 days shall
36.4801 Definitions. business property.
36.4858 [Reserved]
mean 181 or more calendar days of
36.4802 Computation of guaranties or continuous active duty.
insurance credits. 36.4859 Supplemental loans.
36.4803 Reporting requirements. 36.4860 Condominium loans. Acquisition and improvement loan. A
36.4804 Deviations; changes of identity. 36.4861 Acceptable ownership loan to purchase an existing property
36.4805 Partial disbursement. arrangements and documentation. which includes additional funds for the
36.4806 Refinancing of mortgage or other 36.4862 Rights and restrictions. purpose of installing energy
lien indebtedness. 36.4863 Miscellaneous legal requirements. conservation improvements or making
36.4807 Interest rate reduction refinancing 36.4864 Documentation and related other alterations, improvements, or
loan. requirements-flexible condominiums
repairs.
36.4808 Joint loans. and condominiums with offsite facilities.
36.4809 Transfer of title by borrower or 36.4865 Appraisal requirements. (Authority: 38 U.S.C. 3703(c)(1), 3710(a)(1),
maturity by demand or acceleration. 36.4867 Requirement of construction (4), and (7))
36.4810 Amortization. warranty.
Alterations. Any structural changes or
36.4811 Prepayment. 36.4868 Nondiscrimination and equal
opportunity in housing certification additions to existing improved realty.
36.4812 Interest rates.
36.4813 Charges and fees. requirements. Automatic lender. A lender that may
36.4814 Advances and other charges. 36.4869 Correction of structural defects. process a loan or assumption without
36.4815 Loan modifications. 36.4870 Advertising and solicitation submitting the credit package to the
36.4816 Acceptability of partial payments. requirements. Department of Veterans Affairs for
36.4817 Servicer reporting requirements. 36.4875 Insured loan and insurance underwriting review. Pursuant to 38
36.4818 Servicer tier ranking—temporary account. U.S.C. 3702(d) there are two categories
procedures. 36.4877 Transfer of insured loans. of lenders who may process loans
36.4819 Servicer loss-mitigation options 36.4878 Debits and credits to insurance
account under § 36.4820.
automatically:
and incentives.
36.4820 Refunding of loans in default. 36.4879 Payment of insurance. (1) Entities such as banks, savings and
36.4821 Service of process. 36.4880 Reports of insured institutions. loan associations, and mortgage and
36.4822 Loan termination. 36.4890 Purpose. loan companies that are subject to
36.4823 Election to convey security. 36.4891 Applicability. examination by an agency of the United
36.4824 Guaranty claims; subsequent 36.4892 Certification requirements. States or any State and
accounting. 36.4893 Complaint and hearing procedure. (2) Lenders approved by the
36.4825 Computation of indebtedness. Department of Veterans Affairs pursuant
36.4826 Subrogation and indemnity. Subpart F—Guaranty or Insurance of
36.4827 Release of security.
to standards established by the
Loans to Veterans With Electronic Department of Veterans Affairs.
36.4828 Partial or total loss of guaranty or Reporting
insurance. (Authority: 38 U.S.C. 3702(d))
36.4829 Hazard insurance. § 36.4800 Applicability of this subpart.
36.4830 Substitution of trustees. Compromise sale. A sale to a third
(a) This subpart applies to loans party for an amount less than is
36.4831 Capacity of parties to contract.
36.4832 Geographical limits. serviced by a mortgage servicing sufficient to repay the unpaid balance
36.4833 Maintenance of records. industry segment on or after the date on the loan where the holder has agreed
36.4835 Delivery of notice. that VA issues a Federal Register notice in advance to release the lien in
36.4836 [Reserved]. making this subpart applicable to that exchange for the proceeds of such sale.
36.4837 Conformance of loan instruments. segment. This includes loans entitled to Condominium. Unless otherwise
36.4838 Supplementary administrative an automatic guaranty, or otherwise
action. provided by State law, a condominium
guaranteed or insured, on or after the is a form of ownership where the buyer
36.4839 Eligibility of loans; reasonable date assigned in the Federal Register,
value requirements. receives title to a three dimensional air
36.4840 Underwriting standards, processing
and loans that were previously space containing the individual living
procedures, lender responsibility, and guaranteed or insured to the extent that unit together with an undivided interest
lender certification. no legal rights vested under the or share in the ownership of common
36.4841 Death or insolvency of holder. regulations are impaired. elements.
36.4842 Qualification for designated fee (b) Title 38 U.S.C., chapter 37, is a Cost. Cost means the entire
appraisers. continuation and restatement of the
36.4843 Restriction on designated
consideration paid or payable for or on
provisions of Title III of the account of the application of materials
appraisers. Servicemen’s Readjustment Act of 1944,
36.4845 Delegation of authority. and labor to tangible property.
and may be considered an amendment Credit package. Any information,
36.4846 Cooperative loans.
36.4847 Lender appraisal processing
to such Title III. References to the reports or verifications used by a lender,
program. sections or chapters of title 38 U.S.C., holder or authorized servicing agent to
36.4848 Servicer appraisal processing shall, where applicable, be deemed to determine the creditworthiness of an
program. refer to the prior corresponding applicant for a Department of Veterans
36.4849 Waivers, consents, and approvals; provisions of the law. Affairs guaranteed loan or the assumer
when effective. (Authority: 38 U.S.C. 3703(c)(1))
36.4850 Servicing procedures for holders.
of such a loan.
36.4851 Minimum property and § 36.4801 Definitions. (Authority: 38 U.S.C. 3710 and 3714)
construction requirements.
36.4852 Authority to close loans on the
Whenever used in 38 U.S.C. chapter Date of first uncured default. Date of
automatic basis. 37 or subpart F of this part, unless the first uncured default means the due date
36.4853 Withdrawal of authority to close context otherwise requires, the terms of the earliest payment not fully
loans on the automatic basis. defined in this section shall have the satisfied by the proper application of
36.4854 Estate of veteran in real property. following meaning: available credits or deposits.
Default. Default means failure of a conservation measure as prescribed in available to a lender or purchaser for
borrower to comply with the terms of a 38 U.S.C. 3710(d) or by the Secretary. losses incurred on loans insured under
loan agreement. (Authority: 38 U.S.C. 3710(a)(7)) 38 U.S.C. 3703(a).
Designated appraiser. Designated Lender. The payee or assignee or
appraiser means a person requested by Full disbursement. Payment by a transferee of an obligation at the time it
the Secretary to render an estimate of lender of the entire proceeds of a loan is guaranteed or insured. This term also
the reasonable value of a property, or of or the purposes described in the report includes any sole proprietorship,
a specified type of property, within a of the lender in respect of such loan to partnership, or corporation and the
stated area for the purpose of justifying the Secretary either: owners, officers and employees of a sole
(1) By payment to those contracting proprietorship, partnership, or
the extension of credit to an eligible
with the borrower for such purposes, or corporation engaged in the origination,
veteran for any of the purposes stated in (2) By payment to the borrower, or
38 U.S.C. chapter 37. An appraiser on a procurement, transfer, servicing, or
(3) By transfer to an account against
fee basis is not an agent of the Secretary. funding of a loan which is guaranteed
which the borrower can draw at will, or
Discharge or release. For purposes of (4) By transfer to an escrow account, or insured by VA.
basic eligibility a person will be or (Authority: 38 U.S.C. 3703(c)(1) and 3704(d))
considered discharged or released if the (5) By transfer to an earmarked Lien. Lien means any interest in, or
veteran was issued a discharge account if power over, real or personal property,
certificate under conditions other than (i) The amount is not in excess of 10 reserved by the vendor, or created by
dishonorable (38 U.S.C. 3702(c)). The percent of the loan, or the parties or by operation of law,
term discharge or release includes— (ii) The loan is an Acquisition and chiefly or solely for the purpose of
(1) Retirement from the active Improvement loan pursuant to assuring the payment of the purchase
military, naval, or air service, and § 36.4801, or price, or a debt, and irrespective of the
(2) The satisfactory completion of the (iii) The loan is one submitted by a
identity of the party in whom title to the
period of active military, naval, or air lender of the class specified in 38 U.S.C.
property is vested, including but not
service for which a person was obligated 3702(d) or 3703(a)(2).
limited to mortgages, deeds with a
at the time of entry into such service in (Authority: 38 U.S.C. 3703(c)(1)) defeasance therein or collaterally, deeds
the case of a person who, due to of trust, security deeds, mechanics’
Graduated payment mortgage loan. A
enlistment or reenlistment, was not liens, lease-purchase contracts,
loan for the purpose of acquiring a
awarded a discharge or release from conditional sales contracts,
single-family dwelling unit involving a
such period of service at the time of consignments.
plan for repayment in which a portion
such completion thereof and who, at Liquidation sale. Any judicial,
of the interest due is deferred for a
such time, would otherwise have been contractual or statutory disposition of
period of time. The interest so deferred
eligible for the award of a discharge or real property, under the terms of the
is added to the principal balance thus
release under conditions other than loan instruments and applicable law, to
resulting in a principal amount greater
dishonorable. liquidate a defaulted loan that is
than at loan origination (negative
(Authority: 38 U.S.C. 101(18)) amortization). The monthly payments secured by such property. This includes
Dwelling. Any building designed increase on an annual basis (graduate) a voluntary conveyance made to avoid
primarily for use as a home consisting for a predetermined period of time until such disposition of the obligation or of
of not more than four family units plus the payments reach a level which will the security. This term also includes a
an added unit for each veteran if more fully amortize the loan during the compromise sale.
than one eligible veteran participates in remaining loan term. (Authority: 38 U.S.C. 3732)
the ownership, except that in the case (Authority: 38 U.S.C. 3703(c) and (d)) Lot. A parcel of land acceptable to the
of a condominium housing development Guaranty. Guaranty means the Secretary as a manufactured home site.
or project within the purview of 38 obligation of the United States, assumed (Authority: 38 U.S.C. 3710(a)(9))
U.S.C. 3710(a)(6) and §§ 36.4860 by virtue of 38 U.S.C. chapter 37, to
through 36.4865 of this part the term is Manufactured home. A moveable
repay a specified percentage of a loan dwelling unit designed and constructed
limited to a one single-family residential upon the default of the primary debtor.
unit. Also, a manufactured home, for year-round occupancy by a single
Holder. The lender or any subsequent
permanently affixed to a lot owned by family, on land, containing permanent
assignee or transferee of the guaranteed
a veteran and classified as real property eating, cooking, sleeping and sanitary
obligation or the authorized servicing
under the laws of the State where it is facilities. A double-wide manufactured
agent (also referred to as ‘‘the servicer’’)
located. home is a moveable dwelling designed
of the lender or of the assignee or
for occupancy by one family and
(Authority: 38 U.S.C. 3710(a) and (f)) transferee.
consisting of:
Economic readjustment. Economic (Authority: 38 U.S.C. 3714) (1) Two or more units intended to be
readjustment means rearrangement of an Home. Home means place of joined together horizontally when
eligible veteran’s indebtedness in a residence. located on a site, but capable of
manner calculated to enable the veteran Improvements. Any alteration that independent movement or
to meet obligations and thereby avoid improves the property for the purpose (2) A unit having a section or sections
imminent loss of the property which for which it is occupied. which unfold along the entire length of
secures the delinquent obligation. Insurance. Insurance means the the unit. For the purposes of this section
Energy conservation improvement. An obligation assumed by the United States of VA regulations, manufactured home/
improvement to an existing dwelling or to indemnify a lender to the extent lot loans guaranteed under the purview
farm residence through the installation specified in this subpart for any loss of §§ 36.4800 through 36.4893 must be
of a solar heating system, a solar heating incurred upon any loan insured under for units permanently affixed to a lot
and cooling system, or a combined solar 38 U.S.C. 3703(a)(2). and considered to be real property
heating and cooling system or through Insurance account. Insurance account under the laws of the State where it is
application of a residential energy means the record of the amount located. If the loan is for the purchase
of a manufactured home and lot it must properties on hand and adjusting this loans to veterans shall include certified
be considered as one loan. figure based on the average holding time mail.
(Authority: 38 U.S.C. 3710(a)(9)) for properties sold during the preceding Repairs. Any alteration of existing
fiscal year; and improved realty or equipment which is
Net loss (insured loans). Net loss on (B) Dividing the figure calculated in necessary or advisable for protective,
insured loans means the indebtedness, paragraph (3)(i)(A) of this definition by safety or restorative purposes.
plus any other charges authorized under the VBA ratio of personal services costs Repayment plan. A repayment plan is
§ 36.4814, remaining unsatisfied after to total obligations. a written executed agreement by and
the liquidation of all available security (ii) The three cost averages will be between the borrower and the holder to
and recourse to all intangible rights of added to the average loss (or gain) on reinstate a loan that is 61 or more
the holder against those obligated on the property sold during the preceding calendar days delinquent, by requiring
debt. fiscal year (based on the average the borrower to pay each month over a
Net value. The fair market value of property purchase price) and the sum fixed period (minimum of three months
real property, minus an amount will be divided by the average fair duration) the normal monthly payments
representing the costs that the Secretary market value at the time of acquisition plus an agreed upon portion of the
estimates would be incurred by VA in for properties which were sold during delinquency each month.
acquiring and disposing of the property. the preceding fiscal year to derive the Repossession. Repossession means
The number to be subtracted from the percentage to be used in estimating net recovery or acquisition of such physical
fair market value will be calculated by value. control of property (pursuant to the
multiplying the fair market value by the provisions of the security instrument or
current cost factor. The cost factor used (Authority: 38 U.S.C. 3732)
as otherwise provided by law) as to
will be the most recent percentage of the Purchase price. The entire legal make further legal or other action
fair market value that VA calculated and consideration paid or payable upon or unnecessary in order to obtain actual
published in the Notices section of the on account of the sale of property, possession of the property or to dispose
Federal Register (it is intended that this exclusive of acquisition costs, or for the of the same by sale or otherwise.
percentage will be calculated annually). cost of materials and labor to be applied Residential property.
In computing this cost factor, VA will to the property. (1) Any one-family residential unit in
determine the average operating Real-estate loan. Any obligation a condominium housing development
expenses and losses (or gains) on resale incurred for the purchase of real within the purview of 38 U.S.C.
incurred for properties acquired under property or a leasehold estate as limited 3710(a)(6) and §§ 36.4860 through
§ 36.4823 which were sold during the in §§ 36.4800 through 36.4893 or for the 36.4865;
preceding fiscal year and the average construction of fixtures or (2) Any manufactured home
administrative cost to VA associated appurtenances thereon or for alterations, permanently affixed to a lot owned or
with the property management activity. improvements, or repairs thereon being purchased by a veteran and
The final net value derived from this required by §§ 36.4800 through 36.4893 considered to be real property under the
calculation will be stated as a whole to be secured by a lien on such property laws of the State where it is located;
dollar amount (any fractional amount or is so secured. Loans for the purpose (3) Any improved real property (other
will be rounded up to the next whole specified in 38 U.S.C. 3710(a)(5) than a condominium housing
dollar). The cost items included in the (refinancing of mortgage loans or other development or a manufactured home
calculation will be: liens on a dwelling or farm residence), and/or lot) or leasehold estate therein as
(1) Property operating expenses. All loans for the purpose specified in 38 limited by this subpart, the primary use
disbursements made for payment of U.S.C. 3710(a)(8) (refinancing of a VA of which is for occupancy as a home,
taxes, assessments, liens, property guaranteed, insured or direct loan to consisting of not more than four family
maintenance and related repairs, lower the interest rate), loans for the units, plus an added unit for each
management broker’s fees and purposes specified in 38 U.S.C. eligible veteran if more than one
commissions, and any other charges to 3710(a)(9) (purchase of manufactured participates in the ownership thereof; or
the property account excluding property homes/lots or the refinancing of such (4) Any land to be purchased out of
improvements and selling expenses. loans in order to reduce the interest rate the proceeds of a loan for the
(2) Selling expenses. All or purchase a lot, in States in which construction of a dwelling, and on
disbursements for sales commissions manufactured homes, when which such dwelling is to be erected.
plus any other costs incurred and paid permanently affixed to a lot, are
in connection with the sale of the considered real property, and loans to (Authority: 38 U.S.C. 3703(c)(1) and 3710(a))
property. purchase one-family residential units in Secretary. The Secretary of Veterans
(3) Administrative costs. (i) An condominium housing developments or Affairs, or any employee of the
estimate of the total cost for VA of projects within the purview of 38 U.S.C. Department of Veterans Affairs
personnel (salary and benefits) and 3710(a)(6) and §§ 36.4860 through authorized to act in the Secretary’s
overhead (which may include things 36.4865 shall also be considered real stead.
such as travel, transportation, estate loans. Servicer. The authorized servicer is
communication, utilities, printing, Reasonable value. Reasonable value either:
supplies, equipment, insurance claims means that figure which represents the (1) The servicing agent of a holder; or
and other services) associated with the amount a reputable and qualified (2) The holder itself, if the holder is
acquisition, management and appraiser, unaffected by personal performing all servicing functions on a
disposition of property acquired under interest, bias, or prejudice, would loan. The servicer is typically the entity
§ 36.4823 of this part. The average recommend to a prospective purchaser reporting all loan activity to VA and
administrative costs will be determined as a proper price or cost in the light of filing claims under the guaranty on
by: prevailing conditions. behalf of the holder. VA will generally
(A) Dividing the total cost for VA Registered mail. The term registered issue guaranty claims and other
personnel and overhead salary and mail wherever used in the regulations payments to the servicer, who will be
benefits costs by the average number of concerning guaranty or insurance of responsible for forwarding funds to the
holder in accordance with its servicing (c) With respect to a loan for an home or purchase of a condominium.
agreement. Incentives under § 36.4819 energy efficient mortgage guaranteed To determine the amount of entitlement
will generally be paid directly to the under 38 U.S.C. 3710(d), the amount of available for manufactured home loans
servicer based on its performance under the guaranty shall be in the same processed under 38 U.S.C. 3712, the
that section and in accordance with its proportion as would have been amount of entitlement previously used
tier ranking under § 36.4818. provided if the energy efficient for that purpose is subtracted from
Servicing agent. An agent designated improvements were not added to the $20,000. The sum remaining is the
by the loan holder as the entity to loan amount, and there shall be no amount of available entitlement for use
collect installments on the loan and/or additional charge to the veteran’s for manufactured home loan purposes
perform other functions as necessary to entitlement as a result of the increased under 38 U.S.C. 3712.
protect the interests of the holder. guaranty amount. (Authority: 38 U.S.C. 3703)
(Authority: 38 U.S.C. 3714) (Authority: 38 U.S.C. 3703, 3710) (f) For the purpose of computing the
Special forbearance. This is a written (d) An amount equal to 15 percent of remaining guaranty or insurance benefit
agreement executed by and between the the original principal amount of each to which a veteran is entitled, loans
holder and the borrower where the insured loan shall be credited to the guaranteed prior to February 1, 2008
holder agrees to suspend all payments insurance account of the lender and shall be taken into consideration as if
or accept reduced payments for one or shall be charged against the guaranty made subsequent thereto.
more months, on a loan 61 or more entitlement of the borrower: Provided, (g) A loan eligible for insurance may
calendar days delinquent, and the That no loan may be insured unless the be either guaranteed or insured at the
borrower agrees to pay the total borrower has sufficient entitlement option of the borrower and the lender,
delinquency at the end of the specified remaining to permit such credit. provided that if the Secretary is not
period or enter into a repayment plan. (e) Subject to the provisions of advised of the exercise of such option at
Total indebtedness: For purposes of § 36.4803(g), the following formulas the time the loan is reported pursuant
38 U.S.C. 3732(c), the veteran’s ‘‘total shall govern the computation of the to § 36.4803, such loan will not be
indebtedness’’ shall be the sum of: the amount of the guaranty or insurance eligible for insurance.
unpaid principal on the loan as of the entitlement which remains available to (h) A guaranty is reduced or increased
date of the liquidation sale, accrued an eligible veteran after prior use of pro rata with any deduction or increase
unpaid interest permitted by entitlement: in the amount of the guaranteed
§ 36.4824(a) of this part, and allowable (1) If a veteran previously secured a indebtedness, but in no event will the
advances/other charges permitted to be nonrealty (business) loan, the amount of amount payable on a guaranty exceed
included in the guaranty claim by nonrealty entitlement used is doubled the amount of the original guaranty,
§ 36.4814 of this part. and subtracted from $36,000. The sum except where the guaranty has been
(Authority: 38 U.S.C. 3703(c)(1))
remaining is the amount of available increased under § 36.4815, or the
entitlement for use, except that: percentage of the total indebtedness
(i) Entitlement may be increased by corresponding to that of the original
§ 36.4802 Computation of guaranties or
insurance credits. up to $24,000 if the loan amount guaranty whichever is less. However, on
exceeds $144,000 and the loan is for a graduated payment mortgage loan, the
(a) With respect to a loan to a veteran
purchase or construction of a home or percentage of guaranty applicable to the
guaranteed under 38 U.S.C. 3710 the
purchase of a condominium; and original loan amount pursuant to
guaranty shall not exceed the lesser of (ii) Entitlement for manufactured
the dollar amount of entitlement paragraph (a) of this section shall apply
home loans that are to be guaranteed to the loan indebtedness to the extent
available to the veteran or— under 38 U.S.C. 3712 may not exceed
(1) 50 percent of the original principal scheduled deferred interest is added to
$20,000. principal during the graduation period
loan amount where the loan amount is (2) If a veteran previously secured a
not more than $45,000; or without regard to the original maximum
realty (home) loan, the amount of realty dollar amount of guaranty.
(2) $22,500 where the original (home) loan entitlement used is
principal loan exceeds $45,000, but is (Authority: 38 U.S.C. 3703(b) and (d))
subtracted from $36,000. The sum
not more than $56,250; or remaining is the amount of available (i) The amount of any guaranty or the
(3) Except as provided in paragraph entitlement for use, except that: amount credited to a lender’s insurance
(a)(4) of this section, the lesser of (i) Entitlement may be increased by account in relation to any insured loan
$36,000 or 40 percent of the original up to $24,000 if the loan amount shall be charged against the original or
principal loan amount where the loan exceeds $144,000 and the loan is for remainder of the guaranty benefit of the
amount exceeds $56,250; or purchase or construction of a home or borrower. Complete or partial
(4) The lesser of $60,000 or 25 percent purchase of a condominium; and liquidation, by payment or otherwise, of
of the original principal loan amount (ii) Entitlement for manufactured the veteran’s guaranteed or insured
where the loan amount exceeds home loans that are to be guaranteed indebtedness does not increase the
$144,000 and the loan is for the under 38 U.S.C. 3712 may not exceed remainder of the guaranty benefit, if
purchase or construction of a home or $20,000. any, otherwise available to the veteran.
the purchase of a condominium unit. (3) If a veteran previously secured a When the maximum amount of guaranty
(b) With respect to an interest rate manufactured home loan under 38 or insurance legally available to a
reduction refinancing loan guaranteed U.S.C. 3712, the amount of entitlement veteran shall have been granted, no
under 38 U.S.C. 3710(a)(8), (a)(9)(B)(i), used for that loan is subtracted from further guaranty or insurance is
or (a)(11), the dollar amount of guaranty $36,000. The sum remaining is the available to the veteran.
may not exceed the greater of the amount of available entitlement for (j) Notwithstanding the provisions of
original guaranty amount of the loan home loans and the sum remaining may paragraph (i) of this section, in
being refinanced, or 25 percent of the be increased by up to $24,000 if the loan computing the aggregate amount of
refinancing loan amount. amount exceeds $144,000 and the loan guaranty or insurance housing loan
(Authority: 38 U.S.C. 3703, 3710) is for purchase or construction of a entitlement available to a veteran under
this chapter, the Secretary may exclude (2) An unmarried surviving spouse evidence of guaranty or insurance upon
the amount of guaranty or insurance who was a co-obligor under an existing the ultimate actual payment of the full
housing loan entitlement used for any VA guaranteed, insured or direct loan proceeds of the loan for the purposes
guaranteed, insured, or direct loan shall be considered to be a veteran described in the original report and
under any one of the following eligible for an interest rate reduction upon the submission within 60 days
circumstances: refinancing loan pursuant to 38 U.S.C. thereafter of a supplemental report
(1)(i) The property which secured the 3710(a)(8) or (9)(B)(i). showing that fact and:
loan has been disposed of by the veteran (Authority: 38 U.S.C. 3710(e)(3), 3703(c)(1)) (1) The identity of any property
or has been destroyed by fire or other purchased therewith,
natural hazard; and § 36.4803 Reporting requirements. (2) That all property purchased or
(ii) The loan has been repaid in full; acquired with the proceeds of the loan
(a) With respect to loans
or, the Secretary has been released from has been encumbered as required by the
automatically guaranteed under 38
liability as to the loan; or, if the regulations concerning guaranty or
U.S.C. 3703(a)(1), evidence of the
Secretary has suffered a loss on such insurance of loans to veterans,
guaranty will be issuable to a lender of
loan, the loss has been paid in full. (3) Except for acquisition and
a class described under 38 U.S.C.
(2) A veteran-transferee has agreed to improvement loans as defined in
3702(d) if the loan is reported to the
assume the outstanding balance on the § 36.4801(c), any construction, repairs,
Secretary not later than 60 days
loan and consented to the use of the alterations, or improvements paid for
following full disbursement and upon
veteran-transferee’s entitlement, to the out of the proceeds of the loan, which
the certification of the lender that:
extent that the entitlement of the have not been inspected and approved
(1) No default exists thereunder that
veteran-transferor had been used subsequent to completion by a
has continued for more than 30 days;
originally, in place of the veteran- (2) Except for acquisition and compliance inspector designated by the
transferor’s for the guaranteed, insured, improvement loans as defined in Secretary, have been completed
or direct loan, and the veteran-transferee § 36.4801, any construction, repairs, properly in full accordance with the
otherwise meets the requirements of this alterations, or improvements effected plans and specifications upon which the
chapter. subsequent to the appraisal of original appraisal was based; and that
(3)(i) The loan has been repaid in full; reasonable value, and paid for out of the any deviations or changes of identity in
and proceeds of the loan, which have not said property have been approved as
(ii) The loan for which the veteran been inspected and approved upon required by § 36.4804, and
seeks to use entitlement under this (4) That the loan conforms otherwise
completion by a compliance inspector
chapter is secured by the same property with the applicable provisions of 38
designated by the Secretary, have been
which secured the loan referred to in U.S.C. chapter 37 and the regulations
completed properly in full accordance
the preceding paragraph (j)(3)(i) of this concerning guaranty or insurance of
with the plans and specifications upon
paragraph. loans to veterans.
which the original appraisal was based;
(4) In a case not covered by (j)(1) or and any deviations or changes of (Authority: 38 U.S.C. 3703(c)(1))
(j)(2) of this section, the Secretary may, identity in said property have been (e) Upon the failure of the lender to
one time per veteran, exclude approved as required in § 36.4804 report in accordance with the provisions
entitlement used if: concerning guaranty or insurance of of paragraph (d) of this section, the
(i) The loan has been repaid in full loans to veterans; certificate of commitment shall have no
and, if the Secretary has suffered a loss (3) The loan conforms otherwise with further effect, or the amount of guaranty
on the loan, the loss has been paid in the applicable provisions of 38 U.S.C. or insurance shall be reduced pro rata,
full; or chapter 37 and of the regulations as may be appropriate under the facts of
(ii) The Secretary has been released concerning guaranty or insurance of the case: Provided, nevertheless, that if
from liability as to the loan and, if the loans to veterans. the loan otherwise meets the
Secretary has suffered a loss on the loan, (Authority: 38 U.S.C. 3703(c)(1)) requirements of this section, said
the loss has been paid in full. certificate of commitment may be given
(b) Loans made pursuant to 38 U.S.C.
(k) The Secretary may, in any case effect by the Secretary, notwithstanding
3703(a), although not entitled to
involving circumstances that the the report is received after the date
automatic insurance thereunder, may,
Secretary deems appropriate, waive one otherwise required.
when made by a lender of a class
or more of the requirements set forth in (f) For loans not reported within 60
described in 38 U.S.C. 3702(d)(1), be
paragraph (j)(1) of this section. days, evidence of guaranty will be
reported for issuance of an insurance
(Authority: 38 U.S.C. 3702(b), 3710) credit. issued only if the loan report is
accompanied by a statement signed by
(l)(1) The amount of guaranty (Authority: 38 U.S.C. 3702(d), 3703(a)(2)) a corporate officer of the lending
entitlement, available and unused, of an (c) Each loan proposed to be made to institution which explains why the loan
eligible unmarried surviving spouse an eligible veteran by a lender not was reported late. The statement must
(whose eligibility does not result from within a class described in 38 U.S.C. identify the case or cases in issue and
his or her own service) is determinable 3702(d) shall be submitted to the must set forth the specific reason or
in the same manner as in the case of any Secretary for approval prior to closing. reasons why the loan was not submitted
veteran, and any entitlement which the Lenders described in 38 U.S.C. 3702(d) on time. Upon receipt of such a
decedent (who was his or her spouse) shall have the optional right to submit statement evidence of guaranty will be
used shall be disregarded. A certificate any loan for such prior approval. The issued. A pattern of late reporting and
as to the eligibility of such surviving Secretary, upon determining any loan so the reasons therefore will be considered
spouse, issued by the Secretary, shall be submitted to be eligible for a guaranty, by VA in taking action under § 36.4853.
a condition precedent to the guaranty or or for insurance, will issue a certificate (g) Evidence of a guaranty will be
insurance of any loan made to a of commitment with respect thereto. issued by the Secretary by appropriate
surviving spouse in such capacity. (d) A certificate of commitment shall endorsement on the note or other
(Authority: 38 U.S.C. 3701(a)) entitle the holder to the issuance of the instrument evidencing the obligation, or
by a separate certificate at the option of derived from the most recent period of section, the guaranty or insurance will
the lender. Notice of credit to an service: become effective upon the curing of
insurance account will be given to the (1) Shall cancel any unused such default and its continuing current
lender. Unused certificates of eligibility entitlement derived from any earlier for a period of not less than 60 days
issued prior to March 1, 1946, are void. period of service, and thereafter. For the purpose of this
No certificate of commitment shall be (2) Shall be reduced by the amount by paragraph a loan will be deemed current
issued and no loan shall be guaranteed which entitlement from service during so long as the installment is received
or insured unless the lender, the any earlier period has been used to within 30 days after its due date.
veteran, and the loan are shown to be obtain a direct, guaranteed, or insured (k) No guaranty or insurance
eligible. Evidence of guaranty or loan: commitment or evidence of guaranty or
insurance will not be issued on any loan (i) On property which the veteran insurance will be issuable in respect to
for the purchase or construction of owns at the time of application, or any loan to finance a contract that:
residential property unless the veteran, (ii) As to which the Secretary has (1) Is for the purchase, construction,
or the veteran’s spouse in the case of a incurred actual liability or loss, unless repair, alteration, or improvement of a
veteran who cannot occupy the property in the event of loss or the incurrence dwelling or farm residence;
because of active duty status with the and payment of such liability by the (2) Is dated on or after June 4, 1969;
Armed Forces, certifies in such form as Secretary, the resulting indebtedness of (3) Provides for a purchase price or
the Secretary shall prescribe that the the veteran to the United States has cost to the veteran in excess of the
veteran, or spouse of the active duty been paid in full. Provided, that if the reasonable value established by the
veteran, intends to occupy the property Secretary issues or has issued a Secretary; and
as his or her home. Guaranty or certificate of commitment covering the (4) Was signed by the veteran prior to
insurance evidence will not be issued loan described in the application for the veteran’s receipt of notice of such
on any loan for the alteration, guaranty or insurance or in the loan reasonable value; unless such contract
improvement, or repair of any report, the amount and percentage of includes, or is amended to include, a
residential property or on a refinancing guaranty or the amount of the insurance provision that reads substantially as
loan unless the veteran, or spouse of an credit contemplated by the certificate of follows:
active duty servicemember, certifies that commitment shall not be subject to
It is expressly agreed that, notwithstanding
he or she presently occupies the reduction if the loan has been or is any other provisions of this contract, the
property as his or her home. An closed on a date that is not later than the purchaser shall not incur any penalty by
exception to this is if the home expiration date of the certificate of forfeiture of earnest money or otherwise be
improvement or refinancing loan is for commitment, notwithstanding that the obligated to complete the purchase of the
extensive changes to the property that Secretary in the meantime and prior to property described herein, if the contract
will prevent the veteran or the spouse the issuance of the evidence of guaranty purchase price or cost exceeds the reasonable
of the active duty veteran from or insurance shall have incurred actual value of the property established by the
occupying the property while the work liability or loss on a direct, guaranteed, Department of Veterans Affairs. The
is being completed. In such a case the purchaser shall, however, have the privilege
or insured loan previously obtained by
and option of proceeding with the
veteran or spouse of the active duty the borrower. For the purposes of this consummation of this contract without
veteran must certify that he or she paragraph, the Secretary will be deemed regard to the amount of the reasonable value
intends to occupy or reoccupy the to have incurred actual loss on a established by the Department of Veterans
property as his or her home upon guaranteed or insured loan if the Affairs.
completion of the substantial Secretary has paid a guaranty or (Authority: 38 U.S.C. 501, 3703(c)(1))
improvements or repairs. All of the insurance claim thereon and the
mentioned certifications must take place veteran’s resultant indebtedness to the (l) With respect to any loan for which
at the time of loan application and Government has not been paid in full, a commitment was made on or after
closing except in the case of loans and to have incurred actual liability on March 1, 1988, the Secretary must be
automatically guaranteed, in which case a guaranteed or insured loan if the notified whenever the holder receives
veterans or, in the case of an active duty Secretary is in receipt of a claim on the knowledge of disposition of the
veteran, the veteran’s spouse shall make guaranty or insurance or is in receipt of residential property securing a VA-
the required certification only at the a notice of default. In the case of a direct guaranteed loan.
time the loan is closed. (1) If the seller applies for prior
loan, the Secretary will be deemed to
approval of the assumption of the loan,
(Authority: 38 U.S.C. 3704(c)) have incurred an actual loss if the loan
then:
is in default. A loan, the proceeds of
(h) Subject to compliance with the (i) A holder (or its authorized
which are to be disbursed progressively
regulations concerning guaranty or servicing agent) who is an automatic
or at intervals, will be deemed to have
insurance of loans to veterans, the lender must examine the
been closed for the purposes of this
certificate of guaranty or the evidence of creditworthiness of the purchaser and
paragraph if the loan has been
insurance credit will be issuable within determine compliance with the
completed in all respects excepting the
the available entitlement of the veteran provisions of 38 U.S.C. 3714. The
actual ‘‘payout’’ of the entire loan
on the basis of the loan stated in the creditworthiness review must be
proceeds.
final loan report or certification of loan performed by the party that has
disbursement, except for refinancing (Authority: 38 U.S.C. 3702(a), 3710(c)) automatic authority. If both the holder
loans for interest rate reductions. The (i) Any amounts that are disbursed for and its servicing agent are automatic
available entitlement of a veteran will an ineligible purpose shall be excluded lenders, then they must decide between
be determined by the Secretary as of the in computing the amount of guaranty or themselves which one will make the
date of receipt of an application for insurance credit. determination of creditworthiness,

guaranty or insurance of a loan or of a (j) Notwithstanding the lender has whether the loan is current and whether
loan report. Such date of receipt shall be erroneously, but without intent to there is a contractual obligation to
the date the application or loan report misrepresent, made certification with assume the loan, as required by 38
is date-stamped into VA. Eligibility respect to paragraph (a)(1) of this U.S.C. 3714. If the actual loan holder
does not have automatic authority and (C) A complete credit package change in the identity of the property
its servicing agent is an automatic developed by the holder which the upon which the original appraisal was
lender, then the servicing agent must Secretary may use for determining the based must be supported by a new or
make the determinations required by 38 creditworthiness of the purchaser. supplemental appraisal of reasonable
U.S.C. 3714 on behalf of the holder. The (D) The notice and documents value: Provided, That substitution of
actual holder will remain ultimately required by this section must be materials of equal or better quality and
responsible for any failure of its submitted to the VA office of value approved by the veteran and the
servicing agent to comply with the jurisdiction no later than 35 days after designated appraiser shall not be
applicable law and VA regulations. the date of receipt by the holder of a deemed a ‘‘change in the identity of the
(A) If the assumption is approved and complete application package for the property’’ within the purview of this
the transfer of the security is completed, approval of the assumption, subject to section. A deviation not in excess of 5
then the notice required by this the same extensions as provided in percent will not require the prior
paragraph (l) shall consist of the credit paragraph (l)(l)(i) of this section. If the approval of the Secretary.
package (unless previously provided in assumption is not automatically (Authority: 38 U.S.C. 3703(c)(1))
accordance with paragraph (l)(1)(i)(B) of approved by the holder or its authorized
this section) and a copy of the executed agent, pursuant to the automatic § 36.4805 Partial disbursement.
deed and/or assumption agreement as authority provisions, $50 of any fee In cases where intervening
required by VA office of jurisdiction. collected in accordance with circumstances make it impracticable to
The notice shall be submitted to the § 36.4813(d)(8) must be refunded. If the complete the actual paying out of the
Department with the VA receipt for the Department of Veterans Affairs does not loan originally proposed, or justify the
funding fee provided for in approve the assumption, the holder will lender in declining to make further
§ 36.4813(e)(2). be notified and an additional $50 of any disbursements on a construction loan,
(B) If the application for assumption fee collected under § 36.4813(d)(8) must evidence of guaranty or of insurance of
is disapproved, the holder shall notify be refunded following the expiration of the loan or the proper pro rata part
the seller and the purchaser that the the 30-day appeal period set out in thereof will be issuable if the loan is
decision may be appealed to the VA paragraph (l)(l)(i)(B) of this section. If otherwise eligible for automatic
office of jurisdiction within 30 days. such an appeal is made to the guaranty or a certificate of commitment
The holder shall make available to that Department of Veterans Affairs, then the was issued thereon: Provided,
VA office all items used by the holder review will be conducted at the (a) A report of the loan is submitted
in making the holder’s decision in case Department of Veterans Affairs office of to the Secretary within a reasonable
jurisdiction by an individual who was time subsequent to the last
the decision is appealed to VA. If the
not involved in the original disapproval disbursement, but in no event more than
application remains disapproved after
decision. If the application for 90 days thereafter, unless report of the
60 days (to allow time for appeal to and
assumption is approved and the transfer facts and circumstances is made and an
review by VA), then the holder must
of security is completed, then the holder extension of time obtained from the
refund $50 of any fee previously
(or its authorized servicing agent) shall Secretary.
collected under the provisions of (b) There has been no default on the
provide the notice required in paragraph
§ 36.4813(d)(8). If the application is loan, except that the existence of a
(l)(l)(i)(A) of this section.
subsequently approved and the sale is (2) If the seller fails to notify the default shall not preclude issuance of a
completed, then the holder (or its holder before disposing of property guaranty certificate or insurance advice
authorized servicing agent) shall securing the loan, the holder shall notify if a certificate of commitment was
provide the notice described in the Secretary within 60 days after issued with respect to the loan.
paragraph (l)(1)(i)(A) of this section. learning of the transfer. Such notice (c) The Secretary determines that a
(C) In performing the requirements of shall advise whether or not the holder person of reasonable prudence similarly
paragraphs (l)(1)(i)(A) or (l)(1)(i)(B) of intends to exercise its option to situated would not make further
this section, the holder must complete immediately accelerate the loan and disbursements in the situation
its examination of the creditworthiness whether or not an opportunity will be presented.
of the prospective purchaser and advise extended to the transferor and transferee (d) There has been full compliance
the seller no later than 45 days after the to apply for retroactive approval of the with the provisions of 38 U.S.C. chapter
date of receipt by the holder of a assumption under the terms of this 37 and of the applicable regulations up
complete application package for the paragraph (l). to the time of the last disbursement.
approval of the assumption. The 45-day (e) In the case of a construction loan
period may be extended by an interval (Authority: 38 U.S.C. 3714)
when the construction is not fully
not to exceed the time caused by delays (The Office of Management and Budget has completed, the amount and percentage
in processing of the application that are approved the information collection
requirements in this section under control
of the guaranty and the amount of the
documented as beyond the control of number 2900–0516.) loan for the purposes of insurance or
the holder, such as employers or accounting to the Secretary shall be
depositories not responding to requests § 36.4804 Deviations; changes of identity. based upon such portion of the amount
for verifications, which were timely A deviation of more than 5 percent disbursed out of the proceeds of the
forwarded, or follow-ups on those between the estimates upon which a loan which, when added to any other
requests. certificate of commitment has been payments made by or on behalf of the
(ii) If neither the holder nor its issued and the report of final payment veteran to the builder or the contractor,
authorized servicing agent is an of the proceeds of the loan, or a change does not exceed 80 percent of the value
automatic lender, the notice to VA shall in the identity of the property upon of that portion of the construction
include: which the original appraisal was based, performed (basing value on the contract
(A) Advice regarding whether the loan will invalidate the certificate of price) plus the sum, if any, disbursed by
is current or in default; commitment unless such deviation or the lender out of the proceeds of the
(B) A copy of the purchase contract; change be approved by the Secretary. loan for the land on which the
and Any deviation in excess of 5 percent or construction is situated: And provided
further, That the lender shall certify as any, due the holder of the mortgage or may not exceed the guaranty amount as
follows: other lien indebtedness to be calculated under § 36.4802(a).
(1) Any amount advanced for land is refinanced. (Authority: 38 U.S.C. 3703(a), 3710)
protected by title or lien as provided in (e) [Reserved]
the regulations concerning guaranty or (f) Nothing in this section shall § 36.4807 Interest rate reduction
insurance of loans to veterans; and preclude the refinancing of the balance refinancing loan.
(2) No enforceable liens, for any work due for the purchase of land on which (a) Pursuant to 38 U.S.C. 3710(a)(8),
done or material furnished for that part new construction is to be financed (a)(9)(B)(i), and (a)(11), a veteran may
of the construction completed and for through the proceeds of the loan, or the refinance an existing VA guaranteed,
which payment has been made out of refinancing of the balance due on an insured, or direct loan to reduce the
the proceeds of the loan, exist or can existing land sale contract relating to a interest rate payable on the existing loan
come into existence. veteran’s dwelling or farm residence. provided that all of the following
(Authority: 38 U.S.C. 3703(c)(1) and (d)) (g) A veteran may refinance (38 U.S.C. requirements are met:
3710(a)(9)(B)(ii)) an existing loan that (1) The new loan must be secured by
§ 36.4806 Refinancing of mortgage or the same dwelling or farm residence as
other lien indebtedness.
was for the purchase of, and is secured
by, a manufactured home in order to the loan being refinanced.
(a) Any loan for the purpose of (2) The veteran owns the dwelling or
purchase the lot on which the
refinancing (38 U.S.C. 3710(a)(5)) an farm residence securing the loan and
manufactured home is or will be
existing mortgage loan or other (i) Occupies the dwelling or residence
permanently affixed, provided the
indebtedness secured by a lien of record as his or her home; or
following requirements are met:
on a dwelling or farm residence owned (ii) Previously occupied the dwelling
(1) The refinancing of a manufactured
and occupied or to be reoccupied if the or residence as his or her home and
refinancing loan is for the completion of home and the purchase of a lot must be
considered as one loan; certifies, in such form as the Secretary
major alterations, repairs or shall require, that he or she has
improvements to the property, by an (2) The manufactured home upon
being permanently affixed to the lot will previously occupied the dwelling or
eligible veteran as the veteran’s home, residence as a home; or
or in the case of an eligible veteran be considered real property under the
laws of the State where it is located; (iii) In a case in which the veteran is
unable to occupy the property because or was unable to occupy the residence
of active duty status in the Armed (3) The loan must be secured by the
or dwelling as a home because the
Forces, occupied or to be reoccupied by same manufactured home which is
veteran was on active duty status as a
the veteran’s spouse as the spouse’s being refinanced and the real property
member of the Armed Forces, the
home, shall be eligible for guaranty in on which the manufactured home is or
spouse of the veteran occupies, or
an amount as computed under will be located;
previously occupied, the dwelling or
§ 36.4802(a) provided that— (4) The amount of the loan may not
residence as the spouse’s home and
(1) The amount of the loan may not exceed an amount equal to the sum of
certifies to that occupancy in such form
exceed an amount equal to 90 percent the balance of the loan being refinanced;
as the Secretary shall require.
of the reasonable value of the dwelling the purchase price, not to exceed the
or farm residence which will secure the reasonable value of the lot; the costs of (Authority: 38 U.S.C. 3710(e)(1))
loan, as determined by the Secretary. the necessary site preparation of the lot (3) The monthly principal and interest
(Authority: 38 U.S.C. 3710(e)(1))
as determined by the Secretary; a payment on the new loan is lower than
reasonable discount as authorized in the principal and interest payment on
(2) The dollar amount of discount, if § 36.4813(d)(6) with respect to that the loan being refinanced; or the term of
any, to be paid by the veteran is portion of the loan used to refinance the the new loan is shorter than the term of
reasonable in amount as determined by existing purchase money lien on the the loan being refinanced; or the new
the Secretary in accordance with manufactured home, and closing costs loan is a fixed-rate loan that refinances
§ 36.4813(d)(7)(i), as authorized in § 36.4813; and a VA-guaranteed adjustable rate
(3) The loan is otherwise eligible for (5) If the loan being refinanced was mortgage; or the increase in the monthly
guaranty. guaranteed by VA, the portion of the
(b) [Reserved] payments on the loan results from the
(c) Nothing shall preclude guaranty of loan made for the purpose of inclusion of energy efficient
a loan to an eligible veteran having refinancing an existing purchase money improvements, as provided by
home loan guaranty entitlement to manufactured home loan may be, § 36.4839(a)(4); or the Secretary
refinance under the provisions of 38 guaranteed without regard to the approves the loan in advance after
U.S.C. 3710(a)(5) a VA guaranteed or outstanding guaranty entitlement determining that the new loan is
insured (or direct) mortgage loan made available for use by the veteran, and the necessary to prevent imminent
to him or her which is outstanding on veteran’s guaranty entitlement shall not foreclosure and the veteran qualifies for
the dwelling or farm residence owned be charged as a result of any guaranty the new loan under the credit standards
and occupied or to be reoccupied after provided for the refinancing portion of contained in § 36.4840.
the completion of major alterations, the loan. For the purposes enumerated (4) The amount of the refinancing
repairs, or improvements to the in 38 U.S.C. 3702(b), the refinancing loan does not exceed:
property, by the veteran as a home, or portion of the loan shall be considered (i) An amount equal to the balance of
in the case of an eligible veteran unable to have been obtained with the guaranty the loan being refinanced, which is not
to occupy the property because of active entitlement used to obtain VA- delinquent, except as provided in
duty status in the Armed Forces, guaranteed loan being refinanced. The paragraph (a)(5) of this section, plus
occupied or to be reoccupied by the total guaranty for the new loan shall be closing costs authorized by § 36.4813(d)
veteran’s spouse as the spouse’s home. the sum of the guaranty entitlement and a discount not to exceed 2 percent
used to obtain VA-guaranteed loan of the loan amount; or
(Authority: 38 U.S.C. 3710(e)(1)) being refinanced and any additional (ii) In the case of a loan to refinance
(d) A refinancing loan may include guaranty entitlement available to the an existing VA-guaranteed or direct loan
contractual prepayment penalties, if veteran. However, the total guaranty and to improve the dwelling securing
such loan through energy efficient shall be eligible for restoration when the former provisions of law), shall be
improvements, the amount referred to interest rate reduction refinancing loan applied to such portion of the
with respect to the loan under or subsequent interest rate reduction indebtedness. All other payments shall
paragraph (a)(4)(i) of this section, plus refinancing loans on the same property be applied ratably to those portions of
the amount authorized by meets the requirements of § 36.4802(h). the loan allocable respectively to the
§ 36.4839(a)(4). (Authority: 38 U.S.C. 3703(a)) veteran and to the other debtors.
(Authority: 38 U.S.C. 3703, 3710) (2) Proceeds of the sale or other
(c) Title to the estate which is liquidation of the security shall be
(5) If the loan being refinanced is refinanced for the purpose of an interest applied ratably to the respective
delinquent (delinquent means that a rate reduction must be in conformity portions of the loan, such portion of the
scheduled monthly payment of with § 36.4854. proceeds as represents the interest of the
principal and interest is more than 30 (Authority: 38 U.S.C. 3710(a)(8), (a)(9)(B)(i) veteran being applied to that portion of
days past due), the new loan will be and (e)) the loan allocable to such veteran.
guaranteed only if the Secretary (The Office of Management and Budget has (Authority: 38 U.S.C. 3703)
approves it in advance after determining approved the information collection
that the borrower, through the lender, requirements in this section under control § 36.4809 Transfer of title by borrower or
has provided reasons for the loan number 2900–0601.) maturity by demand or acceleration.
deficiency, has provided information to (a) Except as provided by paragraphs
§ 36.4808 Joint loans.
establish that the cause of the (b) or (c) of this section the conveyance
delinquency has been corrected, and (a) Except as provided in paragraph of or other transfer of title to property
qualifies for the loan under the credit (b) of this section, the prior approval of by operation of law or otherwise, after
standards contained in § 36.4840. In the Secretary is required in respect to the creation of a lien thereon to secure
such cases, the term ‘‘balance of the any loan to be made to two or more a loan which is guaranteed or insured in
loan being refinanced’’ shall include borrowers who become jointly and whole or in part by the Secretary, shall
any past due installments, plus severally liable, or jointly liable not constitute an event of default, or
allowable late charges. therefor, and who will acquire an acceleration of maturity, elective or
(6) The dollar amount of guaranty on undivided interest in the property to be otherwise, and shall not of itself
the 38 U.S.C. 3710(a)(8) or (a)(9)(B)(i) purchased or who will otherwise share terminate or otherwise affect the
loan does not exceed the greater of the in the proceeds of the loan, or in respect guaranty or insurance.
original guaranty amount of the loan to any loan to be made to an eligible (b)(1) The Secretary may issue
being refinanced or 25 percent of the veteran whose interest in the property guaranty on loans in which a State,
new loan. owned, or to be acquired with the loan Territorial, or local governmental
(7) The term of the refinancing loan proceeds, is an undivided interest only, agency provides assistance to a veteran
(38 U.S.C. 3710(a)(8)) may not exceed unless such interest is at least a 50 for the acquisition of a dwelling. Such
the original term of the loan being percent interest in a partnership. The loans will not be considered ineligible
refinanced plus ten years, or the amount of the guaranty or insurance for guaranty if the State, Territorial, or
maximum loan term allowed under 38 credit shall be computed in such cases local authority, by virtue of its laws or
U.S.C. 3703(d)(1), whichever is less. For only on that portion of the loan regulations or by virtue of Federal law,
manufactured home loans that were allocable to the eligible veteran which, requires the acceleration of maturity of
previously guaranteed under 38 U.S.C. taking into consideration all relevant the loan upon the sale or conveyance of
3712, the loan term, if being refinanced factors, represents the proper the security property to a person
under 38 U.S.C. 3710(a)(9)(B)(i), may contribution of the veteran to the ineligible for assistance from such
exceed the original term of the loan but transaction. Such loans shall be secured authority.
may not exceed the maximum loan term to the extent required by 38 U.S.C. (2) At the time of application for a
allowed under 38 U.S.C. 3703(d)(1). chapter 37 and the regulations loan assisted by a State, Territorial, or
concerning guaranty or insurance of local governmental agency, the veteran-
(Authority: 38 U.S.C. 3703(c)(1), 3710(e)(1))
loans to veterans. applicant must be fully informed and
(b) Notwithstanding any other (b) Notwithstanding the provisions of consent in writing to the housing
regulatory provision, the interest rate paragraph (a) of this section, the joinder authority restrictions. A copy of the
reduction refinancing loan may be of the spouse of a veteran-borrower in veteran’s consent statement must be
guaranteed without regard to the the ownership of residential property forwarded with the loan application or
amount of guaranty entitlement shall not require prior approval or the report of a loan processed on the
available for use by the veteran, and the preclude the issuance of a guaranty or automatic basis.
amount of the veteran’s remaining insurance credit based upon the entire
guaranty entitlement, if any, shall not be amount of the loan. If both spouses be (Authority: 38 U.S.C. 3703(c))
charged for an interest rate reduction eligible veterans, either or both may, (c) Any housing loan which is
refinancing loan. The interest rate within permissible maxima, utilize financed under 38 U.S.C. chapter 37,
reduction refinancing loan will be available guaranty or insurance and to which section 3714 of that
guaranteed with the lesser of the entitlement. chapter applies, shall include a
entitlement used by the veteran to (c) For the purpose of determining the provision in the security instrument that
obtain the loan being refinanced or the rights and the liabilities of the Secretary the holder may declare the loan
amount of the guaranty as calculated with respect to a loan subject to immediately due and payable upon
under § 36.4802(a). The veteran’s loan paragraph (a) of this section, credits transfer of the property securing such
guaranty entitlement originally used for legally applicable to the entire loan loan to any transferee unless the
a purpose as enumerated in 38 U.S.C. shall be applied as follows: acceptability of the assumption of the
3710(a)(1) through (7) and (a)(9)(A)(i) (1) Prepayments made expressly for loan is established pursuant to section
and (ii) and subsequently transferred to credit to that portion of the 3714.
an interest rate reduction refinancing indebtedness allocable to the veteran (1) A holder may not exercise its
loan (38 U.S.C. 3710(a)(8) or (a)(9)(B)(i)) (including the gratuity paid pursuant to option to accelerate a loan upon:
(i) The creation of a lien or other from the face of the instrument. A loan or be otherwise precluded by law. A
encumbrance subordinate to the which is payable on demand, or at sight, delinquency will include all installment
lender’s security instrument which does or on presentation, or at a time not payments (principal, interest, taxes,
not relate to the transfer of rights of specified or computable from the insurance, advances, etc.) due and
occupancy in the property; language in the note, mortgage, or other unpaid and any accumulated late
(ii) The creation of a purchase money loan instrument, or which contemplates charges plus any reasonable expenses
security interest for household periodic renewals at the option of the incurred and paid by the holder if
appliances; holder to satisfy the repayment termination proceedings have begun
(iii) A transfer by devise, descent, or requirements of this section, is not (e.g., advertising costs, foreclosure costs,
operation of law on the death of a joint eligible for guaranty or insurance, attorney or trustee fees, recording fees,
tenant or tenant by the entirety; except as provided in paragraph (f) of etc.).
(iv) The granting of a leasehold this section. (Authority: 38 U.S.C. 3703(c))
interest of three years or less not (e) No guaranteed or insured (The Office of Management and Budget has
containing an option to purchase; obligation shall contain a provision to approved the information collection
(v) A transfer to a relative resulting the effect that the holder shall have the requirements in this section under control
from the death of a borrower; right to declare the indebtedness due, or number 2900–0516.)
(vi) A transfer where the spouse or to pursue one or more legal or equitable
children of the borrower become joint § 36.4810 Amortization.
remedies, if holder ‘‘shall feel insecure,’’
owners of the property with the or upon the occurrence of one or more (a) All loans, the maturity date of
borrower; such conditions optional to the holder, which is beyond 5 years from date of
(vii) A transfer resulting from a decree without regard to an act or omission by loan or date of assumption by the
of a dissolution of marriage, legal the debtor, which condition by the veteran, shall be amortized. Except as
separation agreement, or from an terms of the note, mortgage, or other provided in paragraph (e) of this
incidental property settlement loan instrument would at the option of section, the schedule of payments
agreement by which the spouse of the the holder afford a basis for declaring a thereon shall be in accordance with any
borrower becomes the sole owner of the default. generally recognized plan of
property. In such a case the borrower (f) Notwithstanding the inclusion in amortization requiring approximately
shall have the option of applying the guaranteed or insured obligation of equal periodic payments and shall
directly to the Department of Veterans a provision contrary to the provisions of require a principal reduction not less
Affairs regional office of jurisdiction for this section, the right of the holder to often than annually during the life of
a release of liability in accordance with payment of the guaranty or insurance the loan. The final installment on any
§ 36.4826; or shall not be thereby impaired: Provided, loan shall not be in excess of two times
(viii) A transfer into an inter vivos (1) Default was declared or maturity the average of the preceding
trust in which the borrower is and was accelerated under some other installments, except that on a
remains a beneficiary and which does provision of the note, mortgage, or other construction loan such installment may
not relate to a transfer of rights of loan instrument, or be for an amount not in excess of 5
occupancy in the property. (2) Activation or enforcement of such percent of the original principal amount
(2) With respect to each such loan at provision is warranted under of the loan. The limitations imposed
least one of the instruments used in the § 36.4850(i)(2), or if there exist herein on the amount of the final
transaction shall contain the following conditions justifying the appointment of installment shall not apply in the case
statement: ‘‘This loan is not assumable a receiver for the property (without of any loan extended pursuant to
without the approval of the Department reference to any contractual provisions § 36.4815.
of Veterans Affairs or its authorized for such appointment), or (b) Any plan of repayment on loans
agent.’’ This statement must be: (3) The prior approval of the Secretary required to be amortized which does not
(i) Printed in a font size which is the was obtained. provide for approximately equal
larger of: (Authority: 38 U.S.C. 3703(c))
periodic payments shall not be eligible
(A) Two times the largest font size unless the plan conforms with the
contained in the body of the instrument; (g) The holder of any guaranteed or provisions of paragraph (e) of this
or insured obligation shall have the right, section, or is otherwise approved by the
(B) 18 points; and notwithstanding the absence of express Secretary.
(ii) Contained in at least one of the provision therefor in the instruments (c) Every guaranteed or insured loan
following: evidencing the indebtedness, to shall be repayable within the estimated
(A) The note; accelerate the maturity of such economic life of the property securing
(B) The mortgage or deed of trust; or obligation at any time after the the loan.
(C) A rider to either the note, the continuance of any default for the (d) Subject to paragraph (a) of this
mortgage, or the deed of trust. period of three months. section, any amounts which under the
(h) If sufficient funds are tendered to terms of a loan do not become due and
(Authority: (38 U.S.C. 3714(d)) bring a delinquency current at any time payable on or before the last maturity
(d) The term of payment of any prior to a judicial or statutory sale or date permissible for loans of its class
guaranteed or insured obligation shall other public sale under power of sale under the limitations contained in 38
bear a proper relation to the borrower’s provisions contained in the loan U.S.C. chapter 37 shall automatically
present and anticipated income and instruments to liquidate any security for fall due on such date. See § 36.4837.
expenses, (except loans pursuant to 38 a guaranteed loan, the holder shall be (e) A graduated payment mortgage
U.S.C. 3710(a)(8) or (a)(9)(B)(i)). In obligated to accept the funds in loan, providing for deferrals of interest
addition the terms of payment of any payment of the delinquency unless the during the first 5 years of the loan and
guaranteed or insured obligation shall prior approval of the Secretary is addition of the deferred amounts to
provide for discharge of the obligation at obtained to do otherwise, or unless principal shall be eligible, Provided:
a definite date or dates or intervals, in reinstatement of the loan would (1) The loan is for the purpose of
amount specified on or computable adversely affect the dignity of the lien acquiring a single-family dwelling unit,
including a condominium unit or lender, or bear interest at a rate not in published monthly in the Federal
simultaneously acquiring and excess of a rate established by the Reserve Bulletin, published by the
improving a previously occupied, Secretary. The Secretary may, from time Federal Reserve Board of the Federal
existing single-family dwelling unit. to time, change that election by Reserve System, as well as quarterly in
(2)(i) For proposed construction or publishing a notice in the Federal the Treasury Bulletin, published by the
existing homes not previously occupied Register. However, the interest rate of a Department of the Treasury.
(new homes), the maximum loan loan for the purpose of an interest rate (2) Frequency of interest rate changes.
amount cannot exceed 97.5 percent of reduction under 38 U.S.C. 3710(a)(8), Interest rate adjustments must occur on
the lesser of the reasonable value of the (a)(9)(B)(i), or (a)(11) must be less than an annual basis, except that the first
property as of the time the loan is made the interest rate of the VA loan being adjustment may occur no sooner than 36
or the purchase price. refinanced. This paragraph does not months from the date of the borrower’s
(ii) For previously occupied, existing apply in the case of an adjustable rate first mortgage payment. The adjusted
homes the maximum loan amount must mortgage being refinanced under 38 rate will become effective the first day
be computed to assure that the principal U.S.C. 3710(a)(8), (a)(9)(B)(i), or (a)(11) of the month following the adjustment
amount of the loan, including all with a fixed rate loan. date; the first monthly payment at the
interest scheduled to be deferred and (Authority: 38 U.S.C. 3703, 3710) new rate will be due on the first day of
added to the loan principal, will not the following month. To set the new
(b) For loans bearing an interest rate interest rate, the lender will determine
exceed the purchase price or reasonable
agreed upon by the veteran and the the change between the initial (i.e.,
value of the property, whichever is less, lender, the veteran may pay reasonable
as of the time the loan is made; base) index figure and the current index
discount points in connection with the figure. The initial index figure shall be
(3) The increases in the monthly loan. The discount points may not be
periodic payment amount occur the most recent figure available before
included in the loan amount, except for the date of mortgage loan origination.
annually on each of the first five annual interest rate reduction refinancing loans
anniversary dates of the first loan The current index figure shall be the
under 38 U.S.C. 3710(a)(8), (a)(9)(B)(i), most recent index figure available 30
installment due date, at a rate of 7.5 and (a)(11). For loans bearing an interest
percent over the preceding year’s days before the date of each interest rate
rate agreed upon by the veteran and the adjustment.
monthly payment amount; lender, the provisions of § 36.4813(d)(6)
(4) Beginning with the payment due (3) Method of rate changes. Interest
and (d)(7) do not apply. rate changes may only be implemented
on the fifth annual anniversary date of
the first loan installment due date, all (Authority: 38 U.S.C. 3703, 3710) through adjustments to the borrower’s
remaining monthly periodic payments (c) Except as provided in § 36.4815, monthly payments.
(4) Initial rate and magnitude of
are approximately equal in amount and interest in excess of the rate reported by
changes. The initial contract interest
amortize the loan fully in accordance the lender when requesting evidence of
rate of an adjustable rate mortgage shall
with the requirements of this section, guaranty or insurance shall not be
be agreed upon by the lender and the
and payable on any advance, or in the event
veteran. Annual adjustments in the
(5) The plan is otherwise acceptable of any delinquency or default: Provided,
interest rate shall correspond to annual
to the Secretary. that a late charge not in excess of an
amount equal to 4 percent on any changes in the interest rate index,
(Authority: 38 U.S.C. 3703(d)) subject to the following conditions and
installment paid more than 15 days after
due date shall not be considered a limitations:
§ 36.4811 Prepayment.
(i) No single adjustment to the interest
The debtor shall have the right to violation of this limitation.
rate may result in a change in either
prepay at any time, without premium or (Authority: 38 U.S.C. 3710) direction of more than one percentage
fee, the entire indebtedness or any part (d) Effective October 1, 2003, point from the interest rate in effect for
thereof not less than the amount of one adjustable rate mortgage loans which the period immediately preceding that
installment, or $100, whichever is less. comply with the requirements of this adjustment. Index changes in excess of
Any prepayment in full of the paragraph (d) are eligible for guaranty. one percentage point may not be carried
indebtedness shall be credited on the (1) Interest rate index. Changes in the over for inclusion in an adjustment in
date received, and no interest may be interest rate charged on an adjustable a subsequent year. Adjustments in the
charged thereafter. Any partial rate mortgage must correspond to effective rate of interest over the entire
prepayment made on other than an changes in the weekly average yield on term of the mortgage may not result in
installment due date need not be one year (52 weeks) Treasury bills a change in either direction of more
credited until the next following adjusted to a constant maturity. Yields than five percentage points from the
installment due date or 30 days after on one year Treasury bills at ‘‘constant initial contract interest rate.
such prepayment, whichever is earlier. maturity’’ are interpolated by the United (ii) At each adjustment date, changes
The holder and the debtor may agree at States Treasury from the daily yield in the index interest rate, whether
any time that any prepayment not curve. This curve, which relates the increases or decreases, must be
previously applied in satisfaction of yield on the security to its time to translated into the adjusted mortgage
matured installments shall be reapplied maturity, is based on the closing market interest rate, rounded to the nearest one-
for the purpose of curing or preventing bid yields on actively traded one year eighth of one percent, up or down. For
any subsequent default. Treasury bills in the over-the-counter example, if the margin is 2 percent and
(Authority: 38 U.S.C. 3703(d)) market. The weekly average one year the new index figure is 6.06 percent, the
constant maturity Treasury bill yields adjusted mortgage interest rate will be 8
§ 36.4812 Interest rates. are published by the Federal Reserve percent. If the margin is 2 percent and
(a) In guaranteeing or insuring loans Board of the Federal Reserve System. the new index figure is 6.07 percent, the
under 38 U.S.C. chapter 37, the The Federal Reserve Statistical Release adjusted mortgage interest rate will be 8
Secretary may elect to require that such Report H. 15 (519) is released each 1/8 percent.
loans either bear interest at a rate that Monday. These one year constant (5) Pre-loan disclosure. The lender
is agreed upon by the veteran and the maturity Treasury bill yields are also shall explain fully and in writing to the
borrower, at the time of loan (b) Except as provided in this subpart, expressly specified and allowed in this
application, the nature of the obligation no brokerage or service charge or their schedule.
taken. The borrower shall certify in equivalent may be charged against the (3) In cases where a lender makes
writing that he or she fully understands debtor or the proceeds of the loan either advances to a veteran during the
the obligation and a copy of the signed initially, periodically, or otherwise. progress of construction, alteration,
certification shall be placed in the loan (c) Brokerage or other charges shall improvement, or repair, either under a
folder and furnished to VA upon not be made against the veteran for commitment of the Department of
request. obtaining any guaranty or insurance Veterans Affairs to issue a guaranty
(i) The fact that the mortgage interest under 38 U.S.C. chapter 37, nor shall certificate or insurance credit upon
rate may change, and an explanation of any premiums for insurance on the life completion, or where the lender would
how changes correspond to changes in of the borrower be paid out of the be entitled to guaranty or insurance on
the interest rate index; proceeds of a loan. such advances when reported under
(ii) Identification of the interest rate (d) The following schedule of automatic procedure, the lender may
index, its source of publication and permissible fees and charges shall be make a charge against the veteran of not
availability; applicable to all Department of Veterans exceeding 2 percent of the amount of
(iii) The frequency (i.e., annually) Affairs guaranteed or insured loans. the loan for its services in supervising
with which interest rate levels and (1) The veteran may pay reasonable the making of advances and the progress
monthly payments will be adjusted, and and customary amounts for any of the of construction notwithstanding that the
the length of the interval that will following items: ‘‘holdback’’ or final advance is not
precede the initial adjustment; and (i) Fees of Department of Veterans actually paid out until after the
(iv) A hypothetical monthly payment Affairs appraiser and of compliance construction, alteration, improvement,
schedule that displays the maximum inspectors designated by the or repair is fully completed: Provided,
potential increases in monthly Department of Veterans Affairs except That the major portion (51 percent or
payments to the borrower over the first appraisal fees incurred for the more) of the loan proceeds is paid out
five years of the mortgage, subject to the predetermination of reasonable value during the actual progress of the
provisions of the mortgage instrument. requested by others than veteran or construction, alteration, improvement,
(6) Annual disclosure. At least 25 lender. or repair. Such charge may be in
days before any adjustment to a (ii) Recording fees and recording taxes addition to the 1 percent charge allowed
borrower’s monthly payment may occur, or other charges incident to recordation. under paragraph (d)(2) of this section.
(4) In consideration, alteration,
the lender must provide a notice to the (iii) Credit report.
improvement or repair loans, including
borrower which sets forth the date of the (iv) That portion of taxes,
supplemental loans made pursuant to
notice, the effective date of the change, assessments, and other similar items for
§ 36.4859, where no charge is
the old interest rate, the new interest the current year chargeable to the
permissible under the provisions of
rate, the new monthly payment amount, borrower and an initial deposit (lump-
paragraph (d)(3) of this section the
the current index and the date it was sum payment) for the tax and insurance
lender may charge and the veteran may
published, and a description of how the account.
pay a flat sum not exceeding 1 percent
payment adjustment was calculated. A (v) Hazard insurance required by of the amount of the loan. Such charge
copy of the annual disclosure shall be § 36.4829. may be in addition to the 1 percent
made a part of the lender’s permanent (vi) Survey, if required by lender or allowed under paragraph (d)(2) of this
record on the loan. veteran; except that any charge for a section.
(Authority: 38 U.S.C. 3707A) survey in connection with a loan under (5) The fees and charges permitted
§§ 36.4860 through 36.4865 under this paragraph are maximums and
§ 36.4813 Charges and fees. (Condominium Loans) must have the are not intended to preclude a lender
(a) No charge shall be made against, prior approval of the Secretary. from making alternative charges against
or paid by, the borrower incident to the (vii) Title examination and title the veteran which are not specifically
making of a guaranteed or insured loan insurance, if any. authorized in the schedule provided the
other than those expressly permitted (viii) The actual amount charged for imposition of such alternative charges
under paragraph (d) or (e) of this flood zone determinations, including a would not result in an aggregate charge
section, and no loan shall be guaranteed charge for a life-of-the-loan flood zone or payment in excess of the prescribed
or insured unless the lender certifies to determination service purchased at the maximum.
the Secretary that it has not imposed time of loan origination, if made by a (6) The veteran borrower subject to
and will not impose any charges or fees third party who guarantees the accuracy the limitations set forth in paragraphs
against the borrower in excess of those of the determination. A fee may not be (d)(6) and (7) of this section may pay a
permissible under paragraph (d) or (e) of charged for a flood zone determination discount required by a lender when the
this section. Any charge which is proper made by a Department of Veterans proceeds of the loan will be used for any
to make against the borrower under the Affairs appraiser or for the lender’s own of the following purposes:
provisions of this paragraph may be determination. (i) To refinance existing indebtedness
paid out of the proceeds of the loan: (ix) Such other items as may be pursuant to 38 U.S.C. 3710(a)(5), (a)(8),
Provided, That if the purpose of the loan authorized in advance by the Under (a)(9)(B)(i) or (a)(9)(B)(ii);
is to finance the purchase or Secretary for Benefits as appropriate for (ii) To repair, alter or improve a
construction of residential property the inclusion under this paragraph (d) as dwelling owned by the veteran pursuant
costs of closing the loan including the proper local variances. to 38 U.S.C. 3710(a)(4) or (7) if such
pro rata portion of the ground rents, (2) A lender may charge and the loan is to be secured by a first lien;
hazard insurance premiums, current veteran may pay a flat charge not (iii) To construct a dwelling or farm
year’s taxes, and other prepaid items exceeding 1 percent of the amount of residence on land already owned or to
normally involved in financing such the loan, provided that such flat charge be acquired by the veteran, provided
transaction may not be included in the shall be in lieu of all other charges that the veteran did not or will not
loan. relating to costs of origination not acquire the land directly or indirectly
from a builder or developer who will be (B) The dollar amount of the discount subsequent time, the fee shall be 3
constructing such dwelling or farm is disclosed to the Secretary and the percent of the loan amount.
residence; veteran prior to the issuance by the (iii) Except for loans to veterans
(iv) To purchase a dwelling from a Secretary of the certificate of whose entitlement is based on service in
class of sellers which the Secretary commitment. Said certificate of the Selected Reserve under the
determines are legally precluded under commitment shall specify the discount provisions of 38 U.S.C. 3701(b)(5), the
all circumstances from paying such a to be paid by the veteran, and this funding fee shall be 2 percent of the
discount if the best interest of the discount may not be increased once the total loan amount for all loans for the
veteran would be so served. commitment is issued without the purchase or construction of a home on
(7) Discounts shall be computed as approval of the Secretary; and which the veteran does not make a
follows: (C) The discount has been determined down payment, unless the veteran is
(i) Unless otherwise approved by the by the Secretary to be reasonable in using entitlement for a second or
Secretary, the discount, if any, to be amount. subsequent time, in which case the fee
paid by the borrower on a loan secured (iii) A veteran may pay the discount shall be 3 percent. On purchase or
by a first lien may not exceed the on an acquisition and improvement loan construction loans on which the veteran
difference between the bid price, (as defined in § 36.4801) provided: makes a down payment of 5 percent or
rounded to the lower whole number, (A) The veteran pays no discount on more, but less than 10 percent, the
and par value for GNMA (Government the acquisition portion of the loan amount of the funding fee shall be 1.50
National Mortgage Association) 90-day except in accordance with paragraph percent of the total loan amount. On
forward bid closing price for pass (d)(6)(iv) of this section; and purchase or construction loans on
through securities 1⁄2 percent less than (B) The discount paid on the which the veteran makes a down
the face note rate of the loan. Unless the improvements portion of the loan does payment of 10 percent or more, the
lender and borrower negotiate a firm not exceed the percentage of discount amount of the funding fee shall be 1.25
written commitment for a maximum paid on the acquisition portion of the percent of the total loan amount.
amount of discount to be paid, the bid loan. (iv) On loans to veterans whose
price to be used in the computation Note to paragraph (d)(7)(iii): entitlement is based on service in the
must be the GNMA 90-day forward bid Acquisition and improvement loans Selected Reserve under the provisions
closing quote for any day 1 to 4 business may be closed either on the automatic of 38 U.S.C. 3701(b)(5), the funding fee
days prior to loan closing. ‘‘Loan or prior approval basis. shall be 2.75 percent of the total loan
closing’’ is defined for this purpose as (iv) Unless the Under Secretary for amount on loans for the purchase or
the date on which the borrower’s 3-day Benefits otherwise directs, all powers of construction of a home on which the
right of rescission commences pursuant the Secretary under paragraphs (d)(6) veteran does not make a down payment,
to the Truth in Lending Act. If the and (7) of this section are hereby unless the veteran is using entitlement
lender and borrower choose to negotiate delegated to the officials designated by for a second or subsequent time, in
a firm discount commitment for a § 36.4845(b). which case the fee shall be 3 percent.
maximum amount of discount to be On purchase or construction loans on
(Authority: 38 U.S.C. 3703, 3710; 42 U.S.C.
paid, the bid price to be used in which veterans whose entitlement is
4001 note, 4012a)
establishing the maximum discount based on service in the Selected Reserve
(8) On any loan to which 38 U.S.C. make a down payment of 5 percent or
must be the closing quote for the 3714 applies, the holder may charge a
business day prior to the date of the more, but less than 10 percent, the
reasonable fee, not to exceed the lesser amount of the funding fee shall be 2.25
commitment. Lenders negotiating firm of $300 and the actual cost of any credit
commitments must close that loan at a percent of the total loan amount. On
report required, or any maximum purchase or construction loans on
discount no higher than the firm prescribed by applicable State law, for
commitment regardless of changes in which such veterans make a down
processing an application for payment of 10 percent or more, the
the maximum allowable Department of assumption and changing its records.
Veterans Affairs interest rate. If a amount of the funding fee shall be 2
lender’s commitment expires prior to (Authority: 38 U.S.C. 3714) percent of the total loan amount.
(v) All or part of the fee may be paid
loan closing, the lender and borrower (e) Subject to the limitations set out in in cash at loan closing or all or part of
may negotiate a new firm commitment paragraph (e)(4) of this section, a fee the fee may be included in the loan
based on the procedure outlined in this must be paid to the Secretary. without regard to the reasonable value
paragraph (d)(7)(i) or may use the (1) The fee on loans to veterans shall of the property or the computed
procedure for determining the discount be as follows: maximum loan amount, as appropriate.
based on the GNMA 90-day forward bid (i) On all interest rate reduction In computing the fee, the lender will
closing quote for any day 1 to 4 business refinancing loans guaranteed under 38 disregard any amount included in the
days prior to loan closing. U.S.C. 3710(a)(8), (a)(9)(B)(i), and loan to enable the borrower to pay such
(ii) The borrower, subject to the (a)(11), the fee shall be 0.50 percent of fee.
limitations set forth in paragraphs (d)(6) the total loan amount.
and (7) of this section, may pay a (ii) On all refinancing loans other than (Authority: 38 U.S.C. 3729)
discount required by the lender when those described in paragraph (e)(1)(i) of (2) Subject to the limitations set out
the proceeds of the loan will be used to this section, the funding fee shall be in this section, a fee of one-half of one
repair, alter, or improve a dwelling 2.75 percent of the loan amount for percent of the loan balance must be paid
owned by the veteran pursuant to 38 loans to veterans whose entitlement is to the Secretary in a manner prescribed
U.S.C. 3710(a)(4) or (7) if such loan is based on service in the Selected Reserve by the Secretary by a person assuming
unsecured or secured by less than a first under the provisions of 38 U.S.C. a loan to which 38 U.S.C. 3714 applies.
lien. No such discount may be charged 3701(b)(5), and 2 percent of the loan The instrument securing such a loan
unless: amount for loans to all other veterans; shall contain a provision describing the
(A) The loan is submitted to the provided, however, that if the veteran is right of the holder to collect this fee as
Secretary for prior approval; using entitlement for a second or trustee for the Department of Veterans
Affairs. The loan holder shall list the be collected from a veteran who is the State where the property is located,
amount of this fee in every assumption receiving compensation (or who but for as determined by the Secretary.
statement provided and include a notice the receipt of retirement pay would be (ii) In determining what constitutes
that the fee must be paid to the holder entitled to receive compensation) or the reasonable and customary fees for
immediately following loan settlement. from a surviving spouse described in legal services, the Secretary shall review
The fee must be transmitted to the section 3701(b) of title 38, United States allowances for legal fees in connection
Secretary within 15 days of the receipt Code. with the foreclosure of single-family
by the holder of the notice of transfer. (Authority: 38 U.S.C. 3729) housing loans, including bankruptcy-
(Authority: 38 U.S.C. 3714, 3729) related services, issued by HUD, Fannie
(The Office of Management and Budget has
approved the information collection Mae, and Freddie Mac. The Secretary
(3) The lender is required to pay to will review such fees annually and, as
the Secretary the fee described in the Secretary deems necessary, publish
numbers 2900–0474 and 2900–0516.)
paragraph (e)(1) of this section within in the Federal Register a table setting
15 days after loan closing. Any lender forth the amounts the Secretary
§ 36.4814 Advances and other charges.
closing a loan, subject to the limitations determines to be reasonable and
set out in paragraph (e)(4) of this section (a) A holder may advance any amount
reasonably necessary and proper for the customary. The table will reflect the
who fails to submit timely payment of primary method for foreclosing in each
this fee will be subject to a late charge maintenance or repair of the security, or
for the payment of accrued taxes, state, either judicial or non-judicial,
equal to 4 percent of the total fee due. with the exception of those States where
If payment of the fee described in special assessments, ground or water
rents, or premiums on fire or other either judicial or non-judicial is
paragraph (e)(1) of this section is made acceptable. The use of a method not
more than 30 days after loan closing, casualty insurance against loss of or
damage to such property and any such authorized in the table will require prior
interest will be assessed at a rate set in approval from VA. This table will be
conformity with the Department of advance so made may be added to the
guaranteed or insured indebtedness. A available throughout the year on a VA
Treasury’s Fiscal Requirements Manual. controlled Web site, such as at http://
This interest charge is in addition to the holder may also advance the one-half of
one percent funding fee due on a www.homeloans.va.gov.
4 percent late charge, but the late charge (iii) If the foreclosure attorney has the
is not included in the amount on which transfer under 38 U.S.C. 3714 when this
discretion to conduct the sale or to
interest is computed. This interest is not paid at the time of transfer. All
name a substitute trustee to conduct the
charge is to be calculated on a daily security instruments for loans to which
sale, the combined total paid for legal
basis beginning on the date of closing, 38 U.S.C. 3714 applies must include a
fees under paragraph (b)(5)(i) of this
although the interest will be assessed clause authorizing the collection of an
section and trustee’s fees pursuant to
only on funding fee payments received assumption funding fee and an advance
paragraph (b)(4) of this section shall not
more than 30 days after closing. for this fee if it is not paid at the time
exceed the applicable maximum
(4) The lender is required to pay to of transfer.
allowance for legal fees established
the Secretary electronically through the (Authority: 38 U.S.C. 3703, 3714, 3732) under paragraph (b)(5)(ii) of this section.
Automated Clearing House (ACH) If the trustee conducting the sale must
(b) In addition to advances allowable
system the fees described in paragraphs be a Government official under local
under paragraph (a) of this section, the
(e)(1) and (e)(2) of this section and any law, or if an individual other than the
holder may charge against the proceeds
late fees and interest due on them. This foreclosing attorney (or any employee of
of the sale of the security; may charge
shall be paid to a collection agent by that attorney) is appointed as part of
against gross amounts collected; may
operator-assisted telephone, terminal judicial proceedings, and local law also
include in any accounting to the
entry, or CPU-to-CPU transmission. The establishes the fees payable for the
Secretary after payment of a claim under
collection agent will be identified by the services of the public or judicially
the guaranty; may include in the
Secretary. The lender shall provide the appointed trustee, then those fees will
computation of a claim under the
collection agent with the following: not be subject to the maximum
guaranty, if lawfully authorized by the
authorization for payment of the established for legal fees under
loan agreement and subject to
funding fee (including late fees and paragraph (b)(5)(ii) of this section and
§ 36.4824(a); or, may include in the
interest) along with the following may be included in the total
computation of an insurance loss, any of
information: VA lender ID number; four- indebtedness.
the following items actually paid:
digit personal identification number; (6) The cost of a credit report(s) on the
(1) Any expense which is reasonably
dollar amount of debit; VA loan debtor(s), which is (are) to be forwarded
necessary for preservation of the
number; OJ (office of jurisdiction) code; to the Secretary in connection with the
security;
closing date; loan amount; information claim;
about whether the payment includes a (2) Court costs in a foreclosure or
other proper judicial proceeding (7) Reasonable and customary costs of
shortage, late charge, or interest; veteran property inspections;
name; loan type; sale amount; down involving the security;
(8) Any other expense or fee that is
payment; whether the veteran is a (3) Other expenses reasonably
approved in advance by the Secretary.
reservist; and whether this is a necessary for collecting the debt, or
repossession or liquidation of the (Authority: 38 U.S.C. 3720(a)(3), 3732)
subsequent use of entitlement. For all
transactions received prior to 8:15 p.m. security; (c) Any advances or charges
on a workday, VA will be credited with (4) Reasonable trustee’s fees or enumerated in paragraph (a) or (b) of
the amount paid to the collection agent commissions not in excess of those this section may be included as
at the opening of business the next allowed by statute and in no event in specified in the holder’s accounting to
banking day. excess of 5 percent of the unpaid the Secretary, but they are not
indebtedness; chargeable to the debtor unless he or she
(Authority: 38 U.S.C. 3729(a)) (5)(i) Fees for legal services actually otherwise be liable therefor.
(5) The fees described in paragraph performed, not to exceed the reasonable (d) Advances of the type enumerated
(e)(1) and (e)(2) of this section shall not and customary fees for such services in in paragraph (a) of this section and any
other advances determined by VA to be by the holder of the obligor’s (g) Holders will ensure the first lien
necessary and proper in order to creditworthiness under the criteria status of the modified loan.
preserve or protect the security may be specified in § 36.4840, including a (h) The dollar amount of the guaranty
authorized by employees designated in current credit report. The fact of the may not exceed the greater of:
§ 36.4845(b) in the case of any property recent default will not preclude the (1) The original guaranty amount of
constituting the security for a loan holder from determining the obligor is the loan being modified (but if the
acquired by the Secretary or constituting now a satisfactory credit risk provided modified loan amount is less than the
the security for the unpaid balance of the holder determines that the obligor is original loan amount, then the amount
the purchase price owing to the able to resume regular mortgage of guaranty will be equal to the original
Secretary on account of the sale of such installments when the modification guaranty percentage applied to the
property. Such advances shall be becomes effective based upon a review modified loan), or
secured to the extent legal and of the obligor’s current and anticipated (2) 25 percent of the loan being
practicable by a lien on the property. income, expenses, and other obligations modified subject to the statutory
(e) Notwithstanding the provisions of as provided in § 36.4840; maximum specified at 38 U.S.C.
paragraph (a) or (b) of this section, (4) At least 12 monthly payments 3703(a)(1)(B).
holders of condominium loans have been paid since the closing date of
(i) The obligor may not receive any
guaranteed or insured under 38 U.S.C. the loan;
(5) The current owner(s) is obligated cash back from the modification.
3710(a)(6) shall not pay those
assessments or charges allocable to the to repay the loan, and is party to the (j) This section does not create a right
condominium unit which are provided loan modification agreement; and of a borrower to have a loan modified,
for in the instruments establishing the (6) The loan will be reinstated to but simply authorizes the loan holder to
condominium form of ownership in the performing status by virtue of the loan modify a loan in certain situations
absence of the prior approval of the modification. without the prior approval of the
Secretary. (b) Without the prior approval of the Secretary.
(f)(1) Fees and charges otherwise Secretary, a loan can be modified no (Authority: 38 U.S.C. 3703(c)(1), 3720)
allowable by this section that accrue more than once in a 3-year period and
no more than three times during the life § 36.4816 Acceptability of partial
after the date specified in paragraph
of the loan. payments.
(f)(2) of this section may not be included
in a claim under the guaranty. (c) All modified loans must bear a A partial payment is a remittance by
(2) The date referenced in paragraph fixed-rate of interest, which may not or on behalf of the borrower on a loan
(f)(1) of this section will be computed by exceed the Government National in default (as defined in § 36.4801) of
adding 210 calendar days to the due Mortgage Association (GNMA) current any amount less than the full amount
date of the last paid installment, plus month coupon rate that is closest to par due under the terms of the loan and
the reasonable period that the Secretary (100) plus 50 basis points. The rate shall security instruments at the time the
has determined, pursuant to be determined as of the close of remittance is tendered.
§ 36.4822(a), it should have taken to business the last business day of the (a) Except as provided in paragraph
complete the foreclosure. There will month preceding the date the holder (b) of this section, or upon the express
also be added to the time period approved the loan modification. waiver of the Secretary, the mortgage
specified in the previous sentence such (d) The unpaid balance of the holder shall accept any partial payment
additional time as the Secretary modified loan may be re-amortized over and either apply it to the mortgagor’s
determines was reasonably necessary to the remaining life of the loan. The loan account or identify it with the
complete the foreclosure if the Secretary term may extend the maturity date to mortgagor’s account and hold it in a
determines the holder was unable to the shorter of: special account pending disposition.
complete the foreclosure within the (1) 360 months from the due date of When partial payments held for
time specified in that section due to the first installment required under the disposition aggregate a full monthly
Bankruptcy proceedings, appeal of the modification, or installment, including escrow, they
(2) 120 months after the original shall be applied to the mortgagor’s
foreclosure by the debtor, the holder
maturity date of the loan. account.
granting forbearance in excess of 30 (e) Only unpaid principal; accrued
days at the request of the Secretary, or interest; deficits in the taxes and (b) A partial payment may be returned
other factors beyond the control of the insurance impound accounts; and to the mortgagor, within 10 calendar
holder. advances required to preserve the lien days from date of receipt of such
(Authority: 38 U.S.C. 3703(c), 3720, 3732) position, such as homeowner payment, with a letter of explanation
association fees, special assessments, only if one or more of the following
§ 36.4815 Loan modifications. water and sewer liens, etc., may be conditions exist:
(a) Subject to the provisions of this included in the modified indebtedness. (1) The property is wholly or partially
section, the terms of any guaranteed Late fees and other charges may not be tenant-occupied and rental payments
loan may be modified by written capitalized. are not being remitted to the holder for
agreement between the holder and the (f) Holders shall not charge a application to the loan account;
borrower, without prior approval of the processing fee under any circumstances (2) The payment is less than one full
Secretary, if all of the following to complete a loan modification. monthly installment, including escrows
conditions are met: However, late fees and any other actual and late charge, if applicable, unless the
(1) The loan is in default; costs incurred and legally chargeable, lesser payment amount has been agreed
(2) The event or circumstances that including but not limited to the cost of to under a documented repayment plan;
caused the default has been or will be a title insurance policy for the modified (3) The payment is less than 50
resolved and it is not expected to re- loan, but which cannot be capitalized in percent of the total amount then due,
occur; the modified indebtedness, may be unless the lesser payment amount has
(3) The obligor is considered to be a collected directly from the borrower as been agreed to under a documented
reasonable credit risk, based on a review part of the modification process. repayment plan;
(4) The payment is less than the report this event regardless of (15) Default cured/loan reinstated—
amount agreed to in a documented delinquency status. when a previously reported default (i.e.
repayment plan; (3) Release of liability—when an an EDN was filed) has cured/loan
(5) The amount tendered is in the obligor has been released from liability. reinstated.
form of a personal check and the holder The servicer shall report this event (16) Default reported to credit
has previously notified the mortgagor in regardless of delinquency status. bureau—when the servicer notifies the
writing that only cash or certified (4) Partial release of security—when credit bureaus of a defaulted loan or
remittances are acceptable; the holder has released the lien on a loan termination. The servicer shall
(6) A delinquency of any amount has part of the security for the loan pursuant report this event only on delinquent
continued for at least 6 months since the to § 36.4827. The servicer shall report loans in its portfolio, and shall report
account first became delinquent and no this event regardless of delinquency the first occurrence only.
written repayment plan has been status. (17) Repayment plan approved—
arranged; (5) Servicing transfer (transferring when the servicer approves a repayment
(7) Foreclosure has been commenced servicer)—when a holder transfers the plan.
by the taking of the first action required loan to another servicer. (18) Special forbearance approved—
for foreclosure under local law; or (6) Servicing transfer (receiving when the servicer approves a special
(8) The holder’s lien position would forbearance agreement.
servicer)—when a servicer boards the
be jeopardized by acceptance of the
loan. (19) Loan modification approved—
partial payment.
(7) Electronic Default Notification when the servicer approves a loan
(c) A failure by the holder to comply
(EDN)—when the loan becomes at least modification.
with the provisions of this paragraph
may result in a partial or total loss of 61 days delinquent. The servicer shall (20) Loan modification complete—
guaranty or insurance pursuant to report this event no later than the 7th when both the servicer (and/or the
§ 36.4828(b), but such failure shall not calendar day from when the event holder, where necessary) and the
constitute a defense to any legal action occurred. The servicer shall report this owner(s) have executed the
to terminate the loan. event only once per default for modification agreement.
delinquent loans in its portfolio. (21) Compromise sale complete—
(Authority: 38 U.S.C. 3703(c)(1)) (8) Delinquency status—when the when a compromise sale closes.
§ 36.4817 Servicer reporting requirements. servicer notifies VA of any updates to (22) Deed-in-lieu of foreclosure
(a) Servicers of loans guaranteed by the delinquency information on loans complete—when the servicer records
the Secretary shall report the for which an EDN has been submitted. the deed-in-lieu of foreclosure. The
information required by this section to The servicer shall report this event servicer shall report this no later than
the Secretary electronically. The monthly (i.e., no later than the 7th the 7th calendar day from when the
Secretary shall accept electronic calendar day of the month following the event occurred.
submission from each entity servicing month for which the reported (23) Foreclosure referral—when the
loans guaranteed under 38 U.S.C. information applies) until the default loan is referred to legal counsel for
chapter 37 not later than the effective cures or the loan terminates. foreclosure. The servicer shall report
date of this rule. (9) Contact information change— this no later than the 7th calendar day
(b) Not later than the seventh calendar when there is a change to the contact from when the event occurred.
day of each month each servicer shall information for current owners or a (24) Foreclosure sale scheduled—
report to the Secretary basic information property or mailing address change. when the foreclosure sale is scheduled.
(loan identification information, (10) Occupancy status change—when The servicer shall report this no later
payment due date, and unpaid principal there is a change in property occupancy than the 7th calendar day from when
balance) for every loan guaranteed by status. the event occurred.
the Secretary currently being serviced (11) Bankruptcy filed—when any (25) Results of sale—when the
by that entity, unless previously owner files a petition under the foreclosure sale is complete, the servicer
reported under paragraph (c)(7) of this Bankruptcy Code. The servicer shall reports the results of the foreclosure
section and has not reinstated, report this event no later than the 7th sale. The servicer shall report this no
terminated, or paid in full. calendar day from when the event later than the 7th calendar day from
(c) Servicers shall report to the occurred. The servicer shall report this when the event occurred.
Secretary the following specific loan event only on delinquent loans in its (26) Transfer of custody—when the
events in accordance with the portfolio, if appropriate, or with the servicer notifies VA of the holder’s
timeframes described for each event. EDN when it is reported. intent to convey the property. The
Unless otherwise specified herein, the (12) Bankruptcy update—when a servicer shall report this no later than
servicer shall report these events on a significant event related to the the 15th calendar day from the date of
monthly basis (i.e., no later than the 7th bankruptcy has occurred. The servicer liquidation sale (such as the date of
calendar day of the month following the shall report this event no later than the foreclosure sale, date of recordation of a
month in which the event occurred) 7th calendar day from when the event deed-in-lieu of foreclosure, or
only for delinquent loans in its occurred. The servicer shall report this confirmation/ratification of sale date
portfolio. event only on delinquent loans in its when required under local practice).
(1) Loan paid in full—when the loan portfolio, if appropriate, or with the (27) Improper transfer of custody—
obligation has been fully satisfied by EDN when it is reported. when the servicer discovers that the
receipt of funds and not a servicing (13) Loss mitigation letter sent—when conveyance of the property to VA was
transfer. The servicer shall report this the servicer sends the loss mitigation improper. The servicer shall report this
event regardless of delinquency status. letter to the borrower as required by no later than the 7th calendar day from
(2) Authorized transfer of § 36.4850(g)(1)(iv). when the error is discovered.
ownership—when the servicer learns (14) Partial payment returned—when (28) Invalid sale results—when the
that an authorized transfer of ownership the servicer returns a partial payment to foreclosure sale is invalid. The servicer
has been completed. The servicer shall the borrower. shall report this no later than the 7th
calendar day from discovery of the guaranteed by the Secretary shall be are advised of their tier rankings
event that invalidated the sale. presumed to be in servicer tier two, and pursuant to paragraph (c)(2) of this
(29) Confirmed sale date with no shall remain in tier two until the date section, provided the servicer has
transfer of custody—when the loan is specified in paragraph (c)(2) of this received evaluations for at least four
terminated, the property is not section. continuous calendar quarters.
conveyed, and the property is located in (b) For purposes of this section, the (d) The quarterly evaluation and tier
a confirmation/ratification of sale state. term ‘‘calendar quarter’’ shall mean the ranking of a servicer shall be deemed to
(30) Basic claim information—when 3-month periods ending on March 31, be confidential and privileged and shall
the servicer files a claim under June 30, September 30, and December not be disclosed by the Secretary to any
guaranty. The servicer shall report this 31. other party.
event within 365 calendar days of loan (c)(1) No later than 30 calendar days
after the last business day of the first (Authority: 38 U.S.C. 3703(c))
termination for non-refund claims, and
within 60 calendar days of the refund calendar quarter occurring after the § 36.4819 Servicer loss-mitigation options
approval date for refund claims. rules for determining tier rankings take and incentives.
(31) Refunding Settlement—when VA effect, and then not later than 30
calendar days after the last business day (a) The Secretary will pay a servicer
refunds a loan and the servicer reports
of each subsequent calendar quarter, the in tiers one, two, or three an incentive
the tax and insurance information. The
Secretary shall provide each servicer payment for each of the following
servicer shall report this event within 60
with an evaluation of their performance successful loss-mitigation options or
calendar days of the refund approval
under such rules. alternatives to foreclosure completed:
date.
(2) No later than 45 calendar days repayment plans, special forbearance
(Authority: 38 U.S.C. 3703(c), 3732) agreements, loan modifications,
after the last business day of the fourth
(The Office of Management and Budget has compromise sales, and deeds-in-lieu of
calendar quarter during which the
approved the information collection foreclosure. Only one incentive
requirements in this section under control Secretary evaluates the performance of
servicers, and then annually thereafter, payment will be made with respect to
number 2900–0021.)
VA shall advise each servicer of its tier any default required to be reported to
§ 36.4818 Servicer tier ranking—temporary ranking. the Secretary pursuant to § 36.4817(c).
procedures. (3) Any entity which begins servicing No incentive payment will be made to
(a) The Secretary shall assign to each guaranteed loans after the first calendar a servicer in tier four. The options and
servicer a ‘‘Tier Ranking’’ based upon quarter occurring after rules for alternatives are listed in paragraph (b) of
the servicer’s performance in servicing determining tier rankings take effect this section from top to bottom in their
guaranteed loans. There shall be four shall be presumed to be in tier two. The preferred order of consideration (i.e., a
tiers, known as tier one, tier two, tier Secretary will evaluate the performance hierarchy for review), but VA recognizes
three, and tier four, with tier one being of such servicer as provided in that individual circumstances may lead
the highest rated and tier four the paragraph (c)(1) of this section. The to ‘‘out of the ordinary’’ considerations.
lowest. Upon the effective date of this Secretary will advise such servicer of its (b) The amount of the incentive
regulation, every servicer of loans tier ranking at the time other servicers payment is as follows:
Tier ranking One Two Three Four
Repayment Plan .............................................................................................................. $200 $160 $120 $0

Special Forbearance ........................................................................................................ 200 160 120 0
Loan Modification ............................................................................................................. 700 500 300 0
Compromise Sale ............................................................................................................ 1,000 800 600 0
Deed in Lieu of Foreclosure ............................................................................................ 350 250 150 0
(c) For purposes of this section, a loss- (5) With respect to a deed-in-lieu of § 36.4820 Refunding of loans in default.
mitigation option or alternative to foreclosure, when the claim under (a) Upon receiving a notice of default
foreclosure will be deemed successfully guaranty is filed. or a notice under § 36.4817, the
completed as follows: (d) Incentive payments with respect to Secretary may require the holder upon
(1) With respect to a repayment plan repayment plans, special forbearances penalty of otherwise losing the guaranty
(as defined in § 36.4801), when the loan or insurance to transfer and assign the
and loan modifications shall be made no
reinstates; loan and the security therefore to the
less frequently than monthly. For all
(2) With respect to special forbearance Secretary or to another designated by
other successful loss-mitigation options,
(as defined in § 36.4801), when the loan the Secretary upon receipt of payment
reinstates. If a repayment plan is incentives shall be paid in the final
in full of the balance of the
developed at the end of the forbearance claim payment. indebtedness remaining unpaid to the
period, then the special forbearance is (e) The Secretary shall reserve the date of such assignment. Such
not eligible for an incentive payment, right to stop an incentive payment to a assignment may be made without
although the subsequent repayment servicer if the servicer fails to perform recourse but the transferor shall not
plan may be eligible upon loan adequate servicing. thereby be relieved from the provisions
reinstatement; (Authority: 38 U.S.C. 3703(c), 3720, 3722) of § 36.4828.
(3) With respect to a loan (b) If the obligation is assigned or
modification, when the modification is (The Office of Management and Budget has
transferred to a third party pursuant to
approved the information collection
executed and the loan reinstates; paragraph (a) of this section the
(4) With respect to a compromise sale, Secretary may continue in effect the
number 2900–0021.)
when the claim under guaranty is filed; guaranty or insurance issued with
or respect to the previous loan in such
manner as to cover the assignee or time and method in connection with the (d) If the holder learns of any material
transferee. foreclosure of single-family housing damage to the property occurring after
(c) Servicers must deliver to the loans issued by HUD, Fannie Mae, and the appraisal and prior to the
Secretary all legal documents, including Freddie Mac, as well as State statutory liquidation sale, the impact of such
but not limited to proper loan requirements. The Secretary will review damage on the fair market value must be
assignments, required as evidence of such timeframes annually and, as the determined in consultation with the fee
proper loan transfer within 60 calendar Secretary deems necessary, publish in appraiser, and the net value adjusted
days from the date that VA sends notice the Federal Register a table setting forth accordingly.
to the servicer that VA has decided to the timeframes and methods the (e)(1) A holder may approve a
refund a loan under this section. Secretary determines to be reasonable. compromise sale of the property
Servicers exhibiting a continued failure The schedule will reflect the timeframe securing the loan without the prior
to provide timely loan transfer allowed for the standard, acceptable approval of the Secretary provided that:
documentation may, at the discretion of method for foreclosure proceedings in (i) The holder has determined the
the Secretary and following advance each State. The use of another method loan is insoluble;
notice to the servicer, be subject to will require prior approval from VA. VA (ii) The credit to the indebtedness
temporary suspension of all property will maintain the loan termination time (consisting of the net proceeds from the
acquisition and claim payments until all allowable timeframes on a Web site compromise sale and any waiver of
deficiencies identified in the notice under VA’s control, such as at indebtedness by the holder) must equal
provided to the servicer have been http://www.homeloans.va.gov. or exceed the net value of the property
corrected. (b)(1) At least 30 days prior to the securing the loan; and
scheduled or anticipated date of the (iii) The current owner of the property
(Authority: 38 U.S.C. 3703(c) and 3732(a))
liquidation sale, the holder must request securing the loan will not receive any
(The Office of Management and Budget has proceeds from the sale of the property.
that VA assign an appraiser to conduct
requirements in this section under control a liquidation appraisal. (2) A holder may request advance
number 2900–0362.) (2) If the holder (or its authorized approval from the Secretary for a
servicing agent) has been approved by compromise sale notwithstanding that
§ 36.4821 Service of process. the Secretary to process liquidation all of the conditions specified in
(a) In any legal or equitable appraisals under 38 CFR 36.4848, the paragraph (e)(1) of this section cannot
proceeding to which the Secretary is a appraiser shall forward the liquidation be met if the holder believes such
party (including probate and bankruptcy appraisal report directly to the holder compromise sale would be in the best
proceedings) arising from a loan for a determination of the fair market interests of the veteran and the
guaranteed, insured, or made, or a value of the property pursuant to Secretary.
property acquired by the Secretary § 36.4848. (f)(1) A holder may accept a deed
pursuant to title 38, U.S.C. chapter 37, (3) If the holder (or its authorized voluntarily tendered by the current
original process and any other process servicing agent) has not been approved owner of the property securing the loan
prior to appearance that may be served by the Secretary to process liquidations in lieu of conducting a foreclosure
on the Secretary must be delivered to appraisals under 38 CFR 36.4848, the without the prior approval of the
the VA Regional Counsel located in the Secretary shall review the appraisal and Secretary provided that:
jurisdiction in which the proceeding is determine the fair market value of the (i) The holder has determined the
docketed. Copies of such process will property. The Secretary will provide the loan is insoluble;
also be served on the Attorney General holder with a statement of the fair (ii) The holder has computed the net
of the United States and the United market value. value of the property securing the loan
States Attorney having jurisdiction over (4)(i) Except as provided in paragraph pursuant to paragraph (c) of this section;
that area. Within the time required by (b)(4)(ii) of this section, a liquidation (iii) The holder has considered a
applicable law, or rule of court, the appraisal or statement of fair market compromise sale pursuant to paragraph
Secretary will cause appropriate special value issued pursuant to paragraph (e) of this section and determined such
or general appearance to be entered in (b)(3) of this section will be valid for compromise sale is not practical; and,
the case by an authorized attorney. 180 calendar days. (iv) The holder has determined the
(ii) The Secretary may specify in current owner of the property can
(Authority: 38 U.S.C. 3703(c) and 3720(a)) writing a shorter validity period, not convey clear and marketable title to the
(b) After appearance of the Secretary less than 90 calendar days, for a property that would meet the standard
by attorney all process and notice liquidation appraisal or statement of fair stated in paragraph (d)(5) of § 36.4823.
otherwise proper to serve on the market value if rapidly-changing market (2) A holder may request advance
Secretary before or after judgment, if conditions in the area where the approval from the Secretary for a deed-
served on the attorney of record, shall property is located make such shorter in-lieu of foreclosure notwithstanding
have the same effect as if the Secretary validity period in the best fiscal that all of the conditions specified in
were personally served within the interests of the United States. paragraph (f)(1) of this section cannot be
jurisdiction of the court. (c) Prior to the liquidation sale, the met if the holder believes such deed-in-
(Authority: 38 U.S.C. 3720, 3732) holder shall compute the net value of lieu would be in the best interests of the
the property securing the guaranteed veteran and the Secretary.
§ 36.4822 Loan termination. loan by subtracting the estimated costs (Authority: 38 U.S.C. 3703(c), 3732)
(a) For purposes of this part, a holder, to the Secretary for the acquisition and
using reasonable diligence must disposition of the property from the fair § 36.4823 Election to convey security.
complete a foreclosure within the market value, as determined under (a) If the holder acquires the property
timeframe and in the manner paragraph (b) of this section. Those that secured the guaranteed loan at the
determined by the Secretary. In costs will be calculated using the liquidation sale or through acceptance
determining what constitutes allowable percentage derived by the Secretary and of a deed-in-lieu of foreclosure and if,
time and method for foreclosure, the published in the Federal Register under 38 U.S.C. 3732(c), the Secretary
Secretary shall review allowances for pursuant to § 36.4801. may accept conveyance of the property,
the holder must notify the Secretary by but not limited to, the cost of a title (B) It vests in the Secretary or will
electronic means no later than 15 policy insuring title in the name of the entitle the Secretary to such title as is
calendar days after the date of Secretary of Veterans Affairs. or would be acceptable to prudent
liquidation sale (i.e., the event which (d) The conveyance or transfer of any lending institutions, informed buyers,
fixes the rights of the parties in the property to the Secretary pursuant to title companies, and attorneys,
property, such as the date of foreclosure this section shall be subject to the generally, in the community in which
sale, date of recordation of a deed-in- following provisions: the property is situated.
lieu of foreclosure, or confirmation/ (1) The notice of the holder’s election (ii) Any title will not be unacceptable
ratification of sale date when required to convey the property to the Secretary to the Secretary by reason of any of the
under local practice) that the holder shall state the amount of the holder’s limitations on the quantum or quality of
elects to convey the property to the successful bid and shall state the the property or title stated in
Secretary. The Secretary will not accept insurance coverage then in force, § 36.4854(b), Provided, that:
conveyance of the property if the holder specifying for each policy, the name of (A) At the time of conveyance or
fails to notify the Secretary of its the insurance company, the hazard transfer to the Secretary there has been
election within such 15 calendar days. covered, the amount, and the expiration no breach of any conditions affording a
In computing the eligible indebtedness date. With respect to a voluntary right to the exercise of any reverter.
under 38 U.S.C. 3732(c), the holder may conveyance to the holder in lieu of (B) With respect to any such
follow the alternative procedure foreclosure, the amount of the holder’s limitations which came into existence
described in paragraph (b) of this successful bid shall be deemed to be the subsequent to the making of the loan,
section. lesser of the net value of the property or full compliance was had with the
(b) If the calculation by the holder the total indebtedness. requirements of § 36.4827.
shows that the net value is equal to or (2) Coincident with the notice of (iii) The acceptability of a conveyance
less than the unguaranteed portion of election to convey or transfer the or transfer pursuant to the requirements
the loan (i.e., the total indebtedness property to the Secretary or with the of this paragraph will generally be
minus VA’s maximum claim payable acquisition of the property by the established by delivery to the Secretary
under the guaranty), this would holder, following such notice, of the following evidence of title
preclude conveyance under 38 U.S.C. whichever is later, the holder shall showing that title to the property of the
3732(c). However, the holder may desire request endorsements on all insurance quality specified in this paragraph (d)(5)
to convey the property to VA and may policies naming the Secretary as an is or will be vested in the Secretary:
decide to waive a portion of the assured, as his/her interest may appear. (A) A copy of the deed or document
indebtedness to the extent that the evidencing transfer of interest and title
Such insurance policies shall be
property may be conveyed under 38 at the liquidation sale;
forwarded to the Secretary at the time of
U.S.C. 3732(c). In such a case, the (B) A special warranty deed
the conveyance or transfer of the
holder must provide the notice conveying the property to the Secretary;
property to the Secretary or as soon after
described in paragraph (a) of this (C) Origination Deed of Trust or
that time as feasible. If insurers cancel
section, and must subsequently waive Mortgage;
policies, holders must properly account
that portion of the total indebtedness (D) Original or Copy of Mortgagee’s
for any unearned premiums refunded by
remaining after application of the net Title Insurance Policy from Loan
the insurer.
value amount and VA’s guaranty claim Origination (except in Iowa, where a
(3) Occupancy of the property by title abstract is required);
payment. The holder must send the
anyone properly in possession by virtue (E) Owner’s Title Insurance Policy
borrower(s) a notice describing the
of and during a period of redemption, or issued after loan termination in the
amount of indebtedness that has been
by anyone else unless under a claim of name of the Secretary (except in Iowa,
waived no later than 15 calendar days
title which makes the title sought to be where a title abstract is required);
after receipt of the guaranty claim.
(c) The holder, in accounting to the conveyed by the holder of less dignity (F) Loan Assignments;
Secretary in connection with the or quality than that required by this (G) Appointment of Substitute Trustee
conveyance of any property pursuant to section, shall not preclude the holder (where required as part of the
this section, may include as a part of the from conveying or transferring the termination process);
indebtedness all actual expenses or property to the Secretary. Except with (H) Estoppel Affidavit for deed in lieu
costs of the proceedings, paid by the the prior approval of the Secretary, the of foreclosure, if required by State law
holder, within the limits defined in holder shall not rent the property to a and appropriate language cannot be
§ 36.4814. In connection with the new tenant, nor extend the term of an included in the deed in lieu of
conveyance or transfer of property to the existing tenancy on other than a month- foreclosure; and/or
Secretary the holder may include in to-month basis. (I) Any evidence that the Secretary
accounting to the Secretary the (4) The notice shall provide property may reasonably require.
following expense items if actually paid tax information to include all taxing (iv) In lieu of such title evidence
by the holder, in addition to the authority property identification listed in paragraph (d)(5)(iii) of this
consideration payable for the property numbers. Any taxes, special section, the Secretary will accept a
under 38 U.S.C. 3732(c): assessments or ground rents due and conveyance or transfer with general
(1) State and documentary stamp payable within 30 days after date of warranty with respect to the title from
taxes as may be required. conveyance or transfer to the Secretary a holder described in 38 U.S.C. 3702(d)
(2) Amount expended for taxes, must be paid by the holder. or from a holder of financial
special assessments, including such (5)(i) Each conveyance or transfer of responsibility satisfactory to the
payments which are specified in real property to the Secretary pursuant Secretary.
paragraph (d)(4) of this section. to this section shall be acceptable if: (6) Except with respect to matters
(3) Recording fees. (A) The holder thereby covenants or covered by any covenants or warranties
(4) Any other expenditures in warrants against the acts of the holder of the holder, the acceptance by the
connection with the property which are and those claiming under the holder Secretary of a conveyance or transfer by
approved by the Secretary, including, (e.g., by special warranty deed); and the holder shall conclude the
responsibility of the holder to the (including elements of the development Secretary determines the holder was
Secretary under the regulations of this or project owned in common with other unable to complete the foreclosure
subpart with respect to the title. In the unit owners) is undamaged by fire, within the time specified in this
event of the subsequent discovery of earthquake, windstorm, flooding or paragraph due to Bankruptcy
title defects, the Secretary shall have no boiler explosion. The absence of a right proceedings, appeal of the foreclosure
recourse against the holder with respect in the holder to convey such property by the debtor, the holder granting
to such title other than by reason of which is so damaged shall not preclude forbearance in excess of 30 days at the
such covenants or warranties. a conveyance, if the Secretary agrees in request of the Secretary, or other factors
(7) As between the holder and the a given case to such a conveyance upon beyond the control of the holder.
Secretary, the responsibility for any loss completion of repairs within a specified (b) Deposits or other credits or setoffs
due to damage to or destruction of the period of time and such repairs are so legally applicable to the indebtedness
property or due to personal injury completed and the conveyance is shall be applied in reduction of the
sustained in respect to such property otherwise in order. indebtedness on which the claim is
shall be governed by the provisions of (e) Except as provided in paragraph based. Any escrowed or earmarked
this paragraph and paragraph (d)(11) of (d)(6) of this section, the provisions of funds not subject to superior claims of
this section. Ordinary wear and tear this section shall not be in derogation of third persons must likewise be so
excepted, the holder shall bear such risk any rights which the Secretary may have applied.
of loss from the date of acquisition by under § 36.4828. The Under Secretary (c)(1) Credits accruing from the
the holder to the date such risk of loss for Benefits, or the Director, Loan proceeds of a liquidation sale shall be
is assumed by the Secretary. Such risk Guaranty Service, may authorize any reported to the Secretary incident to
of loss is assumed by the Secretary from deviation from the provisions of this claim submission, and the amount
the date of receipt of the holder’s section, within the limitations payable on the claim shall in no event
election to convey or transfer the prescribed in 38 U.S.C. chapter 37, exceed the remaining balance of the
property to the Secretary. The amount of which may be necessary or desirable to indebtedness.
any loss chargeable to the holder may be accomplish the objectives of this section (2) The amount payable under the
deducted from the amount payable by if such deviation is made necessary by guaranty shall be computed applying
the Secretary at the time the property is reason of any laws or practice in any the formulae in 38 U.S.C. 3732(c). With
transferred. In any case where pursuant State or Territory or the District of respect to a voluntary conveyance to the
to the VA regulations rejection of the Columbia, Provided, that no such holder in lieu of foreclosure, the holder
title is legally proper, the Secretary may deviation shall impair the rights of any shall be deemed to have acquired the
surrender custody of the property as of holder not consenting to the deviation property at the liquidation sale for the
the date specified in the Secretary’s with respect to loans made or approved lesser of the net value of the property or
notice to the holder. The Secretary’s prior to the date the holder is notified the total indebtedness.
assumption of such risk shall terminate of such action. (d)(1)(i) Except as provided in
upon such surrender.
(8) The conveyance should be made to (Authority: 38 U.S.C. 3720, 3732) paragraph (d)(1)(ii) of this section,
‘‘Secretary of Veterans Affairs, an (The Office of Management and Budget has holders shall file a claim for payment
Officer of the United States.’’ The name approved the information collection under the guaranty electronically no
of the incumbent Secretary should not requirements in this section under control later than 1 year after the completion of
number 2900–0381.) the liquidation sale. For purposes of this
be included unless State law requires
naming a real person. section, the liquidation sale will be
§ 36.4824 Guaranty claims; subsequent
(9) The holder shall not be liable to accounting. considered completed when:
the Secretary for any portion of the paid (A) The last act required under State
(a) Subject to the limitation that the
or unpaid taxes, special assessments, law is taken to make the liquidation sale
total amounts payable shall in no event
ground rents, insurance premiums, or final, but excluding any redemption
exceed the amount originally
other similar items. The holder shall be period permitted under State law;
guaranteed, or in the case of a modified
liable to the Secretary for all penalties (B) If a holder accepts a voluntary
loan, such amount as may have been
and interest associated with taxes not conveyance of the property in lieu of
increased under the provisions of
timely paid by the holder prior to foreclosure, the date of recordation of
§ 36.4815(h)(2), the amount payable on
conveyance. the deed to the holder or the holder’s
a claim for the guaranty shall be the
(10) The Secretary shall be entitled to designee; or
percentage of the loan originally
all rentals and other income collected guaranteed, or the percentage as (C) In the case of a sale of the property
from the property and to any insurance adjusted under § 36. 4815(h)(2), to a third party for an amount less than
proceeds or refunds subsequent to the whichever is applicable, applied to the is sufficient to repay the unpaid balance
date of acquisition by the holder. sum of: on the loan where the holder has agreed
(11) In respect to a property which (1) The unpaid principal as of the date in advance to release the lien in
was the security for a condominium of the liquidation sale; exchange for the proceeds of such sale,
loan guaranteed or insured under 38 (2) Allowable expenses/advances as the date of settlement of such sale.
U.S.C. 3710(a)(6) the responsibility for described in § 36.4814; and (ii) With respect to any liquidation
any loss due to damage to or destruction (3) The lesser of: sale completed prior to February 1,
of the property or due to personal injury (i) The unpaid interest as of the date 2008, all claims must be submitted no
sustained in respect to such property of the liquidation sale; or later than February 2, 2009.
shall in no event pass to the Secretary (ii) The unpaid interest for the (2) If additional information becomes
until the Secretary expressly assumes reasonable period that the Secretary has known to a holder after the filing of a
such responsibility or until conveyance determined, pursuant to § 36.4822(a), it guaranty claim, the holder may file a
of the property to the Secretary, should have taken to complete the supplemental claim provided that such
whichever first occurs. The holder shall foreclosure, plus 210 days from the due supplemental claim is filed within the
have the right to convey such property date of the last paid installment. This time period specified in paragraph (d)(1)
to the Secretary only if the property amount will be increased if the of this section.
(3) No claim under a guaranty shall be this section to be filed for record in the (B) In consideration for a release of
payable unless it is submitted within office of the recorder of deeds, or other the Secretary’s collection rights the
the time period specified in paragraph appropriate office of the proper county, obligor completes, or VA is enabled to
(d)(1) of this section. town or State, in accordance with the authorize, an action which reduces the
(4) A claim shall be submitted to VA applicable State law. The filing or Government’s claim liability sufficiently
electronically on the VA Loan failure to file such instrument for record to offset the amount of the anticipated
Electronic Reporting Interface system. shall have the legal results prescribed by indebtedness which would otherwise be
(5) Supporting documents will not be the applicable law of the State where established pursuant to this paragraph
submitted with the claim, but must be the real or personal property is situated, and likely be collectable by VA after
retained by the servicer and are subject with respect to filing or failure to so file foreclosure in view of the obligor’s
to inspection as provided in § 36.4833 of mortgages and other lien instruments financial situation. Such actions would
this title. and assignments thereof. The references include termination of the loan by
(e) In the event that VA does not herein to ‘‘filing for record’’ include means of a deed-in-lieu of foreclosure,
approve payment of any item submitted ‘‘registration’’ or any similar transaction, private sale of the property for less than
under a guaranty claim, VA shall notify by whatever name designated when title the indebtedness with a reduced claim
the holder electronically what items are to the encumbered property has been paid by VA for the balance due the loan
being denied and the reasons for such ‘‘registered’’ pursuant to a Torrens or holder, or enabling VA to authorize the
denial. The holder may, within 30 days other similar title registration system holder to elect a more expeditious
after the date of such denial notification, provided by law. foreclosure procedure when such an
submit an electronic request to VA that (d) As a condition to paying a claim election would result in the legal release
one or more items that were denied be for an insured loss the Secretary may of the obligor’s liability; or
reconsidered. The holder must present require that the loan, including any (C) The obligor being released is not
any additional information justifying security or judgment held therefor, be the current titleholder to the property
payment of items denied. assigned to the extent of such payment, and there are no indications of fraud,
(Authority: 38 U.S.C. 3703(c), 3720, 3732) and if any claim has been filed in misrepresentation, or bad faith on the
(The Office of Management and Budget has bankruptcy, insolvency, probate, or obligor’s part in disposing of the
approved the information collection similar proceedings such claim may property.
requirements in this section under control likewise be required to be so assigned. (2) Partial release. In the event of a
number 2900–0362.) (e) Any amounts paid by the Secretary partial release, the amount of
§ 36.4825 Computation of indebtedness. on account of the liabilities of any indebtedness established will be such
In computing the indebtedness for the veteran guaranteed or insured under the that the obligor’s financial situation
purpose of filing a claim for payment of provisions of 38 U.S.C. chapter 37 shall permits repayment of the debt to the
a guaranty or for payment of an insured constitute a debt owing to the United Government in regular monthly
loss, or in the event of a transfer of the States by such veteran. Before a installments of principal plus interest
loan under § 36.4820(a), or other liquidation sale, an official authorized over a five year period commencing
accounting to the Secretary, the holder to act for the Secretary under provisions within one year after the date the
shall not be entitled to treat repayments of § 36.4845 may approve a complete or promissory note is executed, except in
theretofore made as liquidated damages, partial release of the Secretary’s right to those cases in which a lump sum
or rentals, or otherwise than as collect a debt owing to the United States settlement appears to be in the best
payments on the indebtedness, under this paragraph and/or under interest of the Government or in which
notwithstanding any provision in the paragraph (a) of this section as follows: it appears the obligor may reasonably
note, or mortgage, or otherwise, to the (1) Complete release. VA will approve expect significant changes in his or her
contrary. a complete release if an official financial situation which would permit
authorized to act for the Secretary under higher payments to be made during later
(Authority: 38 U.S.C. 3703(c), 3720, 3732)
§ 36.4845 determines that all of the periods of the life of the note. VA may
§ 36.4826 Subrogation and indemnity. following are true: authorize a partial release if an official
(a) The Secretary shall be subrogated (i) The loan default was caused by authorized to act for the Secretary under
to the contract and the lien or other circumstances beyond the control of the § 36.4845 determines that all of the
rights of the holder to the extent of any obligor; and following are true:
sum paid on a guaranty or on account (ii) There are no indications of fraud, (i) The loan default was caused by
of an insured loss, which right shall be misrepresentation or bad faith on the circumstances beyond the control of the
junior to the holder’s rights as against part of the obligor in obtaining the loan obligor; and,
the debtor or the encumbered property or in connection with the loan default; (ii) There are no indications of fraud,
until the holder shall have received the and misrepresentation or bad faith on the
full amount payable under the contract (iii) The obligor cooperated with VA part of the obligor in obtaining the loan
with the debtor. No partial or complete in exploring all realistic alternatives to or in connection with the loan default;
release by a creditor shall impair the termination of the loan through and,
rights of the Secretary with respect to foreclosure, and, either: (iii) The obligor cooperated with VA
the debtor’s obligation. (A) Review of the obligor’s current in exploring all realistic alternatives to
(b) The holder, upon request, shall financial situation and prospective termination of the loan through
execute, acknowledge and deliver an earning potential and obligations foreclosure; and,
appropriate instrument tendered for that indicates there are no realistic prospects (iv) Review of the obligor’s current
purpose, evidencing any payment that the obligor could repay all or part financial situation and prospective
received from the Secretary and the of the anticipated debt within six years earning potential and obligations
Secretary’s resulting right of after the liquidation sale and still indicates there are no realistic prospects
subrogation. provide the necessities of life for that the obligor could repay all of the
(c) The Secretary shall cause the himself or herself and his or her family; anticipated debt within six years of the
instrument required by paragraph (b) of or, liquidation sale while providing the
necessities of life for himself or herself investigation as may be deemed guaranty as a result of a default on the
and his or her family; and, appropriate, that there has been loan, or has already done so; and
(v) The obligor executes a written compliance with the conditions (iii) The payments on the loan are
agreement acknowledging his or her prescribed in 38 U.S.C. 3713. The current.
liability to VA under this paragraph and assumption of full liability for (2) Should these requirements be
executes a promissory note which repayment of the loan by the transferee satisfied, the holder may also release the
provides for regular amortized monthly of the property must be evidenced by an veteran or other person from liability on
payments of an amount determined by agreement in writing in such form as the the loan. This does not apply if the
VA in accordance with paragraph (e)(3) Secretary may require. Release of the approval for the assumption is granted
of this section including interest on the veteran from liability to the Secretary upon special appeal to avoid immediate
total amount payable at the rate in effect will not impair or otherwise affect the foreclosure.
for Loan Guaranty liability accounts at Secretary’s guaranty or insurance (i) If a veteran requests a release of
the time of execution, or, the obligor liability on the loan, or the liability of liability under paragraph (f) of this
agrees to other terms of repayment the veteran to the holder. Any release of section, or if a borrower requests a
acceptable to VA including payment of liability granted to a veteran by the release of liability pursuant to
a lump sum in settlement of his or her Secretary shall inure to the spouse of § 36.4809(c)(1)(vii), a holder described
obligation under this paragraph. such veteran. The release of the veteran in the first sentence of § 36.4803(l)(1)(i)
(3) Review of obligor’s financial from liability to the Secretary will is authorized to and must make all
situation. For purposes of authorizing a constitute the Secretary’s prior approval decisions regarding the credit-
complete or partial release under this to a release of the veteran from liability worthiness of the transferee, subject to
paragraph, a VA official reviewing an on the loan by the holder thereof. the right of a transferee to appeal any
obligor’s financial situation will denial to the Secretary within 30 days
(Authority: 38 U.S.C. 3713)
consider all of the following: of being notified in writing of the denial
(i) The obligor’s current and (g) If any veteran disposes of by the holder or servicer. The
anticipated family income based on residential property securing a procedures and fees specified in
employment skills and experience; guaranteed or insured loan obtained §§ 36.4803(l)(1)(i) and 36.4813(d)(8)
(ii) The obligor’s current short-term under 38 U.S.C. chapter 37, without applicable to decisions under 38 U.S.C.
and long-term financial obligations, receiving a release from liability with 3714 shall also apply to decisions
including the obligation to repay the respect to such loan under 38 U.S.C. specified in this paragraph.
Government which must be afforded 3713 and a default subsequently occurs (Authority: 38 U.S.C. 3703(c), 3713 and 3714)
consideration at least equal to his or her which results in liability of the veteran (The Office of Management and Budget has
consumer debt obligations; to the Secretary on account of the loan, approved the information collection
(iii) A current credit report on the the Secretary may relieve the veteran of requirements in this section under control
obligor; such liability if he determines that: number 2900–0112.)
(iv) The obligor’s assets and net (1) A transferee either immediate or
worth; and remote is legally liable to the Secretary § 36.4827 Release of security.
(v) The required balance available for for the debt of the original veteran- (a)(1) Except upon full payment of the
family support used in underwriting VA borrower established after the indebtedness, or except as provided in
guaranteed loans in the area. termination of the loan, and paragraph (a)(2) of this section or in
(4) Determinations made under (2) The original loan was current at paragraphs (e) and (f) of § 36.4822, the
paragraphs (e)(1) and (2) of this section the time such transferee acquired the holder shall not release a lien or other
are intended for the benefit of the property, and right in or to real property held as
Government in reducing the amount of (3) The transferee who is liable to the security for a guaranteed or insured
claim payable by VA and/or avoiding Secretary is found to have been a loan, or grant a fee or other interest in
the establishment of uncollectible debts satisfactory credit risk at the time he or such property, without prior approval of
owing to the United States. Such she acquired the property. the Secretary.
determinations are discretionary on the (2) The holder may, without the prior
(h)(1) If a veteran or any other person
part of VA and shall not constitute a approval of the Secretary, release the
disposes of residential property securing
defense to any legal action to terminate lien on a portion of the property
a guaranteed or insured loan for which
the loan nor vest any appellate right in securing the loan provided:
a commitment was made on or after (i) The holder has obtained an
an obligor which would require further
March 1, 1988, and the veteran or other appraisal from the Secretary showing
review of the case.
person notifies the loan holder in the value of the security prior to the
(Authority: 38 U.S.C. 501, 3703(c)(1), 5302) writing before disposing of the property, partial release of the lien and the value
(f) Whenever any veteran disposes of the veteran or other person shall be of the security on which the lien will
residential property securing a relieved of all further liability to the remain;
guaranteed or insured loan obtained by Secretary with respect to the loan (ii) The portion of the property still
him or her under 38 U.S.C. chapter 37, (including liability for any loss resulting subject to the lien is fit for dwelling
and for which the commitment to make from any default of the purchaser or any purposes; and
the loan was made prior to March 1, subsequent owner of the property) and (iii) The loan-to-value ratio after the
1988, the Secretary, upon application the application for assumption shall be partial release of the lien:
made by such veteran, shall issue to the approved if the holder determines that: (A) Will be not more than 80 percent;
veteran a release relieving him or her of (i) The proposed purchaser is or
all further liability to the Secretary on creditworthy; (B) If the loan-to-value ratio after the
account of such loan (including liability (ii) The proposed purchaser is partial release of the lien is 80 percent
for any loss resulting from any default contractually obligated to assume the or higher, any proceeds received as
of the transferee or any subsequent loan and the liability to indemnify the consideration from the partial release of
purchaser of such property) if the Department of Veterans Affairs for the the lien shall be applied to the unpaid
Secretary has determined, after such amount of any claim paid under the loan balance.
(b) A holder may release from the lien insurance is a forgery; or in which the misrepresentation prejudices the
personal property including crops certificate of discharge or the certificate Secretary’s right of subrogation
without the prior approval of the of eligibility is counterfeited, or acceptance by the holder of the guaranty
Secretary. falsified, or is not issued by the or insurance payment shall subordinate
(c) Failure of the holder to comply Government. the holder’s right to those of the
with the provisions of this section shall (1) Except as to a holder who acquired Secretary. Adjustments under this
not in itself affect the validity of the title the loan instrument before maturity, for section may be made for failure to
of a purchaser to the property released. value, and without notice, and who has comply with:
(d) The release of the personal not directly or by agent participated in (1) Obtaining and retaining a lien of
liability of any obligor on a guaranteed the fraud, or in the misrepresentation the dignity prescribed on all property
or insured obligation resultant from the hereinafter specified, any willful and upon which a lien is required by 38
act or omission of any holder without material misrepresentation or fraud by U.S.C. chapter 37 or the regulations
the prior approval of the Secretary shall the lender, or by a holder, or the agent concerning guaranty or insurance of
release the obligation of the Secretary as of either, in procuring the guaranty or loans to veterans,
guarantor or insurer, except when such the insurance credit, shall relieve the (2) Inclusion of power to substitute
act or omission consists of: Secretary of liability, or, as to loans trustees (§ 36.4830),
(1) Failure to establish the debt as a guaranteed or insured on, or subsequent (3) The procurement and maintenance
valid claim against the assets of the to July 1, 1948, shall constitute a of insurance coverage (§ 36.4829),
estate of any deceased obligor, provided defense against liability on account of (4) Any notice required by § 36.4817,
no lien for the guaranteed or insured the guaranty or insurance of the loan in (5) The release, conveyance,
debt is thereby impaired or destroyed; respect to which the willful substitution, or exchange of security
or misrepresentation, or the fraud, is (§ 36.4827),
(2) An election and appropriate practiced: Provided, that if a (6) Lack of legal capacity of a party to
prosecution of legally available effective misrepresentation, although material, is the transaction incident to which the
remedies with respect to the not made willfully, or with fraudulent guaranty or the insurance is granted
repossession or the liquidation of the intent, it shall have only the (§ 36.4831),
security in any case, irrespective of the consequences prescribed in paragraphs (7) Failure of the lender to see that
identity or the survival of the original or (b) and (c) of this section. any escrowed or earmarked account is
of any subsequent debtor, if holder shall (2) [Reserved] expended in accordance with the
have given such notice as required by (b) In taking security required by 38 agreement,
§ 36.4817 and if, after receiving such U.S.C. chapter 37 and the regulations (8) The taking into consideration of
notice, the Secretary shall have failed to concerning guaranty or insurance of limitations upon the quantum or quality
notify the holder within 15 days to loans to veterans, a holder shall obtain of the estate or property (§ 36.4854(b)),
proceed in such manner as to effectively the required lien on property the title to (9) Any other requirement of 38
preserve the personal liability of the which is such as to be acceptable to U.S.C. chapter 37 or the regulations
parties liable, or such of them as the prudent lending institutions, informed concerning guaranty or insurance of
Secretary indicates in such notice to the buyers, title companies, and attorneys, loans to veterans which does not by the
holder; or generally, in the community in which terms of said chapter or the regulations
(3) The release of an obligor, or the property is situated: Provided, that concerning guaranty or insurance of
obligors, from liability on an obligation a title will not be unacceptable by loans to veterans result in relieving the
secured by a lien on property, which reason of any of the limitations on the Secretary of all liability with respect to
release is an incident of and quantum or quality of the property or the loan,
contemporaneous with the sale of such title stated in § 36.4854(b) and if such (c) If after the payment of a guaranty
property to an eligible veteran who holder fails in this respect or fails to or an insurance loss, or after a loan is
assumed such obligation, which comply with 38 U.S.C. chapter 37 and transferred pursuant to § 36.4820(a), the
assumed obligation is guaranteed on the the regulations concerning guaranty or fraud, misrepresentation or failure to
assuming veteran’s account pursuant to insurance of loans to veterans, then no comply with the regulations in this
38 U.S.C. chapter 37; or claim on the guaranty or insurance shall subpart as provided in this section is
(4) The release of an obligor or be paid on account of the loan with discovered and the Secretary determines
obligors as provided in § 36.4815; or, the respect to which such failure occurred, that an increased loss to the government
release of an obligor, or obligors, or in respect to which an unwillful resulted therefrom the transferor or
incident to the sale of property securing misrepresentation occurred, until the person to whom such payment was
the loan which the holder is authorized amount by which the ultimate liability made shall be liable to the Secretary for
to approve under the provisions of 38 of the Secretary would thereby be the amount of the loss caused by such
U.S.C. 3714. increased has been ascertained. The misrepresentation or failure.
(Authority: 38 U.S.C. 3714) burden of proof shall be upon the holder (Authority: 38 U.S.C. 3703 and 3720)
to establish that no increase of ultimate
§ 36.4828 Partial or total loss of guaranty liability is attributable to such failure or § 36.4829 Hazard insurance.
or insurance. misrepresentation. The amount of The holder shall require insurance
(a) Subject to the incontestable increased liability of the Secretary shall policies to be procured and maintained
provisions of 38 U.S.C. 3721 as to loans be offset by deduction from the amount in an amount sufficient to protect the
guaranteed or insured on or subsequent of the guaranty or insurance otherwise security against the risks or hazards to
to July 1, 1948, there shall be no liability payable, or if consequent upon loss of which it may be subjected to the extent
on account of a guaranty or insurance, security shall be offset by crediting to customary in the locality. All moneys
or any certificate or other evidence the indebtedness the amount of the received under such policies covering
thereof, with respect to a transaction in impairment as proceeds of the sale of payment of insured losses shall be
which a signature to the note, the security in the final accounting to the applied to restoration of the security or
mortgage, or any other loan papers, or Secretary. To the extent the loss to the loan balance. Flood insurance
the application for guaranty or resultant from the failure or will be required on any building or
personal property securing a loan at any Commonwealth of the Northern Mariana creditors, correspondence with
time during the term of the loan that Islands. employers, appraisal and compliance
such security is located in an area (Authority: 38 U.S.C. 3703(c)(1)) inspection reports, reports on termite
identified by the Federal Emergency and other inspections of the property,
Management Agency as having special § 36.4833 Maintenance of records. builder change orders, and all closing
flood hazards and in which flood (a)(1) The holder shall maintain a papers and documents.
insurance has been made available record of the amounts of payments (Authority: 38 U.S.C. 501, 3703(c)(1))
under the National Flood Insurance Act, received on the obligation and (c) The Secretary has the right to
as amended. The amount of flood disbursements chargeable thereto and inspect, examine, or audit, at a
insurance must be at least equal to the the dates thereof, including copies of reasonable time and place, the records
lesser of the outstanding principal bills and receipts for such or accounts of a lender or holder
balance of the loan or the maximum disbursements. These records shall be pertaining to loans guaranteed or
limit of coverage available for the maintained until the Secretary ceases to insured by the Secretary.
particular type of property under the be liable as guarantor or insurer of the
loan, or, if the Secretary has paid a (Authority: 38 U.S.C. 3703(c)(1))
National Flood Insurance Act, as
amended. The Secretary cannot claim on the guaranty, until 3 years after (The Office of Management and Budget has
such claim was paid. For the purpose of approved the information collection
guarantee a loan for the acquisition or requirements in this section under control
construction of property located in an any accounting with the Secretary or number 2900–0515.)
area identified by the Federal computation of a claim, any holder who
Emergency Management Agency as fails to maintain such record and, upon § 36.4835 Delivery of notice.
having special flood hazards unless the request, make it available to the Except where otherwise specified in
community in which such area is Secretary for review shall be presumed this part, any notice required by
situated is then participating in the to have received on the dates due all §§ 36.4800 to 36.4880 to be given the
National Flood Insurance Program. sums which by the terms of the contract Secretary must be in writing or such
are payable prior to date of claim for other communications medium as may
(Authority: 38 U.S.C. 3703(c)(1), 42 U.S.C.
4106(a))
default, or to have not made the be approved by an official designated in
disbursement for which reimbursement § 36.4845 and delivered, by mail or
§ 36.4830 Substitution of trustees. is claimed, and the burden of going otherwise, to the VA office at which the
forward with evidence and of ultimate guaranty or insurance was issued, or to
In jurisdictions in which valid, any proof of the contrary shall be on such
deed of trust or mortgage securing a any changed address of which the
holder. holder has been given notice. Such
guaranteed or insured loan, if it names (2) The holder shall maintain records notice must plainly identify the case by
trustees, or confers a power of sale supporting their decision to approve setting forth the name of the original
otherwise, shall contain a provision any loss mitigation option for which an veteran-obligor and the file number
empowering any holder of the incentive is paid in accordance with assigned to the case by the Secretary, if
indebtedness to appoint substitute § 36.4819(a). Such records shall be available, or otherwise the name and
trustees, or other person with such retained a minimum of 3 years from the serial number of the veteran. If mailed,
power to sell, who shall succeed to all date of such incentive payment and the notice shall be by certified mail
the rights, powers and duties of the shall include, but not be limited to, when so provided by §§ 36.4800 to
trustees, or other person, originally credit reports, verifications of income, 36.4880.
designated. employment, assets, liabilities, and
(Authority: 38 U.S.C. 3703(c)(1))
(Authority: 38 U.S.C. 3703(c)(1)) other factors affecting the obligor’s
credit worthiness, work sheets, and § 36.4836 [Reserved]
§ 36.4831 Capacity of parties to contract. other documents supporting the
holder’s decision. § 36.4837 Conformance of loan
Nothing in §§ 36.4800 through instruments.
36.4880 shall be construed to relieve (3) For any loan where the claim on
the guaranty was paid on or after Regulations issued under 38 U.S.C.
any lender of responsibility otherwise
February 1, 2008, or action described in chapter 37 and in effect on the date of
existing, for any loss caused by the lack
paragraph (a)(2) of this section was any loan which is submitted and
of legal capacity of any person to
taken after February 1, 2008, holders accepted or approved for a guaranty or
contract, convey, or encumber, or
shall submit any documents described for insurance thereunder, shall govern
caused by the existence of other legal
in paragraph (a)(1) or (a)(2) of this the rights, duties, and liabilities of the
disability or defects invalidating, or
section to the Secretary in electronic parties to such loan and any provisions
rendering unenforceable in whole or in
form; i.e., an image of the original of the loan instruments inconsistent
part, either the loan obligation or the
document in .jpg, .gif, .pdf, or a similar with such regulations are hereby
security therefor.
widely accepted format. amended and supplemented to conform
(Authority: 38 U.S.C. 3703(c)(1)) (b) The lender shall retain copies of thereto.
§ 36.4832 Geographical limits.
all loan origination records on a VA- (Authority: 38 U.S.C. 3703(c)(1))
guaranteed loan for at least two years
Any real property purchased, from the date of loan closing. Loan § 36.4838 Supplementary administrative
constructed, altered, improved, or origination records include the loan action.
repaired with the proceeds of a application, including any preliminary (a) Notwithstanding any requirement,
guaranteed or insured loan shall be application, verifications of condition, or limitation stated in or
situated within the United States which employment and deposit, all credit imposed by the regulations concerning
for purposes of 38 U.S.C. chapter 37 is reports, including preliminary credit the guaranty or insurance of loans to
here defined as the several States, reports, copies of each sales contract veterans, the Under Secretary for
Territories and possessions, and the and addendums, letters of explanation Benefits, or the Director, Loan Guaranty
District of Columbia, the for adverse credit items, discrepancies Service, within the limitations and
Commonwealth of Puerto Rico, and the and the like, direct references from conditions prescribed by the Secretary,
is hereby authorized, if he or she finds (1) The proceeds of such loan have guaranty or insurance and for the
the interests of the Government are not been used to pay for the property purposes of § 36.4823, and all
adversely affected, to relieve undue purchased, constructed, repaired, accounting), the indebtedness which is
prejudice to a debtor, holder, or other refinanced, altered, or improved. the subject of the guaranty or insurance
person, which might otherwise result, (2) Except as to refinancing loans shall be deemed to have been reduced
provided no such action may be taken pursuant to 38 U.S.C. 3710(a)(8), as of the date of the loan by a sum equal
which would impair the vested rights of (a)(9)(B)(i), (a)(11), or (b)(7) and energy to such excess, less any amounts
any person affected thereby. If such efficient mortgages pursuant to 38 secured by liens released or paid on the
requirement, condition, or limitation is U.S.C. 3710(d), the loan (including any obligations secured by such superior
of an administrative or procedural (not scheduled deferred interest added to liens or rights by a holder or others
substantive) nature, any employee principal) does not exceed the without expense to or obligation on the
designated in § 36.4845 is hereby reasonable value of the property or debtor resulting from such payment, or
authorized to grant similar relief if he or projected reasonable value of a new release of lien or right; and all payments
she finds the failure or error of the home which is security for a graduated made on the loan shall be applied to the
lender was due to misunderstanding or payment mortgage loan, as appropriate, indebtedness as so reduced. Nothing in
mistake and that the interests of the as determined by the Secretary. For the this paragraph affects any right or
Government are not adversely affected. purpose of determining the reasonable liability resulting from fraud or willful
Provisions of the regulations considered value of a graduated payment mortgage misrepresentation.
to be of an administrative or procedural loan to purchase a new home, the (Authority: 38 U.S.C. 3703(c)(1), 3710, 3712)
(nonsubstantive) nature are limited to reasonable value of the property as of
the following: the time the loan is made shall be § 36.4840 Underwriting standards,
(1) The requirement in § 36.4808(a) calculated to increase at a rate not in processing procedures, lender
that a lender obtain in prior approval of excess of 2.5 percent per year, but in no responsibility, and lender certification.
the Secretary before closing a joint loan event may the projected value of the (a) Use of standards. The standards
if the lender or class of lenders is property exceed 115 percent of the contained in paragraphs (c) through (j)
eligible or has been approved by the initially established reasonable value. of this section will be used to determine
Secretary to close loans on the (Authority: 38 U.S.C. 3703(d)(2))
whether the veteran’s present and
automatic basis pursuant to 38 U.S.C. anticipated income and expenses, and
3702(d); (3) The veteran has certified, in such credit history are satisfactory. These
(2) The requirements in § 36.4803(l) form as the Secretary may prescribe, standards do not apply to loans
concerning the giving of notice in that the veteran has paid in cash from guaranteed pursuant to 38 U.S.C.
assumption cases under 38 U.S.C. 3714; his or her own resources on account of 3710(a)(8) except for cases where the
(3) The requirement in § 36.4824(d)(3) such purchase, construction, alteration, Secretary is required to approve the loan
that no claim is payable unless it is repair, or improvement a sum equal to in advance under § 36.4807.
submitted within 1 year after the the difference, if any, between the
(Authority: 38 U.S.C. 3703, 3710)
liquidation sale; purchase price or cost of the property
(4) The requirement in § 36.4823(a) to and its reasonable value. (b) Waiver of standards. Use of the
submit notice of election to convey a (b) A loan guaranteed under 38 U.S.C. standards in paragraphs (c) through (j)
property to VA within 15 days of the 3710(d) which includes the cost of of this section for underwriting home
date of liquidation sale; energy efficient improvements may loans will be waived only in
(5) The determination by the holder in exceed the reasonable value of the extraordinary circumstances when the
§ 36.4823(b) of the amount of property. The cost of the energy efficient Secretary determines, considering the
indebtedness that must be waived in improvements that may be financed totality of circumstances, that the
order to make a property eligible for may not exceed $3,000; provided, veteran is a satisfactory credit risk.
conveyance; however, that up to $6,000 in energy (c) Methods. The two primary
(6) The determination in efficient improvements may be financed underwriting standards that will be
§ 36.4814(f)(2) of the date beyond which if the increase in the monthly payment used in determining the adequacy of the
no additional fees or charges will be for principal and interest does not veteran’s present and anticipated
allowed; exceed the likely reduction in monthly income are debt-to-income ratio and
(7) The determination in utility costs resulting from the energy residual income analysis. They are
§ 36.4824(a)(3) of the interest payable on efficient improvements. described in paragraphs (d) through (f)
a claim under guaranty; and of this section. Ordinarily, to qualify for
(Authority: 38 U.S.C. 3710)
(8) The reconsideration in a loan, the veteran must meet both
§ 36.4824(e) of the holder’s electronic (c) Notwithstanding that the aggregate standards. Failure to meet one standard,
request for review of any denied items of the loan amount in the case of loans however, will not automatically
within the claim; for the purposes specified in paragraph disqualify a veteran. The following
(b) Authority is hereby granted to the (a) of this section, and the amount exceptions shall apply to cases where a
Loan Guaranty Officer to redelegate remaining unpaid on taxes, special veteran does not meet both standards:
authority to make any determinations assessments, prior mortgage (1) If the debt-to-income ratio is 41
under this section. indebtedness, or other obligations of any percent or less, and the veteran does not
(Authority: 38 U.S.C. 3714 and 3720) character secured by enforceable meet the residual income standard, the
superior liens or a right to such lien loan may be approved with justification,
§ 36.4839 Eligibility of loans; reasonable existing as of the date the loan is closed by the underwriter’s supervisor, as set
value requirements. exceeds the reasonable value of such out in paragraph (c)(4) of this section.
(a) Evidence of guaranty or insurance property as of said date and that (2) If the debt-to-income ratio is
shall be issued in respect to a loan for evidence of guaranty or insurance credit greater than 41 percent (unless it is
any of the purposes specified in 38 is issued in respect thereof, as between larger due solely to the existence of tax-
U.S.C. 3710(a) only if all of the the holder and Secretary (for the free income which should be noted in
following conditions are met: purpose of computing the claim on the the loan file), the loan may be approved
with justification, by the underwriter’s unusual strengths rather than mere Survey (CES) published by the
supervisor, as set out in paragraph (c)(4) satisfaction of basic program Department of Labor’s Bureau of Labor
of this section. requirements. Compensating factors Statistics. Regional minimum incomes
(3) If the ratio is greater than 41 must be relevant to the marginality or have been developed for loan amounts
percent and the residual income weakness. up to $79,999 and for loan amounts of
exceeds the guidelines by at least 20 (d) Debt-to-income ratio. A debt-to- $80,000 and above. It is recognized that
percent, the second level review and income ratio that compares the veteran’s the purchase price of the property may
statement of justification are not anticipated monthly housing expense affect family expenditure levels in
required. and total monthly obligations to his or individual cases. This factor may be
(4) In any case described by her stable monthly income will be given consideration in the final
paragraphs (c)(1) and (c)(2) of this computed to assist in the assessment of determination in individual loan
section, the lender must fully justify the the potential risk of the loan. The ratio analyses. For example, a family
decision to approve the loan or submit will be determined by taking the sum of purchasing in a higher-priced
the loan to the Secretary for prior the monthly Principal, Interest, Taxes neighborhood may feel a need to incur
approval in writing. The lender’s and Insurance (PITI) of the loan being higher-than-average expenses to support
statement must not be perfunctory, but applied for, homeowners and other a lifestyle comparable to that in their
should address the specific assessments such as special environment, whereas a substantially
compensating factors, as set forth in assessments, condominium fees, lower-priced home purchase may not
paragraph (c)(5) of this section, homeowners association fees, etc., and compel such expenditures. It should
justifying the approval of the loan. The any long-term obligations divided by the also be clearly understood from this
statement must be signed by the total of gross salary or earnings and information that no single factor is a
underwriter’s supervisor. It must be other compensation or income. The final determinant in any applicant’s
stressed that the statute requires not ratio should be rounded to the nearest qualification for a VA-guaranteed loan.
only consideration of a veteran’s present two digits; e.g., 35.6 percent would be Once the residual income has been
and anticipated income and expenses, rounded to 36 percent. The standard is established, other important factors
but also that the veteran be a satisfactory 41 percent or less. If the ratio is greater must be examined. One such
credit risk. Therefore, meeting both the than 41 percent, the steps cited in consideration is the amount being paid
debt-to-income ratio and residual paragraphs (c)(1) through (c)(6) of this
income standards does not mean that currently for rental or housing expenses.
section apply. If the proposed shelter expense is
the loan is automatically approved. It is (e) Residual income guidelines. The
the lender’s responsibility to base the materially in excess of what is currently
guidelines provided in this paragraph being paid, the case may require closer
loan approval or disapproval on all the for residual income will be used to
factors present for any individual scrutiny. In such cases, consideration
determine whether the veteran’s should be given to the ability of the
veteran. The veteran’s credit must be monthly residual income will be
evaluated based on the criteria set forth borrower and spouse to accumulate
adequate to meet living expenses after liquid assets, such as cash and bonds,
in paragraph (g) of this section as well estimated monthly shelter expenses
as a variety of compensating factors that and to the amount of debts incurred
have been paid and other monthly while paying a lesser amount for shelter.
should be evaluated. obligations have been met. All members
(5) The following are examples of For example, if an application indicates
of the household must be included in little or no capital reserves and
acceptable compensating factors to be determining if the residual income is
considered in the course of excessive obligations, it may not be
sufficient. They must be counted even if
underwriting a loan: reasonable to conclude that a substantial
the veteran’s spouse is not joining in
(i) Excellent long-term credit; increase in shelter expenses can be
title or on the note, or if there are any
(ii) Conservative use of consumer absorbed. Another factor of prime
other individuals depending on the
credit; importance is the applicant’s manner of
veteran for support, such as children
(iii) Minimal consumer debt; meeting obligations. A poor credit
from a spouse’s prior marriage who are
(iv) Long-term employment; history alone is a basis for disapproving
not the veteran’s legal dependents. It is
(v) Significant liquid assets; a loan, as is an obviously inadequate
(vi) Down payment or the existence of appropriate, however, to reduce the
income. When one or the other is
equity in refinancing loans; number of members of a household to
marginal, however, the remaining aspect
(vii) Little or no increase in shelter be counted for residual income
purposes if there is sufficient verified must be closely examined to assure that
expense; the loan applied for will not exceed the
(viii) Military benefits; income not otherwise included in the
loan analysis, such as child support applicant’s ability or capacity to repay.
(ix) Satisfactory homeownership Therefore, it is important to remember
experience; being regularly received as discussed in
paragraph (e)(4) of this section. In the that the figures provided below for
(x) High residual income; residual income are to be used as a
(xi) Low debt-to-income ratio; case of a spouse not to be obligated on
the note, verification that he/she has guide and should be used in
(xii) Tax credits of a continuing
stable and reliable employment as conjunction with the steps outlined in
nature, such as tax credits for child care;
discussed in paragraph (f)(3) of this paragraphs (c) through (j) of this section.
and
(xiii) Tax benefits of home ownership. section would allow not counting the The residual income guidelines are as
(6) The list in paragraph (c)(5) of this spouse in determining the sufficiency of follows:
section is not exhaustive and the items the residual income. The guidelines for (1) Table of residual incomes by
are not in any priority order. Valid residual income are based on data region (for loan amounts of $79,999 and
compensating factors should represent supplied in the Consumer Expenditure below):
TABLE OF RESIDUAL INCOMES BY REGION

[For loan amounts of $79,999 and below]
Family size 1 Northeast Midwest South West
1 ....................................................................................................................................... 390 382 382 425

2 ....................................................................................................................................... 654 641 641 713
3 ....................................................................................................................................... 788 772 772 859
4 ....................................................................................................................................... 888 868 868 967
5 ....................................................................................................................................... 921 902 902 1,004
1 For families with more than five members, add $75 for each additional member up to a family of seven. ‘‘Family’’ includes all members of the
household.
(2) Table of residual incomes by

region (for loan amounts of $80,000 and
above):
TABLE OF RESIDUAL INCOMES BY REGION

[For loan amounts of $80,000 and above]
Family size 1 Northeast Midwest South West
1 ....................................................................................................................................... 450 441 441 491

2 ....................................................................................................................................... 755 738 738 823
3 ....................................................................................................................................... 909 889 889 990
4 ....................................................................................................................................... 1,025 1,003 1,003 1,117
5 ....................................................................................................................................... 1,062 1,039 1,039 1,158
1 For families with more than five members, add $80 for each additional member up to a family of seven. ‘‘Family’’ includes all members of the
household.
(3) Geographic regions for residual that it will continue during the standards applied to income of the
income guidelines: Northeast— foreseeable future. veteran are also applicable to that of the
Connecticut, Maine, Massachusetts, (1) Verification. Income of the spouse. There can be no discounting of
New Hampshire, New Jersey, New York, borrower and spouse which is derived income on account of sex, marital
Pennsylvania, Rhode Island and from employment and which is status, or any other basis prohibited by
Vermont; Midwest—Illinois, Indiana, considered in determining the family’s the Equal Credit Opportunity Act.
Iowa, Kansas, Michigan, Minnesota, ability to meet the mortgage payments, Income claimed by an applicant that is
Missouri, Nebraska, North Dakota, Ohio, payments on debts and other not or cannot be verified cannot be
South Dakota and Wisconsin; South— obligations, and other expenses must be considered when analyzing the loan. If
Alabama, Arkansas, Delaware, District verified. If the spouse is employed and the veteran or spouse has been
of Columbia, Florida, Georgia, will be contractually obligated on the employed by a present employer for less
Kentucky, Louisiana, Maryland, loan, the combined income of both the than 2 years, a 2-year history covering
Mississippi, North Carolina, Oklahoma, veteran and spouse is considered when prior employment, schooling, or other
Puerto Rico, South Carolina, Tennessee, the income of the veteran alone is not training must be secured. Any periods
Texas, Virginia, West Virginia; West— sufficient to qualify for the amount of of unemployment must be explained.
Alaska, Arizona, California, Colorado, the loan sought. In other than Employment verifications and pay stubs
Hawaii, Idaho, Montana, Nevada, New community property states, if the must be no more than 120 days (180
Mexico, Oregon, Utah, Washington and spouse will not be contractually days for new construction) old to be
Wyoming. obligated on the loan, Regulation B (12 considered valid. For loans closed
CFR part 202), promulgated by the automatically, this requirement will be
(4) Military adjustments. For loan considered satisfied if the date of the
applications involving an active-duty Federal Reserve Board pursuant to the
Equal Credit Opportunity Act, prohibits employment verification is within 120
servicemember or military retiree, the days (180 days for new construction) of
residual income figures will be reduced any request for, or consideration of,
information concerning the spouse the date the note is signed. For prior
by a minimum of 5 percent if there is approval loans, this requirement will be
(including income, employment, assets,
a clear indication that the borrower or considered satisfied if the verification of
or liabilities), except that if the
spouse will continue to receive the employment is dated within 120 days of
applicant is relying on alimony, child
benefits resulting from the use of the date the application is received by
support, or maintenance payments from
facilities on a nearby military base. VA.
a spouse or former spouse as a basis for
(This reduction applies to tables in repayment of the loan, information (2) Active-duty, Reserve, or National
paragraph (e) of this section.) concerning such spouse or former Guard applicants. (i) In the case of an
(f) Stability and reliability of income. spouse may be requested and active-duty applicant, a military Leave &
Only stable and reliable income of the considered (see paragraph (f)(4) of this Earnings Statement is required and will
veteran and spouse can be considered in section). In community property states, be used instead of an employment
determining ability to meet mortgage information concerning a spouse may be verification. The statement must be no
payments. Income can be considered requested and considered in the same more than 120 days old (180 days for
stable and reliable if it can be concluded manner as that for the applicant. The new construction) and must be the
original or a lender-certified copy of the properly considered in determining to the base pay. Income derived from
original. For loans closed automatically, ability to meet the mortgage payments. service in the Reserves or National
this requirement is satisfied if the date If an employer puts N/A or otherwise Guard may be used if the applicant has
of the Leave & Earnings Statement is declines to complete a verification of served in such capacity for a period of
within 120 days (180 days for new employment statement regarding the time sufficient to evidence good
construction) of the date the note is probability of continued employment, probability that such income will
signed. For prior approval loans, this no further action is required of the continue beyond 12 months. The total
requirement will be considered satisfied lender. Reliability will be determined period of active and reserve service may
if the verification of employment is based on the duration of the borrower’s be helpful in this regard. Otherwise,
dated within 120 days of the date the current employment together with his or such income may be used to offset
application is received by VA. her overall documented employment intermediate-term debts. There are a
(ii) For servicemembers within 12 history. There can be no discounting of number of additional income sources
months of release from active duty, or income solely because it is derived from whose contingent nature precludes their
members of the Reserves or National an annuity, pension or other retirement being considered as available for
Guard within 12 months of release, one benefit, or from part-time employment. repayment of a long-term mortgage
of the following is also required: However, unless income from overtime obligation. Temporary income items
(A) Documentation that the such as VA educational allowances and
work and part-time or second jobs can
servicemember has in fact already unemployment compensation do not
be accorded a reasonable likelihood that
reenlisted or extended his/her period of represent stable and reliable income and
it is continuous and will continue in the
active duty or Reserve or National will not be taken into consideration in
foreseeable future, such income should
Guard service to a date beyond the 12- determining the ability of the veteran to
not be used. Generally, the reliability of
month period following the projected meet the income requirement of the
closing of the loan. such income cannot be demonstrated
unless the income has continued for 2 governing law. As required by the Equal
(B) Verification of a valid offer of local Opportunity Act Amendments of 1976,
civilian employment following release years. The hours of duty and other work
conditions of the applicant’s primary Public Law 94–239, income from public
from active duty. All data pertinent to assistance programs is used to qualify
sound underwriting procedures (date job, and the period of time in which the
for a loan if it can be determined that
employment will begin, earnings, etc.) applicant was employed under such
the income will probably continue for 3
must be included. arrangement, must be such as to permit
years or more.
(C) A statement from the a clear conclusion as to a good (4) Tax-exempt income. Special
servicemember that he/she intends to probability that overtime or part-time or consideration can be given to verified
reenlist or extend his/her period of secondary employment can and will nontaxable income once it has been
active duty or Reserve or National continue. Income from overtime work established that such income is likely to
Guard service to a date beyond the 12 and part-time jobs not eligible for continue (and remain untaxed) into the
month period following the projected inclusion as primary income may, if foreseeable future. Such income
loan closing date, and a statement from properly verified for at least 12 months, includes certain military allowances,
the servicemember’s commanding be used to offset the payments due on child support payments, workers’
officer confirming that the debts and obligations of an intermediate compensation benefits, disability
servicemember is eligible to reenlist or term, i.e., 6 to 24 months. Such income retirement payments and certain types
extend his/her active duty or Reserve or must be described in the loan file. The of public assistance payments. In such
National Guard service as indicated and amount of any pension or compensation cases, current income tax tables may be
that the commanding officer has no and other income, such as dividends used to determine an amount which can
reason to believe that such reenlistment from stocks, interest from bonds, be prudently employed to adjust the
or extension will not be granted. savings accounts, or other deposits, borrower’s actual income. This adjusted
(D) Other unusually strong positive rents, royalties, etc., will be used as or ‘‘grossed up’’ income may be used to
underwriting factors, such as a down primary income if it is reasonable to calculate the monthly debt-to-income
payment of at least 10 percent, conclude that such income will ratio, provided the analysis is
significant cash reserves, or clear continue in the foreseeable future. documented. Only the borrower’s actual
evidence of strong ties to the Otherwise, it may be used only to offset income may be used to calculate the
community coupled with a nonmilitary intermediate-term debts, as described in residual income. Care should be
spouse’s income so high that only this paragraph. Also, the likely duration exercised to ensure that the income is in
minimal income from the active duty of certain military allowances cannot be fact tax-exempt.
servicemember or member of the determined and, therefore, will be used (5) Alimony, child support,
Reserves or National Guard is needed to only to offset intermediate-term debts, maintenance, workers’ compensation,
qualify. as described in this paragraph. Such foster care payments. (i) If an applicant
(iii) Each active-duty member who allowances are: Pro-pay, flight or hazard chooses to reveal income from alimony,
applies for a loan must be counseled pay, and overseas or combat pay, all of child support or maintenance payments
through the use of VA Form 26–0592, which are subject to periodic review (after first having been informed that
Counseling Checklist for Military and/or testing of the recipient to any such disclosure is voluntary
Homebuyers. Lenders must submit a ascertain whether eligibility for such pursuant to the Federal Reserve Board’s
signed and dated VA Form 26–0592 pay will continue. Only if it can be Regulation B (12 CFR part 202)), such
with each prior approval loan shown that such pay has continued for payments are considered as income to
application or automatic loan report a prolonged period and can be expected the extent that the payments are likely
involving a borrower on active duty. to continue because of the nature of the to be consistently made. Factors to be
(3) Income reliability. Income recipient’s assigned duties, will such considered in determining the
received by the borrower and spouse is income be considered as primary likelihood of consistent payments
to be used only if it can be concluded income. For instance, flight pay verified include, but are not limited to: Whether
that the income will continue during the for a pilot can be regarded as probably the payments are received pursuant to a
foreseeable future and, thus, should be continuous and, thus, should be added written agreement or court decree; the
length of time the payments have been overseas who are not accompanied by receiving such income for at least 2
received; the regularity of receipt; the their families, recruiters on detached years. Less than 2 years of income from
availability of procedures to compel duty, or military personnel stationed in commissions cannot usually be
payment; and the creditworthiness of areas where no on-base housing exists. considered stable. When an applicant
the payor, including the credit history of In any case in which no off-base has received income from commissions
the payor when available under the Fair housing authorization is obtained, an for less than 1 year, it will rarely be
Credit Reporting Act or other applicable explanation of the circumstances possible to demonstrate that the income
laws. However, the Fair Credit justifying its omission must be included is stable for qualifying purposes; such
Reporting Act (15 U.S.C. 1681(b)) limits with the loan application except when cases would require in-depth
the permissible purposes for which it has been established by the VA development.
credit reports may be ordered, in the facility of jurisdiction that the waiting (9) Self-employment. Generally,
absence of written instructions of the lists for on-base housing are so long that income from self-employment is
consumer to whom the report relates, to it is improbable that individuals considered stable when the applicant
business transactions involving the desiring to purchase off-base housing has been in business for at least 2 years.
subject of the credit report or extensions would be precluded from doing so in Less than 2 years of income from self-
of credit to the subject of the credit the foreseeable future. If stations make employment cannot usually be
report. such a determination, a release shall be considered stable unless the applicant
(ii) If the applicant chooses to reveal issued to inform lenders. has had previous related employment
income related to workers’ (7) Automobile (or similar) allowance. and/or extensive specialized training.
compensation, it will be considered as Generally, automobile allowances are When an applicant has been self-
income to the extent it can be paid to cover specific expenses related employed less than 1 year, it will rarely
determined such income will continue. to an applicant’s employment, and it is be possible to demonstrate that the
(iii) Income received specifically for appropriate to use such income to offset income is stable for qualifying purposes;
the care of any foster child(ren) may be a corresponding car payment. However, such cases would require in-depth
counted as income if documented. in some instances, such an allowance development. The following
Generally, however, such foster care may exceed the car payment. With documentation is required for all self-
income is to be used only to balance the proper documentation, income from a employed borrowers:
expenses of caring for the foster car allowance which exceeds the car (i) A profit-and-loss statement for the
child(ren) against any increased residual payment can be counted as effective prior fiscal year (12-month accounting
income requirements. income. Likewise, any other similar cycle), plus the period year to date since
(6) Military quarters allowance. With type of allowance which exceeds the the end of the last fiscal year (or for
respect to off-base housing (quarters) specific expense involved may be added whatever shorter period records may be
allowances for service personnel on to gross income to the extent it is available), and balance sheet based on
active duty, it is the policy of the documented to exceed the actual the financial records. The financial
Department of Defense to utilize expense. statement must be sufficient for a loan
available on-base housing when (8) Commissions. When all or a major underwriter to determine the necessary
possible. In order for a quarters portion of the veteran’s income is information for loan approval and an
allowance to be considered as derived from commissions, it will be independent audit (on the veteran and/
continuing income, it is necessary that necessary to establish the stability of or the business) by a Certified Public
the applicant furnish written such income if it is to be considered in Accountant will be required if necessary
authorization from his or her the loan analysis for the repayment of for such determination; and
commanding officer for off-base the mortgage debt and/or short-term (ii) Copies of signed individual
housing. This authorization should obligations. In order to assess the value income tax returns, plus all applicable
verify that quarters will not be made of such income, lenders should obtain schedules for the previous 2 years, or for
available and that the individual should written verification of the actual amount whatever additional period is deemed
make permanent arrangements for of commissions paid to date, the basis necessary to properly demonstrate a
nonmilitary housing. A Department of for the payment of such commissions satisfactory earnings record, must be
Defense form, DD Form 1747, Status of and when commissions are paid; i.e., obtained. If the business is a corporation
Housing Availability, is used by the monthly, quarterly, semiannually, or or partnership, copies of signed Federal
Family Housing Office to advise annually. Lenders should also obtain business income tax returns for the
personnel regarding family housing. The signed and dated individual income tax previous two years plus all applicable
applicant’s quarters allowance cannot returns, plus applicable schedules, for schedules for the corporation or
be considered unless item b (Permanent) the previous 2 years, or for whatever partnership must be obtained; and
or d is completed on DD Form 1747, additional period is deemed necessary (iii) If the business is a corporation or
dated October 1990. Of course, if the to properly demonstrate a satisfactory partnership, a list of all stockholders or
applicant’s income less quarters earnings record. The length of the partners showing the interest each holds
allowance is sufficient, there is no need veteran’s employment in the type of in the business will be required. Some
for assurance that the applicant has occupation for which commissions are cases may justify a written credit report
permission to occupy nonmilitary paid is also an important factor in the on the business as well as the applicant.
housing provided that a determination assessment of the stability of the When the business is of an unusual type
can be made that the occupancy income. If the veteran has been and it is difficult to determine the
requirements of the law will be met. employed for a relatively short time, the probability of its continued operation,
Also, authorization to obtain off-base income should not normally be explanation as to the function and
housing will not be required when considered stable unless the product or purpose of the business may be needed
certain duty assignments would clearly service was the same or closely related from the applicant and/or any other
qualify service personnel with families to the product or service sold in an qualified party with the acknowledged
for quarters allowance. For instance, off- immediate prior position. Generally, expertise to express a valid opinion.
base housing authorizations need not be income from commissions is considered (10) Recently discharged veterans.
obtained for service personnel stationed stable when the applicant has been Loan applications received from
recently discharged veterans who have resolve the doubt in favor of the veteran. (12) Rental income—(i) Multi-unit
little or no employment experience It would be erroneous, however, to give subject property. When the loan pertains
other than their military occupation and consideration to a veteran’s income to a structure with more than a one-
from veterans seeking VA-guaranteed from employment for a short duration in family dwelling unit, the prospective
loans who have retired after 20 years of a job requiring skills for which the rental income will not be considered
active military duty require special applicant has had no training or unless the veteran can demonstrate a
attention. The retirement income of the experience. reasonable likelihood of success as a
latter veterans in many cases may not be (iv) To illustrate the provisions of landlord, and sufficient cash reserves
sufficient to meet the statutory income paragraph (f)(10), it would be proper to are verified to enable the veteran to
requirements for the loan amount use short-term employment income in carry the mortgage loan payments
sought. Many have obtained full-time qualifying a veteran who had experience (principal, interest, taxes, and
employment and have been employed as an airplane mechanic in the military insurance) without assistance from the
in their new jobs for a very short time. service and the individual’s rental income for a period of at least 6
(i) It is essential in determining employment after discharge or months. The determination of the
whether veterans in these categories retirement from the service is in the veteran’s likelihood of success as a
qualify from the income standpoint for same or allied fields; e.g., auto mechanic landlord will be based on
the amount of the loan sought, that the or machinist. This presumes, however, documentation of any prior experience
facts in respect to their present that the verification of employment in managing rental units or other
employment and retirement income be included a statement that the veteran collection activities. The amount of
fully developed, and that each case be was performing the duties of the job rental income to be used in the loan
considered on its individual merits. satisfactorily, the possibility of analysis will be based on 75 percent of
(ii) In most cases the veteran’s current continued employment was favorable the amount indicated on the lease or
income or current income plus his or and that the loan application is eligible rental agreement, unless a greater
her retirement income is sufficient. The in all other respects. An example of percentage can be documented.
problem lies in determining whether it nonqualifying experience is that of a (ii) Rental of existing home. Proposed
can be properly concluded that such veteran who was an Air Force pilot and rental of a veteran’s existing property
income level will continue for the has been employed in insurance sales may be used to offset the mortgage
foreseeable future. If the veteran’s on commission for a short time. Most payment on that property, provided
employment status is that of a trainee or cases, of course, fall somewhere there is no indication that the property
an apprentice, this will, of course, be a between those extremes. It is for this will be difficult to rent. If available, a
factor. In cases of the self-employed, the reason that the facts of each case must copy of the rental agreement should be
question to be resolved is whether there be fully developed prior to closing the obtained. It is the responsibility of the
are reasonable prospects that the loan automatically or submitting the loan underwriter to be aware of the
business enterprise will be successful case to VA for prior approval. condition of the local rental market. For
and produce the required income. (11) Employment of short duration. instance, in areas where the rental
Unless a favorable conclusion can be The provisions of paragraph (f)(7) of this market is very strong the absence of a
made, the income from such source section are similarly applicable to lease should not automatically prohibit
should not be considered in the loan applicants whose employment is of the offset of the mortgage by the
analysis. short duration. Such cases will entail proposed rental income.
(iii) If a recently discharged veteran careful consideration of the employer’s (iii) Other rental property. If income
has no prior employment history and confirmation of employment, from rental property will be used to
the veteran’s verification of employment probability of permanency, past qualify for the new loan, the
shows he or she has not been on the job employment record, the applicant’s documentation required of a self-
a sufficient time in which to become qualifications for the position, and employed applicant should be obtained
established, consideration should be previous training, including that together with evidence of cash reserves
given to the duties the veteran received in the military service. In the equaling 3 months PITI on the rental
performed in the military service. When event that such considerations do not property. As for any self-employed
it can be determined that the duties a enable a determination that the income earnings (see paragraph (f)(7) of this
veteran performed in the service are from the veteran’s current position has section), depreciation claimed may be
similar or are in direct relation to the a reasonable likelihood of continuance, added back in as income. In the case of
duties of the applicant’s present such income should not be considered a veteran who has no experience as a
position, such duties may be construed in the analysis. Applications received landlord, it is unlikely that the income
as adding weight to his or her present from persons employed in the building from a rental property may be used to
employment experience and the income trades, or in other occupations affected qualify for the new loan.
from the veteran’s present employment by climatic conditions, should be (13) Taxes and other deductions.
thus may be considered available for supported by documentation evidencing Deductions to be applied for Federal
qualifying the loan, notwithstanding the the applicant’s total earnings to date and income taxes and Social Security may
fact that the applicant has been on the covering a period of not less than 1 year be obtained from the Employer’s Tax
present job only a short time. This same as well as signed and dated copies of Guide (Circular E) issued by the Internal
principle may be applied to veterans complete income tax returns, including Revenue Service (IRS). (For veterans
recently retired from the service. In all schedules for the past 2 years or for receiving a mortgage credit certificate
addition, when the veteran’s income whatever additional period is deemed (MCC), see paragraph (f)(14) of this
from retirement, in relation to the total necessary to properly demonstrate a section.) Any State or local taxes should
of the estimated shelter expense, long- satisfactory earnings record. If the be estimated or obtained from charts
term debts and amount available for applicant works out of a union, similar to those provided by IRS which
family support, is such that only evidence of the previous year’s earnings may be available in those states with
minimal income from employment is should be obtained together with a withholding taxes. A determination of
necessary to qualify from the income verification of employment from the the amount paid or withheld for
standpoint, it would be proper to current employer. retirement purposes should be made
and used when calculating deductions $1,500, the monthly tax credit would be be, has been regularly employed (not
from gross income. In determining limited to $125 ($1,500/12). self-employed) and has been discharged
whether a veteran-applicant meets the (g) Credit. The conclusion reached as in bankruptcy within the last one to two
income criteria for a loan, some to whether or not the veteran and years, it probably would not be possible
consideration may be given to the spouse are satisfactory credit risks must to determine that the borrower or
potential tax benefits the veteran will also be based on a careful analysis of the spouse is a satisfactory credit risk unless
realize if the loan is approved. This can available credit data. Regulation B (12 both of the following requirements are
be done by using the instructions and CFR part 202), promulgated by the satisfied:
worksheet portion of IRS Form W–4, Federal Reserve Board pursuant to the (i) The borrower or spouse has
Employee’s Withholding Allowance Equal Credit Opportunity Act, requires obtained credit subsequent to the
Certificate, to compute the total number that lenders, in evaluating bankruptcy and has met the credit
of permissible withholding allowances. creditworthiness, shall consider, on the payments in a satisfactory manner over
That number can then be used when applicant’s request, the credit history, a continued period; and
referring to IRS Circular E and any when available, of any account reported (ii) The bankruptcy was caused by
appropriate similar State withholding in the name of the applicant’s spouse or circumstances beyond the control of the
charts to arrive at the amount of Federal former spouse which the applicant can borrower or spouse, e.g.,
and State income tax to be deducted demonstrate accurately reflects the unemployment, prolonged strikes,
from gross income. applicant’s creditworthiness. In other medical bills not covered by insurance.
(14) Mortgage credit certificates. (i) than community property states, if the Divorce is not generally viewed as
The Internal Revenue Code (26 U.S.C.) spouse will not be contractually beyond the control of the borrower and/
as amended by the Tax Reform Act of obligated on the loan, Regulation B or spouse. The circumstances alleged
1984, allows states and other political prohibits any request for or must be verified. If a borrower or spouse
subdivisions to trade in all or part of consideration of information about the is self-employed, has been adjudicated
their authority to issue mortgage spouse concerning income, bankrupt, and subsequently obtains a
revenue bonds for authority to issue employment, assets or liabilities. In permanent position, a finding as to
MCCs. Veterans who are recipients of community property states, information satisfactory credit risk may be made
MCCs may realize a significant concerning a spouse may be requested provided there is no derogatory credit
reduction in their income tax liability and considered in the same manner as information prior to self-employment,
by receiving a Federal tax credit for a that for the applicant. there is no derogatory credit information
percentage of their mortgage interest (1) Adverse data. If the analysis subsequent to the bankruptcy, and the
payment on debt incurred on or after develops any derogatory credit failure of the business was not due to
January 1, 1985. information and, despite such facts, it is misconduct. If a borrower or spouse has
(ii) Lenders must provide a copy of determined that the veteran and spouse been discharged in bankruptcy within
the MCC to VA with the home loan are satisfactory credit risks, the basis for the past 12 months, it will not generally
application. The MCC will specify the the decision must be explained. If a be possible to determine that the
rate of credit allowed and the amount of veteran and spouse have debts borrower or spouse is a satisfactory
certified indebtedness; i.e., the outstanding which have not been paid credit risk.
indebtedness incurred by the veteran to timely, or which they have refused to (3) Petition under Chapter 13 of
acquire a principal residence or as a pay, the fact that the outstanding debts Bankruptcy Code. A petition under
qualified home improvement or are paid after the acceptability of the chapter 13 of the Bankruptcy Code (11
rehabilitation loan. credit is questioned or in anticipation of U.S.C.) filed by the borrower or spouse
(iii) For credit underwriting purposes, applying for new credit does not, of is indicative of an effort to pay their
the amount of tax credit allowed to a course, alter the fact that the record for creditors. Some plans may provide for
veteran under an MCC will be treated as paying debts has been unsatisfactory. full payment of debts while others
a reduction in the monthly Federal With respect to unpaid debts, lenders arrange for payment of scaled-down
income tax. For example, a veteran may take into consideration a veteran’s debts. Regular payments are made to a
having a $600 monthly interest payment claim of bona fide or legal defenses. court-appointed trustee over a 2- to 3-
and an MCC providing a 30-percent tax Such defenses are not applicable when year period (or up to 5 years in some
credit would receive a $180 (30 percent the debt has been reduced to judgment. cases). When the borrowers have made
× $600) tax credit each month. However, Where a collection account has been all payments in a satisfactory manner,
because the annual tax credit, which established, if it is determined that the they may be considered as having
amounts to $2,160 (12 × $180), exceeds borrower is a satisfactory credit risk, it reestablished satisfactory credit. When
$2,000 and is based on a 30-percent is not mandatory that such an account they apply for a home loan before
credit rate, the maximum tax credit the be paid off in order for a loan to be completion of the payout period,
veteran can receive is limited to $2,000 approved. Court-ordered judgments, favorable consideration may
per year (Pub. L. 98–369) or $167 per however, must be paid off before a new nevertheless be given if at least 12
month ($2,000/12). As a consequence of loan is approved. months’ worth of payments have been
the tax credit, the interest on which a (2) Bankruptcy. When the credit made satisfactorily and the Trustee or
deduction can be taken will be reduced information shows that the borrower or Bankruptcy Judge approves of the new
by the amount of the tax credit to $433 spouse has been discharged in credit.
($600¥$167). This reduction should bankruptcy under the ‘‘straight’’ (4) Foreclosures. (i) When the credit
also be reflected when calculating liquidation and discharge provisions of information shows that the veteran or
Federal income tax. the bankruptcy law, this would not in spouse has had a foreclosure on a prior
(iv) For underwriting purposes, the itself disqualify the loan. However, in mortgage; e.g., a VA-guaranteed or HUD-
amount of the tax credit is limited to the such cases it is necessary to develop insured mortgage, this will not in itself
amount of the veteran’s maximum tax complete information as to the facts and disqualify the borrower from obtaining
liability. If, in the example in paragraph circumstances concerning the the loan. Lenders and field station
(f)(14)(iii) of this section, the veteran’s bankruptcy. Generally speaking, when personnel should refer to the preceding
tax liability for the year were only the borrower or spouse, as the case may guidelines on bankruptcies for cases
involving foreclosures. As with a credit history in these cases will not lenders must be certain to obtain
borrower who has been adjudicated generally be viewed as an adverse factor clarification as to the status of such
bankrupt, it is necessary to develop in credit underwriting. However, before debts from the borrower. A proper
complete information as to the facts and a favorable decision is made for cases analysis is obviously not possible unless
circumstances of the foreclosure. involving bankruptcies or other there is total correlation between the
(ii) When VA pays a claim on a VA- derogatory credit factors, efforts should obligations claimed by the borrower and
guaranteed loan as a result of a be made to develop evidence of timely those revealed by a credit report or
foreclosure, the original veteran may be payment of non-installment debts such deposit verification. Conversely,
required to repay any loss to the as rent and utilities. It is anticipated that significant debts and obligations
Government. In some instances VA may this special consideration in the absence reported by the borrower must be dated.
waive the veteran’s debt, in part or of a credit history following bankruptcy If the credit report fails to provide
totally, based on the facts and would be the rare case and generally necessary information on such accounts,
circumstances of the case. However, confined to bankruptcies that occurred lenders will be expected to obtain their
guaranty entitlement cannot be restored over 3 years ago. own verifications of those debts directly
unless the Government’s loss has been (7) Consumer credit counseling plan. from the creditors. Credit reports and
repaid in full, regardless of whether or If a veteran, or veteran and spouse, have verifications must be no more than 120
not the debt has been waived, prior adverse credit and are days old (180 days for new
compromised, or discharged in participating in a Consumer Credit construction) to be considered valid. For
bankruptcy. Therefore, a veteran who is Counseling plan, they may be loans closed automatically, this
seeking a new VA loan after having determined to be a satisfactory credit requirement will be considered satisfied
experienced a foreclosure on a prior VA risk if they demonstrate 12 months’ if the date of the credit report or
loan will in most cases have only satisfactory payments and the verification is within 120 days (180 days
remaining entitlement to apply to the counseling agency approves the new for new construction) of the date the
new loan. The lender should assure that credit. If a veteran, or veteran and note is signed. For prior approval loans,
the veteran has sufficient entitlement for spouse, have good prior credit and are this requirement will be considered
its secondary marketing purposes. participating in a Consumer Credit satisfied if the date of the credit report
(5) Federal debts. An applicant for a Counseling plan, such participation is to or verification is within 120 days of the
Federally-assisted loan will not be be considered a neutral factor, or even date the application is received by VA.
considered a satisfactory credit risk for a positive factor, in determining Of major significance are the applicant’s
such loan if the applicant is presently creditworthiness. rental history and outstanding or
delinquent or in default on any debt to (8) Re-establishment of satisfactory recently retired mortgages, if any,
the Federal Government, e.g., a Small credit. In circumstances not involving particularly prior VA loans. Lenders
Business Administration loan, a U.S. bankruptcy, satisfactory credit is
should be sure ratings on such accounts
Guaranteed Student loan, a debt to the generally considered to be reestablished
are obtained; a written explanation is
Public Health Service, or where there is after the veteran, or veteran and spouse,
required when ratings are not available.
a judgment lien against the applicant’s have made satisfactory payments for 12
A determination is necessary as to
property for a debt owed to the months after the date of the last
whether alimony and/or child support
Government. The applicant may not be derogatory credit item.
(9) Long-term v. short-term debts. All payments are required. Verification of
approved for the loan until the
known debts and obligations including the amount of such obligations should
delinquent account has been brought
any alimony and/or child support be obtained, although documentation
current or satisfactory arrangements
payments of the borrower and spouse concerning an applicant’s divorce
have been made between the borrower
and the Federal agency owed, or the must be documented. Significant should not be obtained automatically
judgment is paid or otherwise satisfied. liabilities, to be deducted from the total unless it is necessary to verify the
Of course, the applicant must also be income in determining ability to meet amount of any alimony or child support
able to otherwise qualify for the loan the mortgage payments are accounts liability indicated by the applicant. If in
from an income and remaining credit that, generally, are of a relatively long the routine course of processing the loan
standpoint. Refinancing under VA’s term, i.e., 10 months or over. Other application, however, direct evidence is
interest rate reduction refinancing accounts for terms of less than 10 received (e.g., from the credit report)
provisions, however, is allowed even if months must, of course, be considered that an obligation to pay alimony or
the borrower is delinquent on the VA in determining ability to meet family child support exists (as opposed to mere
guaranteed mortgage being refinanced. expenses. Certainly, any severe impact evidence that the veteran was
Prior approval processing is required in on the family’s resources for any period previously divorced), the discrepancy
such cases. of time must be considered in the loan between the loan application and credit
(6) Absence of credit history. The fact analysis. For example, monthly report can and should be fully resolved
that recently discharged veterans may payments of $300 on an auto loan with in the same manner as any other such
have had no opportunity to develop a a remaining balance of $1,500 would be discrepancy would be handled. When a
credit history will not preclude a included in those obligations to be pay stub or leave-and-earnings
determination of satisfactory credit. deducted from the total income statement indicates an allotment, the
Similarly, other loan applicants may not regardless of the fact that the account lender must investigate the nature of the
have established credit histories as a can be expected to pay out in 5 months. allotment(s) to determine whether the
result of a preference for purchasing It is clear that the applicant will, in this allotment is related to a debt. Debts
consumer items with cash rather than case, continue to carry the burden of assigned to an ex-spouse by a divorce
credit. There are also cases in which those $300 payments for the first, most decree will not generally be charged
individuals may be genuinely wary of critical months of the home loan. against a veteran-borrower.
acquiring new obligations following (10) Requirements for verification. If (11) Job-related expenses. Known job-
bankruptcy, consumer credit counseling the credit investigation reveals debts or related expenses should be documented.
(debt proration), or other disruptive obligations of a material nature which This will include costs for any
credit occurrence. The absence of the were not divulged by the applicant, dependent care, significant commuting
costs, etc. When a family’s utilities be estimated accurately based (5) All credit reports secured by the
circumstances are such that dependent on property location and type of house; lender or other parties as identified in
care arrangements would probably be e.g., old or new, large or small, rather paragraphs (j)(3) and (4) of this section
necessary, it is important to determine than using or applying a ‘‘rule of shall be provided to VA. If updated
the cost of such services in order to thumb’’ to all properties alike. credit reports reflect materially different
arrive at an accurate total of deductions. Maintenance and utility amounts for information than that in other reports,
(12) Credit reports. Credit reports various types of property should be such discrepancies must be explained
obtained by lenders on VA-guaranteed realistically estimated. Local utility by the lender and the ultimate decision
loan applications must be either a three- companies should be consulted for as to the effects of the discrepancy upon
file Merged Credit Report (MCR) or a current rates. The age and type of the loan application fully addressed by
Residential Mortgage Credit Report construction of a house may well affect the underwriter.
(RMCR). If used, the RMCR must meet these expenses. In the case of (k) Lender certification. Lenders
the standards formulated jointly by the condominiums or houses in a planned originating loans are responsible for
Department of Veterans Affairs, Federal unit development (PUD), the monthly determining and certifying to VA on the
National Mortgage Association, Federal amount of the maintenance assessment appropriate application or closing form
Home Loan Mortgage Corporation, payable to a homeowners association that the loan meets all statutory and
Federal Housing Administration, should be added. If the amount regulatory requirements. Lenders will
Farmers Home Administration, credit currently assessed is less than the affirmatively certify that loans were
repositories, repository affiliated maximum provided in the covenants or made in full compliance with the law
consumer reporting agencies and master deed, and it appears likely that and loan guaranty regulations as
independent consumer reporting the amount will be insufficient for prescribed in this section.
agencies. All credit reports obtained by operation of the condominium or PUD, (1) Definitions. The definitions
the lender must be submitted to VA. the amount used will be the maximum contained in part 42 of this chapter and
(h) Borrower’s personal and financial the veteran could be charged. If it is the following definitions are applicable
status. The number and ages of expected that real estate taxes will be in this section.
dependents have an important bearing raised, or if any special assessments are (i) Another appropriate amount. In
on whether income after deduction of expected, the increased or additional determining the appropriate amount of
fixed charges is sufficient to support the amounts should be used. In special a lender’s civil penalty in cases where
family. Type and duration of flood hazard areas, include the premium the Secretary has not sustained a loss or
employment of both the borrower and for any required flood insurance. where two times the amount of the
spouse are important as an indication of (j) Lender responsibility. (1) Lenders Secretary’s loss on the loan involved
stability of their employment. The are fully responsible for developing all does not exceed $10,000, the Secretary
amount of liquid assets owned by the credit information; i.e., for obtaining shall consider:
borrower or spouse, or both, is an verifications of employment and (A) The materiality and importance of
important factor in determining that deposit, credit reports, and for the the false certification to the
they have sufficient funds to close the accuracy of the information contained determination to issue the guaranty or to
loan, as well as being significant in in the loan application. approve the assumption;
analyzing the overall qualifications for (2) Verifications of employment and (B) The frequency and past pattern of
the loan. (It is imperative that adequate deposits, and requests for credit reports such false certifications by the lender;
cash assets from the veteran’s own and/or credit information must be and
resources are verified to allow the initiated and received by the lender. (C) Any exculpatory or mitigating
payment (see § 36.4839(a)(3)) of any (3) In cases where the real estate circumstances.
difference between the sales price of the broker/agent or any other party requests (ii) Complaint. Complaint includes
property and the loan amount, in any of this information, the report(s) the assessment of liability served
addition to that necessary to cover must be returned directly to the lender. pursuant to this section.
closing costs, if the sales price exceeds This fact must be disclosed by (iii) Defendant. Defendant means a
the reasonable value established by VA.) appropriately completing the required lender named in the complaint.
Verifications must be no more than 120 certification on the loan application or (iv) Lender. Lender includes the
days old (180 days for new report and the parties must be identified holder approving loan assumptions
construction) to be considered valid. For as agents of the lender. pursuant to 38 U.S.C. 3714.
loans closed on the automatic basis, this (4) Where the lender relies on other
(2) Procedures for certification. (i) As
requirement will be considered satisfied parties to secure any of the credit or
a condition to VA issuance of a loan
if the date of the deposit verification is employment information or otherwise
guaranty on all loans closed on or after
within 120 days (180 days for new accepts such information obtained by
October 27, 1994, and as a prerequisite
construction) of the date of the veteran’s any other party, such parties shall be
to an effective loan assumption on all
application to the lender. For prior construed for purposes of the
loans assumed pursuant to 38 U.S.C.
approval loans, this requirement will be submission of the loan documents to VA
3714 on or after November 17, 1997, the
considered satisfied if the verification of to be authorized agents of the lender,
following certification shall accompany
employment is dated within 120 days of regardless of the actual relationship
each loan closing or assumption
the date the application is received by between such parties and the lender,
package:
VA. Current monthly rental or other even if disclosure is not provided to VA
housing expense is an important under paragraph (j)(3) of this section. The undersigned lender certifies that the
consideration when compared to that to Any negligent or willful (loan) (assumption) application, all
misrepresentation by such parties shall verifications of employment, deposit, and
be undertaken in connection with the
other income and credit verification

contemplated housing purchase. be imputed to the lender as if the lender documents have been processed in
(i) Estimated monthly shelter had processed those documents and the compliance with 38 CFR part 36; that all
expenses. It is important that monthly lender shall remain responsible for the credit reports obtained or generated in
expenses such as taxes, insurance, quality and accuracy of the information connection with the processing of this
assessments and maintenance and provided to VA. borrower’s (loan) (assumption) application
have been provided to VA; that, to the best governed by the procedures recited at 38 on the principal of the note, as of the
of the undersigned lender’s knowledge and CFR 42.8 through 42.47. date of last debit to the deposit account.
belief the (loan) (assumption) meets the (n) Additional remedies. Any Any excess credit of interest shall be
underwriting standards recited in chapter 37 assessment under this section may be in treated as a set-off against the unpaid
of title 38 United States Code and 38 CFR
addition to other remedies available to advances, if any, and the unpaid
part 36; and that all information provided in
support of this (loan) (assumption) is true, VA, such as debarment and suspension balance of the note.
complete and accurate to the best of the pursuant to 38 U.S.C. 3704 and 2 CFR (d) The provisions of paragraphs (a),
undersigned lender’s knowledge and belief. parts 180 and 801 or loss of automatic (b) and (c) of this section shall apply
processing authority pursuant to 38 also to corporations. The dissolution
(ii) The certification shall be executed U.S.C. 3702, or other actions by the thereof by expiration of charter, by
by an officer of the lender authorized to Government under any other law forfeiture, or otherwise shall be treated
execute documents and act on behalf of including but not limited to title 18 as is the death of an individual as
the lender. U.S.C. and 31 U.S.C. 3732. provided in paragraph (a) of this
(3) Penalty. Any lender who
(Authority 38 U.S.C. 3703(c)(1), 3710(g)) section.
knowingly and willfully makes a false
certification required pursuant to (The Office of Management and Budget has (Authority 38 U.S.C. 3703(c)(1), 3720)
§ 36.4840(k)(2) shall be liable to the approved the information collection
United States Government for a civil requirements of this section under control § 36.4842 Qualification for designated fee
number 2900–0521.) appraisers.
penalty equal to two times the amount
of the Secretary’s loss on the loan § 36.4841 Death or insolvency of holder. To qualify for approval as a
involved or to another appropriate (a) Immediately upon the death of the designated fee appraiser, an applicant
amount, not to exceed $10,000, holder and without the necessity of must show to the satisfaction of the
whichever is greater. request or other action by the debtor or Secretary that his or her character,
(l) Assessment of liability. (1) Upon an the Secretary, all sums then standing as experience, and the type of work in
assessment confirmed by the Under a credit balance in a trust, or deposit, or which he or she has had experience for
Secretary for Benefits, in consultation other account to cover taxes, insurance at least 5 years qualifies the applicant to
with the Investigating Official, that a accruals, or other items in connection competently appraise and value within
certification, as required in this section, with the loan secured by the a prescribed area the type of property to
is false, a report of findings of the Under encumbered property, whether stated to which the approval relates.
Secretary for Benefits shall be submitted be such or otherwise designated, and (Authority 38 U.S.C. 3703(c)(1), 3731)
to the Reviewing Official setting forth: which have not been credited on the
(i) The evidence that supports the note shall, nevertheless, be treated as a § 36.4843 Restriction on designated fee
allegations of a false certification and of setoff and shall be deemed to have been appraisers.
liability; credited thereon as of the date of the last (a) A designated fee appraiser shall
(ii) A description of the claims or debit to such account, so that the not make an appraisal, excepting of
statements upon which the allegations unpaid balance of the note as of that alterations, improvements, or repairs to
of liability are based; date will be reduced by the amount of real property entailing a cost of not
(iii) The amount of the VA demand to such credit balance: Provided, that any more than $3,500, if such appraiser is an
be made; and unpaid taxes, insurance premiums, officer, director, trustee, employer, or
(iv) Any exculpatory or mitigating ground rents, or advances may be paid employee of the lender, contractor, or
circumstances that may relate to the by the holder of the indebtedness, at the vendor.
certification. holder’s option, and the amount which (b) An appraisal made by a designated
(2) The Reviewing Official shall otherwise would have been deemed to fee appraiser shall be subject to review
review all of the information provided have been credited on the note reduced and adjustment by the Secretary. The
and will either inform the Under accordingly. This paragraph shall be amount determined to be proper upon
Secretary for Benefits and the applicable whether the estate of the any such review or adjustment shall
Investigating Official that there is not deceased holder is solvent or insolvent. constitute the ‘‘reasonable value’’ for the
adequate evidence, that the lender is (b) The provisions of paragraph (a) of purpose of determining the eligibility of
liable, or serve a complaint on the this section shall also be applicable in the related loan.
lender stating: the event of:
(i) The allegations of a false (Authority 38 U.S.C. 3703(c)(1), 3731)
(1) Insolvency of holder;
certification and of liability; (2) Initiation of any bankruptcy or
(ii) The amount being assessed by the § 36.4845 Delegation of authority.
reorganization, or liquidation
Secretary and the basis for the amount proceedings as to the holder, whether (a) Except as hereinafter provided,
assessed; voluntary or involuntary; each employee of the Department of
(iii) Instructions on how to satisfy the (3) Appointment of a general or Veterans Affairs heretofore or hereafter
assessment and how to file an answer to ancillary receiver for the holder’s appointed to, or lawfully filling, any
request a hearing, including a specific property; or in any case; or position designated in paragraph (b) of
statement of the lender’s right to request (4) Upon the written request of the this section is hereby delegated
a hearing by filing an answer and to be debtor if all secured and due insurance authority, within the limitations and
represented by counsel; and premiums, taxes, and ground rents have conditions prescribed by law, to
(iv) That failure to file an answer been paid, and appropriate provisions exercise the powers and functions of the
within 30 days of the complaint will made for future accruals. Secretary with respect to the guaranty or
result in the imposition of the (c) Upon the occurrence of any of the insurance of loans and the rights and
assessment without right to appeal the events enumerated in paragraph (a) or liabilities arising therefrom, including
assessment to the Secretary. (b) of this section, interest on the note but not limited to the adjudication and
(m) Hearing procedures. A lender and on the credit balance of the deposits allowance, disallowance, and
hearing on an assessment established mentioned in paragraph (a) shall be set compromise of claims; the collection or
pursuant to this section shall be off against each other at the rate payable compromise of amounts due, in money
or other property; the extension, guaranty agent shall be deemed to have (f)(1) Authority is hereby delegated to
rearrangement, or acquisition of loans; been issued by the Secretary, subject to the officers, designated in paragraph
the management and disposition of the defenses reserved in 38 U.S.C. 3721. (f)(2) of this section, of the entity
secured and unsecured notes and other (d) Each Regional Office, Regional performing property management and
property; and those functions expressly Office and Insurance Center, and sales functions under a contract with
or impliedly embraced within Medical and Regional Office Center the Secretary to execute on behalf of the
paragraphs (2) through (6) of 38 U.S.C. shall maintain and keep current a Secretary all documents necessary for
3720(a). Incidental to the exercise and cumulative list of all employees of that the management and sales of residential
performance of the powers and Office or Center who, since May 1, 1980, real property acquired by the Secretary
functions hereby delegated, each such have occupied the positions of Director, pursuant to 38 U.S.C. chapter 37.
employee is authorized to execute and Loan Guaranty Officer, and Assistant Documents executed under this
deliver (with or without Loan Guaranty Officer. This list will paragraph include but are not limited to:
acknowledgment) for, and on behalf of, include each employee’s name, title, Sales contracts, deeds, documents
the Secretary, evidence of guaranty or of date the employee assumed the relating to removing adverse occupants,
insurance credits and such certificates, position, and the termination date, if and any documents relating to sales
forms, conveyances, and other applicable, of the employee’s tenure in closings. The authorization to execute
instruments as may be appropriate in such position. The list shall be available deeds is limited to deeds other than
connection with the acquisition, for public inspection and copying at the general warranty deeds.
ownership, management, sale, transfer, Regional Office, or Center, during (2) The designated officers are:
assignment, encumbrance, rental, or normal business hours. (i) Senior Vice President;
other disposition of real or personal (e)(1) Authority is hereby delegated to (ii) Vice President;
property, or, of any right, title, or the officers, designated in paragraph (iii) Assistant Vice President;
interest therein, including, but not (e)(2) of this section, of the entity (iv) Assistant Secretary;
limited to, contracts of sale, installment performing loan servicing functions (v) Director;
contracts, deeds, leases, bills of sale, under a contract with the Secretary to (vi) Senior Manager; and
assignments, and releases; and to execute on behalf of the Secretary all (vii) Regional Manager.
approve disbursements to be made for documents necessary for the servicing (3) The Director, Loan Guaranty
any purpose authorized by 38 U.S.C. and termination of a loan made or Service, Washington, DC, shall maintain
chapter 37. acquired by the Secretary pursuant to 38 a log listing all persons authorized to
(b)(1) Designated positions are as U.S.C. chapter 37 (other than under execute documents pursuant to
follows: subchapter vi of that chapter). paragraph (f) of this section and the
(i) Under Secretary for Benefits. Documents executed under this dates such persons held such authority,
(ii) Director, Loan Guaranty Service. paragraph include but are not limited to: together with certified copies of
(iii) Director, Medical and Regional Loan modification agreements, notices resolutions of the board of directors of
Office Center. of default and other documents the entity authorizing such individuals
(iv) Director, VA Regional Office and necessary for loan foreclosure or to perform the functions specified in
Insurance Center. termination, notices of appointment or paragraph (f)(1) of this section. These
(v) Director, Regional Office. substitution of trustees under mortgages records shall be available for public
(vi) Loan Guaranty Officer. or deeds of trust, releases or inspection and copying at the Office of
(vii) Assistant Loan Guaranty Officer. satisfactions of mortgages or deeds of the Director of VA Loan Guaranty
(2) The authority hereby delegated to trust, acceptance of deeds-in-lieu of Service, Washington, DC 20420.
employees of the positions designated foreclosure, loan assumption
in paragraph (b)(1) of this section may, (Authority: 38 U.S.C. 3720(a)(5))
agreements, loan assignments, deeds
with the approval of the Under tendered upon satisfaction or
Secretary for Benefits, be redelegated. § 36.4846 Cooperative loans.
conversion of an installment land sales
(c) Nothing in this section shall be contract, and documents related to (a) To be eligible for guaranty or
construed— filing, pursuing and settling claims with insurance, any loan of the following
(1) To authorize any such employee to insurance companies relating to hazard types shall require prior approval of the
exercise the authority vested in the coverage on properties securing loans Under Secretary for Benefits, or the
Secretary under 38 U.S.C. 501 or being serviced. Director, Loan Guaranty Service, who
3703(a)(2) or to sue, or enter appearance (2) The designated officers are: may issue such approval upon such
for and on behalf of the Secretary, or (i) Vice President; conditions and limitations deemed
confess judgment against the Secretary (ii) Assistant Vice President; and appropriate, not inconsistent with the
in any court without the Secretary’s (iii) Assistant Secretary. provisions of 38 U.S.C. chapter 37 and
prior authorization; or (3) The Director, Loan Guaranty this subpart:
(2) To include the authority to Service, Washington, DC, shall maintain (1) Any loan which is related to an
exercise those powers delegated to the a log listing all persons authorized to enterprise in which more than 10
Under Secretary for Benefits, or the execute documents pursuant to individuals will participate; or
Director, Loan Guaranty Service, under paragraph (e) of this section and the (2) Any loan to be made for the
§§ 36.4823(e), 36.4838 or 36.4846, dates such persons held such authority, purchase or construction of residential
Provided, that, anything in the together with certified copies of units in any housing development,
regulations concerning guaranty or resolutions of the board of directors of cooperative or otherwise, the title to
insurance of loans to veterans to the the entity authorizing such individuals which development or to the individual
contrary notwithstanding, any evidence to perform the functions specified in units therein is not to be held directly
of guaranty or insurance issued on or paragraph (e)(1) of this section. These by the veteran-participants, or which
after July 1, 1948, by any of the records shall be available for public contemplates the ownership or
employees designated in paragraph (b) inspection and copying at the Office of maintenance of more than three units or
of this section or by any employee the Director of VA Loan Guaranty of their major appurtenances in
designated an authorized agent or a loan Service, Washington, DC 20420. common.
(b) The issuance of such approval the purpose of acquiring their respective satisfy the initial office case review
with respect to a residential interests therein. requirement, the first five cases of each
development under paragraph (a)(2) of (Authority: 38 U.S.C. 3703(c)(1)) lender staff appraisal reviewer involving
this section also shall be subject to such properties in the regional office location
conditions and stipulation as in the § 36.4847 Lender appraisal processing where the staff appraisal reviewer is
judgment of the approving officer are program. located will be processed by him or her
possible and proper to: (a) Delegation of authority to lenders up to the point where he or she has
(1) Afford reasonable and feasible to review appraisals and determine made a reasonable value determination
protection to the rights of the reasonable value. and fully drafted, but not issued, the
Government as guarantor or insurer, and (1) To be eligible for delegation of lender’s notification of reasonable value
as subrogee, and to each veteran- authority to review VA appraisals and letter to the veteran. At that point, and
participant against loss of his or her determine the reasonable value of prior to loan closing, each of the five
respective equity consequent upon the properties to be purchased with VA cases will be submitted to the local VA
failure of other participants to discharge guaranteed loans, a lender must— office. After a staff review of each case,
their obligations; (i) Have automatic processing VA will issue a Certificate of Reasonable
(2) Provide for a reasonable and authority under 38 U.S.C. 3702(d), and Value, which the lender may use in
(ii) Employ one or more staff appraisal closing the loan automatically if it meets
workable plan for the operation and
reviewers acceptable to the Secretary.
management of the project; all other requirements of the VA. If
(2) To qualify as a lender’s staff
(3) Limit the personal liability of each these five cases are found to be
appraisal reviewer an applicant must be
veteran-participant to those sums a full-time member of the lender’s acceptable by VA, the lender’s staff
allocable on a proper ratable basis to the permanent staff and may not be appraisal reviewer will be allowed to
purchase, cost, and maintenance of his employed by, or perform services for, fully process subsequent appraisals for
or her individual unit or participating any other mortgagee. The individual properties located in that VA office’s
interest; and must not engage in any private pursuits jurisdiction without prior submission to
(4) Limit commercial features to those in which there will be, or appear to be, VA and issuance by VA of a Certificate
reasonably calculated to promote the any conflict of interest between those of Reasonable Value. Lenders must also
economic soundness of the project and pursuits and his/her duties, satisfy a subsequent VA office case
the living convenience of the responsibilities, and performance as a review requirement in each additional
participants, retaining the essential Lender Appraisal Processing Program VA office location in which they desire
character of a residential project. (LAPP) staff appraisal reviewer. Three to extend and utilize this authority.
(c) No such project, development, or years of experience is necessary to Under this requirement, the lender must
enterprise may be approved which qualify as a lender’s staff appraisal have first satisfied the initial office case
involves an initial grouping of more reviewer. That experience must review requirement and then must
than 500 veterans, or a cost of more than demonstrate a knowledge of, and the submit to the additional VA office(s) the
five million dollars, unless it is ability to apply industry-accepted first case each staff appraisal reviewer
conclusively shown to the satisfaction principles, methods, practices and processes in the jurisdiction of that
of the approving officer that a greater techniques of appraising, and the ability office. As provided under the initial
number of veterans or dollar amount to competently determine the value of office case review requirement, VA
will assure substantial advantages to the property within a prescribed office personnel will issue a Certificate
veteran-participants which could not be geographical area. The individual must of Reasonable Value for this case and
achieved in a smaller project. demonstrate the ability to review the subsequently determine the
(d) When approved as in this section work of others and to recognize acceptability of the lender’s staff
provided, and upon performance of the deviations from accepted appraisal appraisal reviewer’s processing. If VA
conditions indicated in the prior principles, practices, and techniques; finds this first case to be acceptable, the
approval, proper guaranty certificate or errors in computations, and lender’s staff appraisal reviewer will be
certificates may be issued in connection unjustifiable and unsupportable allowed to fully process subsequent
with the loan or loans to be guaranteed conclusions. cases in that additional VA office’s
on behalf of eligible veterans (3) Lenders that meet the jurisdiction without prior submission to
participating in the project, requirements of 38 U.S.C. 3702(d), and VA. The initial and subsequent office
development or enterprise not to exceed have a staff appraisal reviewer case review requirements may be
in total amount the sum of the determined acceptable by VA, will be expanded by VA if acceptable
guaranties applied for by the individual authorized to review appraisals and performance has not been demonstrated.
participants and for which guaranty make reasonable value determinations After satisfaction of the initial and
each participant is then eligible. on properties that will be security for subsequent office case review
(e) In lieu of guaranty as authorized in VA guaranteed loans. The lender’s requirements, routine reviews of LAPP
paragraph (d) of this section, insurance authorization will be subject to a one- cases will be made by VA staff based
shall be available on application by the year probationary period. Additionally, upon quality control procedures
lender and all veterans concerned. In lenders must satisfy initial and established by the Under Secretary for
such case the insurance credit shall be subsequent VA office case review Benefits. Such review will be made on
limited to 15 percent of the obligation requirements prior to being allowed to a random sampling or performance
of the veteran applicant (subject to determine reasonable value without VA related basis. During the probationary
available eligibility) and the total involvement. The initial office case period a high percentage of reviews will
insurance credit in respect to the review requirement must be satisfied in be made by VA staff.
veterans’ loans involved in the project the VA regional office in whose (4) The following certification by the
shall not exceed 15 percent of the jurisdiction the lender’s staff appraisal lender’s nominated staff appraisal
aggregate of the principal sums of the reviewer is located before the LAPP reviewer must be provided with the
individual indebtedness incurred by the authority may be utilized by that lender lender’s application for delegation of
veterans participating in the project for in any other VA office’s jurisdiction. To LAPP authority:
I hereby acknowledge and represent that by separate instructions issued by VA as to the appraisal report form and any
signing the Uniform Residential Appraisal noted in § 36.4847(b). The amount addendum.
Report (URAR), FHLMC (Federal Home Loan specified must not in any way be (e) Notification. It will be the
Mortgage Corporation) Form 70/FNMA responsibility of the lender to notify the
considered an administrative
(Federal Notice Mortgage Association) Form
1004, I am certifying, in all cases, that I have adjustment figure which may be applied veteran borrower in writing of the
personally reviewed the appraisal report. In indiscriminately and without valid basis determination of reasonable value and
doing so I have considered and utilized or justification with the sole purpose of related conditions specific to the
recognized professional appraisal techniques, reaching an amount necessary to property and to provide the veteran
have found the appraisal report to have been complete the sale or mortgage with a copy of the appraisal report. Any
prepared in compliance with applicable VA transaction. delay in processing the notification of
requirements, and concur with the (1) Adjustment during initial review. value must be documented. Any delay
recommendations of the fee appraiser, who Any adjustment during the staff of more than five work days between the
was assigned by VA to the case. Furthermore,
in those cases where clarifications or
appraisal reviewer’s initial review of the date of the lender’s receipt of the fee
corrections have been requested from the VA appraisal report must be fully and appraiser’s report and date of the
fee appraiser there has been no pressure or clearly justified in writing on the notification of value to the veteran,
influence exerted on that appraiser to remove appraisal report form or, if necessary, on without reasonable and documented
or change information that might be an addendum. The basis for the extenuating circumstances, will not be
considered detrimental to the subject adjustment must be adequate and acceptable. A copy of the lender
property, or VA’s interests, or to reach a reasonable by professional appraisal notification letter to the veteran and the
predetermined value for that property. standards. If real estate market or other appraisal report must be forwarded to
Signature of Staff Appraisal Reviewer.
valid data was utilized in arriving at the the VA office of jurisdiction at the same
(5) Other certifications required from decision to make the adjustment, such time the veteran is notified. In addition,
the lender will be specified with data must be attached to the appraisal the original appraisal report, related
particularity in the separate instructions report. All adjustments, comments, appraisal documentation, and a copy of
issued by the Secretary, as noted in corrections, justifications, etc., to the the reasonable value determination
§ 36.4847(b). appraisal report must be made in a notification to the veteran must be
(b) Instructions for LAPP Procedures. contrasting color, be clearly legible, and submitted to the VA with the request for
The Secretary will publish separate signed and dated by the staff appraisal loan guaranty.
instructions for processing appraisals reviewer. (f) Indemnification. When the
under the Lenders Appraisal Processing (2) Processing appeals. The authority Secretary has incurred a loss as a result
Program. Compliance with these provided under 38 U.S.C. 3731(d) which of a payment of claim under guaranty
regulations and the separate instructions permits a lender to obtain a VA fee and in which the Secretary determines
issued by the Secretary is deemed by panel appraiser’s report which VA is an increase made by the lender under
VA to be the minimum exercise of due obligated to consider in an appeal of the § 36.4847(d) was unwarranted, or
diligence in processing LAPP cases. Due established reasonable value shall not arbitrary and capricious, the lender
diligence is considered by VA to apply to cases processed under the shall indemnify the Secretary to the
represent that care, as is to be properly authority provided by this section. All extent the Secretary determines such
expected from, and ordinarily exercised appeals of VA fee appraisers’ estimated loss was caused, or increased, by the
by, reasonable and prudent lenders who market values or lenders’ reasonable increase in value.
would be dependent on the property as value determinations above the amount (g) Affiliations. A lender affiliated
security to protect its investment. specified in the separate instructions with a real estate firm builder, land
(c) VA minimum property issued by VA must be submitted, along developer or escrow agent as a
requirements. Lenders are responsible with the lender’s recommendations, if subsidiary division, investment or any
for determining that the property meets any, to VA for processing and final other entity in which it has a financial
VA minimum property requirements. determination. Unless otherwise interest or which it owns may not use
The separate instructions issued by the authorized in the separate instructions this authority for any cases involving
Secretary will set forth the lender’s lenders must also submit appeals, the affiliate unless the lender
ability to adjust, remove, or alter the fee regardless of the amount, to VA in all demonstrates to the Secretary’s
appraiser’s or fee compliance cases where the staff appraisal reviewer satisfaction that the lender and its
inspector’s recommendations has made an adjustment during their affiliate(s) are essentially separate
concerning VA minimum property initial review of the appraisal report to entities that operate independently of
requirements. Condominiums, planned- the fee appraiser’s market value each other, free of all cross-influences
unit developments and leasehold estates estimate. The fee appraiser’s estimated (e.g., a formal corporate agreement
must have been determined acceptable market value or lender’s reasonable exists which specifically sets forth this
by VA. A condominium or planned-unit value determination may be increased fact).
development which is acceptable to the only when such increase is clearly (h) Quality Control Plans. The lender
Department of Housing and Urban warranted and fully supported by real must have an effective self-policing or
Development or the Department of estate market or other valid data quality control system to ensure the
Agriculture may also be acceptable to considered adequate and reasonable by adequacy and quality of their LAPP staff
VA. professional appraisal standards and the appraisal reviewer’s processing and,
(d) Adjustment of value lender’s staff appraisal reviewer clearly that its activities do not deviate from
recommendations. The amount of and fully justifies the reasoning and high standards of integrity. The quality
authority to upwardly adjust the fee basis for the increase in writing on the control system must include frequent,
appraiser’s estimated market value appraisal report form or an addendum. periodic audits that specifically address
during the lender staff appraisal The staff appraisal reviewer must date the appraisal review activity. These
reviewer’s initial review of the appraisal and sign the written justification and audits may be performed by an
report or to subsequently process an must cite within it the data used in independent party, or by the lender’s
appeal of the lender’s established arriving at the decision to make the independent internal audit division
reasonable value will be specified in the increase. All such data shall be attached which reports directly to the firm’s chief
executive officer. The lender must agree continued instances of disregard for VA (4) Withdrawal of the LAPP authority
to furnish findings and information requirements after they have been called will require that VA make subsequent
under this system to VA on demand. to the lender’s attention. determinations of reasonable value for
While the quality control personnel (1) Withdrawal of authority by the the lender. Consequently, VA staff will
need not be appraisers, they should Loan Guaranty Officer may be either for review each appraisal report and issue
have basic familiarity with appraisal an indefinite or a specified period of a Certificate of Reasonable Value which
theory and techniques and the ability to time. For any withdrawal longer than 90 can then be used by the lender to close
prescribe appropriate corrective days, a reapplication for lender loans on either the prior VA approval or
action(s) in the appraisal review process authority to process appraisals under automatic basis.
when discrepancies or problems are these regulations will be required. (5) Withdrawal by VA of the lender’s
identified. The basic elements of the Written notice will be provided at least LAPP authority does not prevent VA
system will be described in separate 30 days in advance of withdrawal from also withdrawing automatic
instructions issued by the Secretary. unless the Government’s interests are processing authority or taking
Copies of the lender’s quality control exposed to immediate risk from the debarment or suspension action based
plan or self-policing system evidencing lender’s activities in which case the upon the same conduct by the lender.
appraisal related matters must be withdrawal will be effected (Authority: 38 U.S.C. 3731)
provided to the VA office of jurisdiction immediately. The notice will clearly
with the lender’s application for LAPP and specifically set forth the basis and approved the information collections
authority. grounds for the action. There is no right requirements of this section under control
(i) Fees. The Secretary may require to a formal hearing to contest the numbers 2900–0045 and 2900–0513.)
mortgagees to pay an application fee withdrawal of LAPP processing
and/or annual fees, including additional privileges. However, if within 15 days § 36.4848 Servicer Appraisal Processing
fees for each branch office authorized to after receiving notice the lender requests Program.
process cases under the authority an opportunity to contest the (a) Delegation of authority to servicers
delegated under this section, in such withdrawal, the lender may submit, in to review liquidation appraisals and
amounts and at such times as the person, in writing, or through a determine reasonable value. Based on
Secretary may require. representative, information and the reasonable value, the servicer will
(j) Withdrawal of lender authority. argument to the Loan Guaranty Officer be able to determine net value.
The authority for a lender to determine in opposition to the withdrawal. The (1) To be eligible for delegation of
reasonable value may be withdrawn by Loan Guaranty Officer will make a authority to review VA liquidation
the Loan Guaranty Officer when proper recommendation to the Regional Office appraisals and determine the reasonable
cause exists. A lender’s authority to Director who shall make the value for liquidation purposes on
make reasonable value determinations determination as to whether the action properties secured by VA guaranteed or
shall be withdrawn when the lender no should be sustained, modified or insured loans, a lender must:
longer meets the basic requirements for rescinded. The lender will be informed (i) Have automatic processing
delegating the authority, or when it can in writing of the decision. authority under 38 U.S.C. 3702(d), and
be shown that the lender’s reasonable (2) The lender has the right to appeal (ii) Employ one or more Staff
value determinations have not been the Regional Office Director’s decision Appraisal Reviewers (SAR) acceptable
made in accordance with VA to the Under Secretary for Benefits. In to the Secretary.
regulations, requirements, guidelines, the event of such an appeal, the Under (2) To qualify as a servicer’s staff
instructions or applicable laws, or when Secretary for Benefits will review all appraisal reviewer an applicant must be
there is adequate evidence to support relevant material concerning the matter a full-time member of the servicer’s
reasonable belief by VA that a particular and make a determination that shall permanent staff and may not be
unacceptable act, practice, or constitute final agency action. If the employed by, or perform services for,
performance by the lender or the lender’s submission of opposition raises any other mortgagee. The individual
lender’s staff has occurred. Such acts, a genuine dispute over facts material to must not engage in any private pursuits
practices or performance include, but the withdrawal of LAPP authority, the in which there will be, or appear to be,
are not limited to: Demonstrated lender will be afforded an opportunity any conflict of interest between those
technical incompetence (i.e., conduct to appear with a representative, submit pursuits and his/her duties,
which demonstrates an insufficient documentary evidence, present responsibilities, and performance as a
knowledge of industry accepted witnesses and confront any witness the Servicer Appraisal Processing Program
appraisal principles, techniques and Veterans Benefits Administration (SAPP) staff appraisal reviewer. Three
practices; or the lack of technical presents. The Under Secretary for years of appraisal related experience is
competence to review appraisal reports Benefits will appoint a hearing officer or necessary to qualify as a servicer’s staff
and make value determinations in panel to conduct the hearing. When appraisal reviewer. That experience
accordance with those requirements); such additional proceedings are must demonstrate knowledge of, and the
substantive or repetitive errors (i.e., any necessary, the Under Secretary for ability to apply industry-accepted
error(s) of a nature that would Benefits shall base the determination on principles, methods, practices and
materially or significantly affect the the facts as found, together with any techniques of appraising, and the ability
determination of reasonable value or information and argument submitted by to competently determine the value of
condition of the property; or a number the lender. property. The individual must
or series of errors that, considered (3) In actions based upon a conviction demonstrate the ability to review the
individually, may not significantly or civil judgment, or in which there is work of others and to recognize
impact the determination of reasonable no genuine dispute over material facts, deviations from accepted appraisal
value or property condition, but which the Under Secretary for Benefits shall principle, practices, and techniques,
when considered in the aggregate would make a decision on the basis of all the error in computations, and unjustifiable
establish that appraisal reviews or LAPP information in the administrative and unsupportable conclusions.
case processing are being performed in record, including any submission made (3) Servicers that have a staff
a careless or negligent manner), or by the lender. appraisal reviewer determined
acceptable to VA, will be authorized to regulations and the separate instructions estimate. The fee appraiser’s estimated
review liquidation appraisals and make issued by the Secretary is deemed by market value or servicer’s reasonable
reasonable value determinations for VA to be the minimum exercise of due value determination may be increased
liquidation purposes on properties that diligence in processing SAPP cases. Due only when such increase is clearly
are the security for VA guaranteed or diligence is considered by VA to warranted and fully supported by real
insured loans. Additionally, servicers represent that care, as is to be properly estate market or other valid data
must satisfy initial VA office case expected from, and ordinarily exercised considered adequate and reasonable by
review requirements prior to being by, a reasonable and prudent servicer professional appraisal standards and the
allowed to determine reasonable value who would be dependent on the servicer’s staff appraisal reviewer
without VA involvement. The initial property as security to protect its clearly and fully justifies the reasoning
office case review requirement must be investment. and basis for the increase in writing on
satisfied in the VA regional loan center (c) Adjustment of value the appraisal report form or an
in whose jurisdiction the servicer’s staff recommendations. The amount of addendum. The staff appraisal reviewer
appraisal reviewer is located before the authority to upwardly adjust the fee must date and sign the written
SAPP authority may be utilized by that appraiser’s estimated market value justification and must cite within it the
servicer in any other VA office’s during the servicer staff appraisal data used in arriving at the decision to
jurisdiction. To satisfy the initial office reviewer’s initial review of the appraisal make the increase. All such data shall
case review requirement, the first five report or to subsequently process an be attached to the appraisal report form
cases of each servicer staff appraisal appeal of the servicer’s established and any addendum.
reviewer involving properties in the reasonable value will be specified in the (d) Indemnification. When the
regional office location where the staff separate instructions issued by VA as Secretary has incurred a loss as a result
appraisal reviewer is located will be noted in § 36.4848(b). The amount of a payment of claim under guaranty
processed by him or her up to the point specified must not in any way be and in which the Secretary determines
where he or she has made a reasonable considered an administrative an increase made by the servicer under
value determination and fully drafted, adjustment figure which may be applied § 36.4848(c) was unwarranted, or
but not issued, the servicer’s notice of indiscriminately and without valid basis arbitrary and capricious, the lender
value. At that point, and prior to loan or justification. shall indemnify the Secretary to the
termination, each of the five cases will (1) Adjustment during initial review. extent the Secretary determines such
be submitted to the VA regional loan Any adjustment during the staff loss was caused or increased, by the
center having jurisdiction over the appraisal reviewer’s initial review of the increase in value.
property. After a staff review of each appraisal report must be fully and (e) Affiliations. A servicer affiliated
case, VA will issue a notice of value clearly justified in writing on the with a real estate firm, builder, land
which the servicer may use to compute appraisal report form or, if necessary, on developer or escrow agent as a
the net value of the property for an addendum. The basis for the subsidiary division, or in any other
liquidation purposes. If these five cases adjustment must be adequate and entity in which it has a financial interest
are found to be acceptable by VA, the reasonable by professional appraisal or which it owns may not use the
servicer’s staff appraisal reviewer will standards. If real estate market or other authority for any cases involving the
be allowed to fully process subsequent valid data was utilized in arriving at the affiliate unless the servicer
appraisals for properties regardless of decision to make the adjustment, such demonstrates to the Secretary’s
jurisdictional location without prior data must be attached to the appraisal satisfaction that the servicer and its
submission to VA and issuance by VA report. All adjustments, comments, affiliate(s) are essentially separate
of a notice of value. Where the servicer’s corrections, justifications, etc., to the entities that operate independently of
reviewer cannot readily meet the appraisal report must be made in a each other, free of all cross-influences
jurisdictional review requirement, the contrasting color, be clearly legible, and (e.g., a formal corporate agreement
SAR applicant may request that VA signed and dated by the staff appraisal exists which specifically sets forth this
expand the geographic area of reviewer. fact).
consideration. VA will accommodate (2) Processing appeals. The authority (f) Quality control plans. The servicer
such requests if practicable. The initial provided under 38 U.S.C. 3731(d) which must have an effective self-policing or
office case review requirement may be permits a lender to obtain a VA fee quality control system to ensure the
expanded by VA if acceptable panel appraiser’s report which VA is adequacy and quality of their SAPP staff
performance has not been demonstrated. obligated to consider in an appeal of the appraisal reviewer’s processing and,
After satisfaction of the initial office established reasonable value shall not that its activities do not deviate from
case review requirement, routine apply to cases processed under the high standards of integrity. The quality
reviews of SAPP cases will be made by authority provided by this section. All control system must include frequent,
VA staff based upon quality control appeals of VA fee appraiser’s estimated periodic audits that specifically address
procedures established by the market values or servicer’s reasonable the appraisal review activity. These
Undersecretary for Benefits. Such value determinations above the amount audits may be performed by an
review will be made on a random specified in the separate instructions independent party, or by the servicer’s
sampling or performance related basis. issued by VA must be submitted, along independent internal audit division
(4) Certifications required from the with the servicer’s recommendations, if which reports directly to the firm’s chief
servicer will be specified with any, to VA for processing and final executive officer. The servicer must
particularity in the separate instructions determination. Unless otherwise agree to furnish findings and
issued by the Secretary, as noted in authorized in the separate instructions information under this system to VA on
§ 36.4848(b). servicers must also submit appeals, demand. While the quality control
(b) Instructions for SAPP Procedures. regardless of the amount, to VA in all personnel need not be appraisers, they
The Secretary will publish separate cases where the staff appraisal reviewer should have basic familiarity with
instructions for processing appraisals has made an adjustment during their appraisal theory and techniques and the
under the Servicer Appraisal Processing initial review of the appraisal report to ability to prescribe appropriate
Program. Compliance with these the fee appraiser’s market value corrective action(s) in the appraisal
review process when discrepancies or 30 days in advance of withdrawal from also withdrawing automatic
problems are identified. The basic unless the Government’s interests are processing authority or taking
elements of the system will be described exposed to immediate risk from the debarment or suspension action based
in separate instructions issued by the servicer’s activities in which case the upon the same conduct of the servicer.
Secretary. Copies of the lender’s quality withdrawal will be effected (Authority 38 U.S.C. 3703(c)(1), 3731 and
control plan or self-policing system immediately. The notice will clearly 3732)
evidencing appraisal related matters and specifically set forth the basis and (The Office of Management and Budget has
must be provided to the VA office of grounds for the action. There is no right approved the information collection
jurisdiction with the servicer’s to a formal hearing to contest the requirements in this section under control
application of SAPP authority. withdrawal of SAPP processing numbers 2900–0045 and 2900–0513.)
(g) Fees. The Secretary will require privileges. However, if within 15 days
servicers to pay a $100.00 application after receiving notice the servicer § 36.4849 Waivers, consents, and
fee for each SAR the servicer nominates requests an opportunity to contest the approvals; when effective.
for approval. The application fee will withdrawal, the servicer may submit, in No waiver, consent, or approval
also apply if the SAR begins work for person, in writing, or through a required or authorized by the
another servicer. representative, information and regulations concerning guaranty or
(h) Withdrawal of servicer authority. argument to the Loan Guaranty Officer insurance of loans to veterans shall be
The authority for a servicer to determine in opposition to the withdrawal. The valid unless in writing signed by the
reasonable value may be withdrawn by Loan Guaranty Officer will make a Secretary or the subordinate officer to
the Loan Guaranty Officer when proper recommendation to the Regional Loan whom authority has been delegated by
cause exists. A servicer’s authority to Center Director who shall make the the Secretary.
make reasonable value determinations determination as to whether the action (Authority 38 U.S.C. 3703(c)(1))
shall be withdrawn when the servicer should be sustained, modified or
no longer meets the basic requirements rescinded. The servicer will be informed § 36.4850 Servicing procedures for
for delegating the authority, or when it in writing of the decision. holders.
can be shown that the servicer’s (2) The servicer has the right to appeal (a) Establishment of loan servicing
reasonable value determinations have the Regional Loan Center Director’s program. The holder of a loan
not been made in accordance with VA decision to the Undersecretary for guaranteed or insured by the Secretary
regulations, requirements, guidelines, Benefits. In the event of such an appeal, shall develop and maintain a loan
instructions or applicable laws, or when the Undersecretary for Benefits will servicing program which follows
there is adequate evidence to support review all relevant material concerning accepted industry standards for
reasonable belief by VA that a particular the matter and make a determination servicing of similar type conventional
unacceptable act, practice, or that shall constitute final agency action. loans. The loan servicing program
performance by the servicer or the If the servicer’s submission of established pursuant to this section may
servicer’s staff has occurred. Such acts, opposition raises a genuine dispute over employ different servicing approaches
practices, or performance include, but facts material to the withdrawal of SAPP to fit individual borrower circumstances
are not limited to: Demonstrated authority, the servicer will be afforded and avoid establishing a fixed routine.
technical incompetence (i.e., conduct an opportunity to appear with a However, it must incorporate each of
which demonstrates an insufficient representative, submit documentary the provisions specified in paragraphs
knowledge of industry accepted evidence, present witnesses and (b) through (l) of this section.
appraisal principles, techniques and confront any witness the Veterans (b) Procedures for providing
practices; or the lack of technical Benefits Administration presents. The information. (1) Loan holders shall
competence to review appraisal reports Undersecretary for Benefits will appoint establish procedures to provide loan
and make value determinations in a hearing officer or panel to conduct the information to borrowers, arrange for
accordance with those requirements); hearing. When such additional individual loan consultations upon
substantive or repetitive errors (i.e., any proceedings are necessary, the request and maintain controls to assure
error(s) of a nature that would Undersecretary for Benefits shall base prompt responses to inquiries. One or
materially or significantly affect the the determination on the facts as found, more of the following means of making
determination of reasonable value or together with any information and information readily available to
condition of the property; or a number argument submitted by the servicer. borrowers is required.
or series of errors that, considered (3) In actions based upon a conviction (i) An office staffed with trained
individually, may not significantly or civil judgment, or in which there is servicing personnel with access to loan
impact the determination of reasonable no genuine dispute over material facts, account information located within 200
value or property condition, but which the Undersecretary for Benefits shall miles of the property.
when considered in the aggregate would make a decision on the basis of all the (ii) Toll-free telephone service or
establish that appraisal reviews or SAPP information in the administrative acceptance of collect telephone calls at
case processing are being performed in record, including any submission made an office capable of providing needed
a careless or negligent manner), or by the servicer. information.
continued instances of disregard for VA (4) Withdrawal of the SAPP authority (2) All borrowers must be informed of
requirements after they have been called will require that VA make subsequent the system available for obtaining
to the servicer’s attention. determinations of reasonable value for answers to loan inquiries, the office
(1) Withdrawal of authority by the the servicer. Consequently, VA staff will from which the needed information may
Loan Guaranty Officer may be either for review each appraisal report and issue be obtained, and reminded of the system
an indefinite or a specified period of a Notice of Value which can then be at least annually.
time. For any withdrawal longer than 90 used by the servicer to compute the net (c) Statement for income tax
days a reapplication for servicer value of properties for liquidation purposes. Before February 1st of each
authority to process appraisals under purposes. calendar year, the holder shall furnish
these regulations will be required. (5) Withdrawal by VA of the servicer’s to the borrower a statement of the
Written notice will be provided at least SAPP authority does not prevent VA interest paid and, if applicable, a
statement of the taxes disbursed from (5) Management review procedures (2) In the case of any other default,
the escrow account during the for evaluating efforts made to collect the within 75 calendar days after such
preceding year. At the borrower’s delinquency and the response from the payment was due.
request, the holder shall furnish a borrower before a decision is made to (B) The letter required by paragraph
statement of the escrow account initiate action to liquidate a loan; (g)(1)(iv)(A) must be mailed no later
sufficient to enable the borrower to (6) Procedures for reporting than 7 calendar days after the payment
reconcile the account. delinquencies of 90 days or more and is delinquent for the time period stated
(d) Change of servicing. Whenever loan terminations to major consumer in paragraph (g)(1)(iv)(A) and shall:
servicing of a loan guaranteed or credit bureaus as specified by the (1) Provide the borrower with a toll-
insured by the Secretary is transferred Secretary and for informing borrowers free telephone number and, if available,
from one holder to another, notice of that such action will be taken; and an e-mail address for contacting the
such transfer by both the transferor and (7) Controls to ensure that all notices servicer;
transferee, the form and content of such required to be given to the Secretary on (2) Explain loss mitigation options
notice, the timing of such notice, the delinquent loans are provided timely available to the borrower;
treatment of payments during the period and in such form as the Secretary shall (3) Emphasize that the intent of
of such transfer, and damages and costs require. servicing is to retain home ownership
for failure to comply with these (g) Collection actions. (1) Holders whenever possible; and
requirements shall be governed by the shall employ collection techniques (4) Contain the following language:
pertinent provisions of the Real Estate which provide flexibility to adapt to the The delinquency of your mortgage loan is
Settlement Procedures Act as individual needs and circumstances of a serious matter that could result in the loss
administered by the Department of each borrower. A variety of collection of your home. If you are the veteran whose
Housing and Urban Development. techniques may be used based on the entitlement was used to obtain this loan, you
(e) Escrow accounts. A holder of a holder’s determination of the most can also lose your entitlement to a future VA
loan guaranteed or insured by the home loan guaranty. If you are not already
effective means of contact with
Secretary may collect periodic deposits working with us to resolve the delinquency,
borrowers during various stages of please call us to discuss your workout
from the borrower for taxes and/or
delinquency. However, at a minimum options. You may be able to make special
insurance on the security and maintain
the holder’s collection procedures must payment arrangements that will reinstate
a tax and insurance escrow account
include the following actions: your loan. You may also qualify for a
provided such a requirement is
(i) An effort, concurrent with the repayment plan or loan modification.
authorized under the terms of the VA has guaranteed a portion of your loan
initial late payment notice to establish
security instruments. In maintaining and wants to ensure that you receive every
contact with the borrower(s) by
such accounts, the holder shall comply reasonable opportunity to bring your loan
telephone. When talking with the
with the pertinent provisions of the Real current and retain your home. VA can also
borrower(s), the holder should attempt
Estate Settlement Procedures Act. answer any questions you have regarding
(f) System for servicing delinquent to determine why payment was not your entitlement. If you have access to the
loans. In addition to the requirements of made and emphasize the importance of Internet and would like to obtain more
the Real Estate Settlement Procedures remitting loan installments as they come information, you may access the VA web site
Act, concerning the duties of the loan due. at www.va.gov. You may also learn where to
(ii) A letter to the borrower(s) if speak to a VA Loan Administration
servicer to respond to borrower representative by calling 1–800–827–1000.
inquiries, to protect the borrower’s payment has not been received within
credit rating during a payment dispute 30 days after it is due and telephone (2) The holder must provide a valid
period, and to pay damages and costs contact could not be made. This letter explanation of any failure to perform
for noncompliance, holders shall should emphasize the seriousness of the these collection actions when reporting
establish a system for servicing delinquency and the importance of loan defaults to the Secretary. A pattern
delinquent loans which ensures that taking prompt action to resolve the of such failure may be a basis for
prompt action is taken to collect default. It should also notify the sanctions under 2 CFR parts 180 and
amounts due from borrowers and borrower(s) that the loan is in default, 801.
minimize the number of loans in a state the total amount due and advise (h) Conducting interviews with
default status. The holder’s servicing the borrower(s) how to contact the delinquent borrowers. When personal
system must include the following: holder to make arrangements for curing contact with the borrower(s) is
(1) An accounting system which the default. established, the holder shall solicit
promptly alerts servicing personnel (iii) In the event the holder has not sufficient information to properly
when a loan becomes delinquent; established contact with the borrower(s) evaluate the prospects for curing the
(2) A collection staff which is trained and has not determined the financial default and whether the granting of
in techniques of loan servicing and circumstances of the borrower(s) or forbearance or other relief assistance
counseling delinquent borrowers to established a reason for the default or would be appropriate. At a minimum,
advise borrowers how to cure obtained agreement to a repayment plan the holder must make a reasonable effort
delinquencies, protect their equity and from the borrower(s), then a face-to-face to establish the following:
credit rating and, if the default is interview with the borrower(s) or a (1) The reason for the default and
insoluble, pursue alternatives to reasonable effort to arrange such a whether the reason is a temporary or
foreclosure; meeting is required. permanent condition;
(3) Procedural guidelines for (iv)(A) A letter to the borrower if (2) The present income and
individual analysis of each delinquency; payment has not been received: employment of the borrower(s);
(4) Instructions and appropriate (1) In the case of a default occurring (3) The current monthly expenses of
controls for sending delinquent notices, within the first 6 months following loan the borrower(s) including household
assessing late charges, handling partial closing or the execution of a and debt obligations;
payments, maintaining servicing modification agreement pursuant to (4) The current mailing address and
histories and evaluating repayment § 36.4815, within 45 calendar days after telephone number of the borrower(s);
proposals; such payment was due; or and
(5) A realistic and mutually (1) Collect and maintain appropriate and closed a minimum of ten VA loans
satisfactory arrangement for curing the data on delinquency and foreclosure within the past two years, excluding
default. rates to enable the holder to evaluate interest rate reduction refinance loans
(i) Property inspections. (1) The effectiveness of its collection efforts; (IRRRLs), that have been properly
holder shall make an inspection of the (2) Determine how its VA documented and submitted in
property securing the loan whenever it delinquency and foreclosure rates compliance with VA requirements and
becomes aware that the physical compare with rates in reports published procedures; or
condition of the security may be in by the industry, investors and others; (ii) The applicant lender must have a
jeopardy. Unless a repayment agreement and, VA ID number and, if active for less
is in effect, a property inspection shall (3) Analyze significant variances than two years, have originated and
also be made at the following times: between its foreclosure and delinquency closed at least 25 VA loans, excluding
(i) Before the 60th day of delinquency rates and those found in available IRRRLs, that have been properly
or before initiating action to liquidate a reports and publications and take documented and submitted in
loan, whichever is earlier; and appropriate corrective action. compliance with VA requirements and
(ii) At least once each month after (l) Provision of Data. Holders shall procedures; or
liquidation proceedings have been provide available statistical data on (iii) Each principal officer of the
started unless servicing information delinquency and foreclosure rates and applicant lender, who is actively
shows the property remains owner- their analysis of such data to the involved in managing origination
occupied. Secretary upon request. functions, must have a minimum of two
(2) Whenever a holder obtains (Authority 38 U.S.C. 3703(c)(1)) recent years’ management experience in
information which indicates that the the origination of VA loans. This
property securing the loan is approved the information collection experience may be with the current or
abandoned, it shall make appropriate requirements in this section under Control prior employer. For the purposes of this
arrangements to protect the property Number 2900–0530.) requirement, principal officer is defined
from vandalism and the elements. as president or vice president; or
Thereafter, the holder shall schedule § 36.4851 Minimum property and
construction requirements. (iv) If the applicant lender has been
inspections at least monthly to prevent operating as an agent for a non-
unnecessary deterioration due to No loan for the purchase or
construction of residential property supervised automatic lender
vandalism, or neglect. With respect to (sponsoring lender), the firm must
any loan more than 60 calendar days shall be eligible for guaranty or
insurance unless such property submit documentation confirming that
delinquent, if the property is it has a VA Lender ID number and has
abandoned, this fact must be reported to complies or conforms with those
standards of planning, construction, and originated a minimum of ten VA loans,
the Secretary as required in excluding IRRRLs, over the past two
§ 36.4817(c)(10) and immediate action general acceptability that may be
applicable thereto and prescribed by the years. If active for less than two years,
should be initiated by the servicer to the agent must have originated at least
terminate the loan once the Secretary pursuant to 38 U.S.C. 3704(a).
25 VA loans. The required
abandonment has been confirmed. (Authority 38 U.S.C. 3703(c)(1)) documentation is a copy of the VA letter
(j) Collection records. The holder shall
§ 36.4852 Authority to close loans on the approving the applicant lender as an
maintain individual file records of
automatic basis. agent for the sponsoring lender; a copy
collection action on delinquent loans
(a) Supervised lender authority. of the corporate resolution, describing
and make such records available to the
Supervised lenders of the classes the functions the agent was to perform,
Secretary for inspection on request.
described in 38 U.S.C. 3702(d)(1) and submitted to VA by the sponsoring
Such collection records shall show:
(1) The dates and content of letters (2) are authorized by statute to process lender; and a letter from a senior officer
and notices which were mailed to the VA guaranteed home loans on the of the sponsoring lender indicating the
borrower(s); automatic basis. This category of lenders number of VA loans submitted by the
(2) Dated summaries of each personal includes any Federal land bank, agent each year and that the loans have
servicing contact and the result of same; national bank, State bank, private bank, been properly documented and
(3) The indicated reason(s) for default; building and loan association, insurance submitted in compliance with VA
and company, credit union or mortgage and requirements and procedures.
(4) The date and result of each loan company that is subject to (2) Underwriter. A senior officer of the
property inspection. examination and supervision by an applicant lender must nominate a full-
(k) Quality control procedures. No agency of the United States or of any time qualified employee(s) to act in the
later than 180 days after the effective State or by any State. applicant lender’s behalf as
date of this regulation, each loan holder (b) Non-supervised lender authority. underwriter(s) to personally review and
shall establish internal controls to Non-supervised lenders of the class make underwriting decisions on VA
periodically assess the quality of the described in 38 U.S.C. 3702(d)(3) must loans to be closed on the automatic
servicing performed on loans apply to the Secretary for authority to basis.
guaranteed by the Secretary and assure process loans on the automatic basis. (i) Nominees for underwriter must
that all requirements of this section are Each of the minimum requirements have a minimum of three years
being met. Those procedures must listed below must be met by applicant experience in processing, pre-
provide for a review of the holder’s lenders. underwriting or underwriting mortgage
servicing activities at least annually and (1) Experience. The applicant lender loans. At least one recent year of this
include an evaluation of delinquency must meet one of the following experience must have included making
and foreclosure rates on loans in its experience requirements: underwriting decisions on VA loans.
portfolio which are guaranteed by the (i) The applicant lender must have (Recent is defined as within the past
Secretary. As part of its evaluation of been actively engaged in originating VA three years.) A VA nomination and
delinquency and foreclosure rates, the loans for at least two years, have a VA current resume, outlining the
holder shall: Lender ID number and have originated underwriter’s specific experience with
VA loans, must be submitted for each (i) Working Capital. A minimum of with generally accepted accounting
underwriter nominee. $50,000 in working capital must be principles.
(ii) Alternatively, if an underwriter demonstrated. (F) That portion of an asset not readily
does not have the experience outlined (A) Working capital is a measure of an marketable and for which appraised
above, the underwriter must submit applicant lender’s liquidity, or the values are very subjective, carried at a
documentation verifying that he or she ability to pay its short-term debts. value in excess of a substantially
is a current Accredited Residential Working capital is defined as the excess discounted appraised value. Assets such
Underwriter (ARU) as designated by the of current assets over current liabilities. as antiques, art work and gemstones are
Mortgage Bankers Association (MBA). Current assets are defined as cash or subject to this provision and should be
other liquid assets convertible into cash carried at the lower of cost or market.
(iii) If an underwriter is not located in (G) Any asset that is principally used
within a 1-year period. Current
the lender’s corporate office, then a for the personal enjoyment of an officer
liabilities are defined as debts that must
senior officer must certify that the or stockholder and not for normal
be paid within the same 1-year time
underwriter reports to and is supervised business purposes. Adjusted net worth
frame.
by an individual who is not a branch must be calculated by a CPA using an
manager or other person with (B) The VA determination of whether
a lender has the required minimum audited and certified balance sheet from
production responsibilities. the lender’s latest financial statements.
working capital is based on the balance
(iv) All VA-approved underwriters sheet of the lender’s annual audited ‘‘Personal interest’’ as used in this
must attend a 1-day (eight-hour) training financial statement. Therefore, either section indicates a relationship between
course on underwriter responsibilities, the balance sheet must be classified to the lender and a person or entity in
VA underwriting requirements, and VA distinguish between current and fixed which that specified person (e.g.,
administrative requirements, including assets and between current and long- spouse, parent, grandparent, child,
the usage of VA forms, within 90 days term liabilities or the information must brother, sister, aunt, uncle or in-law) has
of approval (if VA is unable to make be provided in a footnote to the a financial interest in or is employed in
such training available within 90 days, statement. a management position by the lender.
the underwriter must attend the first (5) Lines of credit. The lender
(ii) Net Worth. Lenders must show
available training). Immediately upon applicant must have one or more lines
evidence of a minimum of $ 250,000 in
approval of a VA underwriter, the office of credit aggregating at least $ 1 million.
adjusted net worth. Net worth is a
of jurisdiction will contact the The identity of the source(s) of
measure of an applicant lender’s
underwriter to schedule this training at warehouse lines of credit must be
solvency, or its ability to exist in the
a VA regional office (VARO) of the submitted to VA and the applicant must
long run, quantified by the payment of
underwriter’s choice. This training is agree that VA may contact the named
long-term debts. Net worth as defined
required for all newly approved VA source(s) for the purpose of verifying the
by generally accepted accounting
underwriters, including those who information. A line of credit must be
principles (GAAP) is total assets minus
qualified for approval based on an ARU unrestricted, that is, funds are available
total liabilities. Adjusted net worth for
designation, as well as VA-approved upon demand to close loans and are not
VA purposes is the same as the adjusted
underwriters who have not dependent on prior investor approval. A
net worth required by the Department of
underwritten VA-guaranteed loans in letter from the company(ies) verifying
Housing and Urban Development
the past 24 months. Furthermore, and at the unrestricted line(s) of credit must be
(HUD), net worth less certain
the discretion of any VARO in whose submitted with the application for
unacceptable assets including:
jurisdiction the lender is originating VA automatic authority.
(A) Any assets of the lender pledged (6) Permanent investors. If the lender
loans, VA-approved underwriters who to secure obligations of another person
consistently approve loans that do not customarily sells loans it originates, it
or entity. must have a minimum of two
meet VA credit standards may be (B) Any asset due from either officers
required to retake this training. permanent investors. The names,
or stockholders of the lender or related addresses and telephone numbers of the
(3) Underwriter Certification. The entities, in which the lender’s officers or
lender must certify that all underwriting permanent investors must be submitted
stockholders have a personal interest, with the application.
decisions as to whether to accept or unrelated to their position as an officer (7) Liaison. The lender applicant must
reject a VA loan will be made by a VA- or stockholder. designate an employee and an alternate
approved underwriter. In addition each (C) Any investment in related entities to be the primary liaison with VA. The
VA-approved underwriter will be in which the lender’s officers or liaison officers should be thoroughly
required to certify on each VA loan that stockholders have a personal interest familiar with the lender’s entire
he or she approves that the loan has unrelated to their position as an officer operation and be able to respond to any
been personally reviewed and approved or stockholder. query from VA concerning a particular
by the underwriter. (D) That portion of an investment in VA loan or the firm’s automatic
(4) Financial Requirements. Each joint ventures, subsidiaries, affiliates authority.
application must include the most and/or other related entities which is (8) Other considerations. All
recent annual financial statement carried at a value greater than equity, as applications will also be reviewed in
audited and certified by a certified adjusted. ‘‘Equity as adjusted’’ means light of the following considerations:
public accountant (CPA). If the date of the book value of the related entity (i) There must be no factors that
the annual financial statement precedes reduced by the amount of unacceptable indicate that the firm would not
that of the application by more than six assets carried by the related entity. exercise the care and diligence required
months, the lender must also attach a (E) All intangibles, such as goodwill, of a lender originating and closing VA
copy of its latest internal financial covenants not to compete, franchisee loans on the automatic basis; and
statement. Lenders are required to meet fees, organization costs, etc., except (ii) In the event the applicant lender,
either the working capital or the unamortized servicing costs carried at a any member of the board of directors, or
minimum net worth financial value established by an arm’s-length any principal officer has ever been
requirement as defined below. transaction and presented in accordance debarred or suspended by any Federal
agency or department, or any of its close on an automatic basis without the involved in originating and closing a
directors or officers has been a director express approval of VA. However, a VA-guaranteed loan on an automatic
or officer of any other lender or lender with automatic authority may basis must take full responsibility by
corporation that was so debarred or close loans for which information and certification for all acts, errors and
suspended, or if the lender applicant supporting credit data have been omissions of the agent or other entity
ever had a servicing contract with an developed on its behalf by a duly and its employees for the work
investor terminated for cause, a authorized agent. performed. Any such acts, errors or
statement of the facts must be submitted (11) Probation. Lenders meeting these omissions will be treated as those of the
with the application for automatic requirements will be approved to close lender and appropriate sanctions may
authority. VA loans on an automatic basis for a 1- be imposed against the lender and its
(9) Quality Control System. In order to year period. At the end of this period, agent. Lenders requesting an agent must
be approved as a non-supervised lender the lender’s quality of underwriting, the submit the following documentation to
for automatic-processing authority, the completeness of loan submissions, the VA regional office having
lender must implement a written quality compliance with VA requirements and jurisdiction for the lender’s corporate
control system which ensures procedures, and the delinquency and office:
compliance with VA requirements. The foreclosure rates will be reviewed. (i) A corporate resolution certifying
lender must agree to furnish findings (12) Extensions of Automatic that the lender takes full responsibility
under its systems to VA on demand. Authority. When a lender wants its for all acts, errors and omissions of the
The elements of the quality control automatic authority extended to another agent that it is requesting. The corporate
system must include the following: State, the request must be submitted, resolution must also identify the agent’s
(i) Underwriting policies. Each office with the fee designated in paragraph name and address, and the geographic
of the lender shall maintain copies of (e)(5) of this section, to the VA regional area in which the agent will be
VA credit standards and all available office having jurisdiction in the State originating and/or closing VA loans;
VA underwriting guidelines. where the lender’s corporate office is whether the agent is authorized to issue
(ii) Corrective measures. The system located. interest rate lock-in agreements on
should ensure that effective corrective (i) When a lender wants its automatic behalf of the lender; and outline the
measures are taken promptly when authority to include loans involving a functions the agent is to perform.
deficiencies in loan originations are real estate brokerage and/or a residential Alternatively, the lender may submit a
identified by either the lender or VA. builder or developer in which it has a blanket corporate resolution which sets
Any cases involving major financial interest, owns, is owned by, or forth the functions of any and all agents
discrepancies which are discovered with which it is affiliated, the following and identifies individual agents by
under the system must be reported to documentation must be submitted: name, address, and geographic area in
VA. (A) A corporate resolution from the
separate letters which refer to the
(iii) System integrity. The quality lender and each affiliate indicating that
blanket resolution.
control system should be independent they are separate entities operating
(ii) When the VA regional office
of the mortgage loan production independently of each other. The
having jurisdiction for the lender’s
function. lender’s corporate resolution must
(iv) Scope. The review of corporate office acknowledges receipt of
indicate that it will not give more
underwriting decisions and the lender’s request in writing, the agent
favorable underwriting consideration to
certifications must include compliance is thereby authorized to originate VA
its affiliate’s loans, and the affiliate’s
with VA underwriting requirements, loans on the lender’s behalf.
corporate resolution must indicate that
sufficiency of documentation and it will not seek to influence the lender (Authority: 38 U.S.C. 501(a), 3702(d))
soundness of underwriting judgments. to give their loans more favorable (c) Reporting responsibility. A lender
(v) Appraisal quality. For lenders underwriting consideration. approved to close loans on the
approved for the Lender Appraisal (B) Letters from permanent investors automatic basis who subsequently fails
Processing Program (LAPP), the quality indicating the percentage of all VA to meet the requirements of this section
control system must specifically contain loans based on the affiliate’s production must report to VA the circumstances
provisions concerning the adequacy and originated by the lender over a 1-year surrounding the deficiency and the
quality of real property appraisals. period that are past due 90 days or remedial action to be taken to cure it.
While the lender’s quality control more. This delinquency ratio must be no Failure to advise VA in a timely manner
personnel need not be appraisers, they higher than the national average for the could result in a lender’s loss of its
should have basic familiarity with same period for all mortgage loans. approval to close VA loans on the
appraisal theory and techniques so that (ii) When a lender wants its automatic automatic basis.
they can select appropriate cases for authority extended to additional States,
review if discretionary sampling is used, the lender must indicate how it plans to (Authority: 38 U.S.C. 501(a), 3702(d))
and prescribe appropriate corrective originate VA loans in those States. (d) Annual recertification. Non-
action(s) in the appraisal review process Unless a lender proposes a supervised lenders of the class
when discrepancies or problems are telemarketing plan, VA requires that a described in 38 U.S.C. 3702(d)(3) must
identified. Copies of the lender’s quality lender have a presence in the State, that be recertified annually for authority to
control plan or self-policing system is, a branch office, an agent relationship, process loans on the automatic basis.
evidencing appraisal related matters or that it is a reasonable distance from The following minimum annual
must be provided to the VA office of one of its offices in an adjacent State, recertification requirements must be met
jurisdiction. i.e., 50 miles. If the request is based on by each lender approved for automatic
(10) Courtesy closing. The lender an agency relationship, the authority:
applicant must certify to VA that it will documentation outlined in paragraph (1) Financial requirements. A lender
not close loans on an automatic basis as (b)(13) must be submitted with the must submit, within 120 days following
a courtesy or accommodation for other request for extension. the end of its fiscal year, an audited and
mortgage lenders, whether or not such (13) Use of Agents. A lender using an certified financial statement with a
lenders are themselves approved to agent to perform a portion of the work classified balance sheet or a separate
footnote for adjusted net worth to VA prejudicial to the interests of veterans or (ii) The lender fails to disclose to VA
Central Office (264) for review. The the Government but are of a lesser significant obligations or other
same minimum financial requirements degree than would warrant complete information so material to the veteran’s
described in § 36.4852(b)(5) must be suspension or debarment of the lender ability to repay the loan that undue risk
maintained and verified annually in from participation in the program. to the Government results;
order to be recertified for automatic (2) Automatic-processing authority (iii) Employment or deposit
authority. may be withdrawn at any time for verifications are allowed to be
(2) Processing annual lender data. failure to meet basic qualifying and/or handcarried by applicant or otherwise
The VA regional office having annual recertification criteria. mishandled, resulting in the submission
jurisdiction for the lender’s corporate (i) Non-supervised lenders. (A) of significant misinformation to VA;
office will mail an annual notice to the Automatic authority may be withdrawn (iv) Substantiated complaints are
lender requesting current information for lack of a VA-approved underwriter, received that the lender misrepresented
on the lender’s personnel and operation. failure to maintain $50,000 in working VA requirements to veterans to the
The lender is required to complete the capital or $250,000 in adjusted net detriment of their interests (e.g., veteran
form and return it with the appropriate worth, or failure to file required was dissuaded from seeking a lower
annual renewal fees to the VA regional financial information. interest rate based on lender’s incorrect
office. (B) During the 1-year probationary advice that such options were precluded
period for newly approved lenders, by VA requirements);
(Authority: 38 U.S.C. 501(a), 3702(d)) automatic authority may be temporarily (v) Closing documentation shows
(e) Lender fees. To participate as a VA or permanently withdrawn for any of instances of improper charges to the
automatic lender, non-supervised the reasons set forth in this section veteran after the impropriety of such
lenders of the class described in 38 regardless of whether deficiencies charges has been called to the lender’s
U.S.C. 3702(d)(3) shall pay fees as previously have been brought to the attention by VA, or refusal to refund
follows: attention of the probationary lender. such charges after notification by VA; or
(1) $500 for new applications; (ii) Supervised lenders. Automatic (vi) There are other instances of
(2) $200 for reinstatement of lapsed or authority will be withdrawn for loss of lender actions which are prejudicial to
terminated automatic authority; status as an entity subject to the interests of veterans such as
(3) $100 for each underwriter examination and supervision by a deliberate delays in scheduling loan
approval; Federal or State supervisory agency as closings.
(4) $100 for each agent approval; required by 38 U.S.C. 3702(d). (3) Withdrawal for a period of from
(5) A minimum fee of $100 for any (Authority: 38 U.S.C. 3702(d)) one year to three years may occur when:
other VA administrative action (i) The lender fails to properly
(3) Automatic processing authority
pertaining to a lender’s status as an disburse loans (e.g., loan disbursement
may also be withdrawn for any of the
automatic lender; causes for debarment set forth in 2 CFR checks returned due to insufficient
(6) $200 annually for certification of parts 180 and 801. funds);
home offices; and (b) Authority to close loans on the (ii) There is involvement by the
(7) $100 annually for each agent automatic basis may also be temporarily lender in the improper use of a veteran’s
renewal. withdrawn for a period of time under entitlement (e.g., knowingly permitting
(f) Supervised lender fees. Supervised the following schedule. the veteran to violate occupancy
lenders of the classes described in (1) Withdrawal for 60 days may occur requirements, lender involvement in
paragraphs (d)(1) and (d)(2) of 38 U.S. when: sale of veteran’s entitlement, etc.).
Code 3702 participating in VA’s Loan (i) Automatic loan submissions show (4) A continuation of actions that have
Guaranty Program shall pay fees as deficiencies in credit underwriting, led to previous withdrawal of automatic
follows: such as use of unstable sources of authority justifies withdrawal of
(1) $100 fee for each agent approval; income to qualify the borrower, ignoring automatic authority for the next longer
and significant adverse credit items affecting period of time.
(2) $100 annually for each agent the applicant’s creditworthiness, etc., (5) Withdrawal of automatic
renewal. after such deficiencies have been processing authority does not prevent a
(Authority: 38 U.S.C. 501(a) and 3703(c)(1)) repeatedly called to the lender’s lender from processing VA guaranteed
attention; loans on the prior approval basis.
(g) LAPP fees. Lenders participating in (ii) Employment or deposit (6) Action by VA to remove a lender’s
VA’s Lender Appraisal Processing verifications are handcarried by automatic authority does not prevent
Program shall pay a fee of $100 for applicants or otherwise improperly VA from also taking debarment or
approval of each staff appraisal permitted to pass through the hands of suspension action based on the same
reviewer. a third party; conduct by the lender.
(Authority 38 U.S.C. 3703(c)(1)) (iii) Automatic loan submissions are (7) VA field facilities are authorized to
consistently incomplete after such withdraw automatic privileges for 60
§ 36.4853 Withdrawal of authority to close deficiencies have been repeatedly called days, based on any of the violations set
loans on the automatic basis. forth in paragraphs (b)(1) through (b)(3)
to the lender’s attention by VA; or
(a)(1) As provided in 38 U.S.C. (iv) There are continued instances of of this section, for non-supervised
3702(e), the authority of any lender to disregard of VA requirements after they lenders without operations in other
close loans on the automatic basis may have been called to the lender’s stations’ jurisdictions. All
be withdrawn by the Secretary at any attention. determinations regarding withdrawal of
time upon 30 days notice. The (2) Withdrawal for 180 days may automatic authority for longer periods of
automatic processing authority of both occur when: time or multi-jurisdictional lenders

supervised and non-supervised lenders (i) Loans are closed automatically must be made in Central Office.
may be withdrawn for engaging in which conflict with VA credit standards (c) VA will provide 30 days notice of
practices which are imprudent from a and which would not have been made a withdrawal of automatic authority in
lending standpoint or which are by a lender acting prudently; order to enable the lender to either close
or obtain prior approval for a loan on (2) A leasehold estate running or (A) Prohibition against leasing a unit
which processing has begun. There is no renewable at the option of the lessee for for a period of less than 6 months.
right to a formal hearing to contest the a period of not less than 14 years from (B) The existence of a right of first
withdrawal of automatic processing the maturity of the loan, or to any earlier option to purchase or right to provide a
privileges. However, if within 15 days date at which the fee simple title will substitute buyer reserved to the
after receiving notice the lender requests vest in the lessee, which is assignable or condominium association provided
an opportunity to contest the transferable, if the same be subjected to such option or right is exercisable only
withdrawal, the lender may submit in the lien; however, a leasehold estate if:
person, in writing, or through a which is not freely assignable and (1) An owner elects to sell;
representative, information and transferable will be considered an (2) The option price is not less than
argument in opposition to the acceptable estate if it is determined by the price at which the then owner is
withdrawal. the Under Secretary for Benefits, or the willing to sell to another;
(d) If the lender’s submission in Director, Loan Guaranty Service: (3) The terms and conditions under
opposition raises a dispute over facts (i) That such type of leasehold is which the option price is to be paid are
material to the withdrawal of automatic customary in the area where the identical to or are not less favorable to
authority, the lender will be afforded an property is located, the owner than the terms and conditions
opportunity to appear with a (ii) That a veteran or veterans will be under which the owner was willing to
representative, submit documentary prejudiced if the requirement for free sell to the owner’s prospective buyer;
evidence, present witnesses, and assignability is adhered to; and and
confront any witnesses VA presents. (iii) That the assignability and other (4) Notice of the association’s decision
The Under Secretary for Benefits will provisions applicable to the leasehold to exercise the option must be mailed to
appoint a hearing officer or panel to estate are sufficient to protect the the owner by registered or certified mail
conduct the hearing. interests of the veteran and the within 30 days after notice is mailed by
(e) A transcribed record of the Government and are otherwise registered or certified mail to the
proceedings shall be made available at acceptable; or address of the association last known to
cost to the lender, upon request, unless (3) A life estate, provided that the the owner of the owner’s election to sell,
the requirement for a transcript is remainder and reversionary interests are stating the price, terms of sale, and the
waived by mutual agreement. subjected to the lien; or identity of the proposed vendee.
(f) In actions based upon a conviction (4) A beneficial interest in a revocable (iii) Any property subject to a
or civil judgment, or in which there is Family Living Trust that ensures that restriction on the owner’s right to
no genuine dispute over material facts, the veteran, or veteran and spouse, have convey to any party of the owner’s
the Under Secretary for Benefits shall an equitable life estate, provided the choice, which restriction is established
make a decision on the basis of all the lien attaches to any remainder interest by a document recorded on or after
information in the administrative and the trust arrangement is valid under December 1, 1976, will not qualify as
record, including any submission made State law. security for a guaranteed or insured
by the lender. (b) Any such property or estate will loan. A prohibition or restriction on
(g) In actions in which additional not fail to comply with the requirements leasing an individual unit in a
proceedings are necessary to determine of paragraph (a) of this section by reason condominium will not cause the
disputed material facts, written findings of the following: condominium estate to fail to qualify as
of fact will be prepared by the hearing (1) Encroachments; security for such loan, provided the
officer or panel. The Under Secretary for (2) Easements; restriction is in accordance with
Benefits shall base the decision on the (3) Servitudes; § 36.4862(c).
facts as found, together with any (4) Reservations for water, timber, or (iv) Notwithstanding the provisions of
information and argument submitted by subsurface rights; or paragraphs (b)(5)(i), (ii), and (iii) of this
the lender and any other information in (5) Sale and lease restrictions: section, a property shall not be
the administrative record. (i) Except as to condominiums, the considered ineligible pursuant to
right in any grantor or cotenant in the paragraph (a) of this section if:
(Authority: 38 U.S.C. 3703(c)(1)) (A) The veteran obtained the property
chain of title, or a successor of either,
(The Office of Management and Budget has to purchase for cash, which right was under a State or local political
established by an instrument recorded subdivision program designed to assist
numbers 2900–0574.) prior to December 1, 1976, and by the low-or moderate-income purchasers,
terms thereof is exercisable only if: and as a condition the purchaser must
§ 36.4854 Estate of veteran in real (A) An owner elects to sell; agree to one or more of the following
property. (B) The option price is not less than restrictions:
(a) The title of the estate in the realty the price at which the then owner is (1) If the property is resold within a
acquired by the veteran, wholly or willing to sell to another; and time period as established by local law
partly with the proceeds of a guaranteed (C) Exercised within 30 days after or ordinance, after the purchaser
or insured loan, or owned by him and notice is mailed by registered mail to acquires title, the purchaser must first
on which construction, or repairs, or the address of optionee last known to offer the property to the government
alterations or improvements are to be the then owner of the then owner’s housing agency, or a low-or moderate-
made, shall be such as is acceptable to election to sell, stating the price and the income purchaser designated by such
informed buyers, title companies, and identity of the proposed vendee; agency, provided the option to purchase
attorneys, generally, in the community (ii) A condominium estate established is exercised within 90 days after notice
in which the property is situated, except by the filing for record of the Master by the purchaser to the agency of
as modified by paragraph (b) of this Deed, or other enabling document intention to sell.
section. Such estate shall be not less before December 1, 1976 will not fail to (2) If the property is resold within a
than: comply with the requirements of time period as established by local law
(1) A fee simple estate therein, legal paragraph (a) of this section by reason or ordinance after the purchaser
or equitable; or of: acquires title, a governmental agency
may specify a maximum price which precedent to the guaranty or insurance adjoining property where such
the veteran may receive for the property of the loan; Provided, That the encroachments do not exceed 1 foot
upon resale; or limitations on the quantum or quality of within the subject boundaries, provided
(3) Such other restriction approved by the estate or property that are indicated such encroachments do not touch any
the Secretary designed to insure either in this paragraph, insofar as they may buildings or interfere with the use or
that a property acquired under such materially affect the value of the enjoyment of any building or
program again be made available to low- property for the purpose for which it is improvement on the subject property.
or moderate-income purchasers, or to used, are taken into account in the (ii) By hedges or removable fences
prevent a private purchaser from appraisal of reasonable value required belonging to subject or adjoining
obtaining a windfall profit on the resale by 38 U.S.C. chapter 37. property.
of such property, while assuring that the (c) The following limitations on the (iii) Not exceeding 1 foot on adjoining
purchaser has a reasonable opportunity quantum or quality of the estate or property by driveways belonging to
to dispose of the property without property shall be deemed for the subject property, provided there exists a
undue difficulty at a reasonable price. purposes of paragraph (b) of this section clearance of at least 8 feet between the
(4) The sale price of a property under to have been taken into account in the buildings on the subject property and
any of the restrictions of paragraph appraisal of residential property and the property line affected by the
(b)(5)(iv)(A) of this section shall not be determined by the Secretary as not encroachment.
less than the lowest of the following: materially affecting the reasonable value (6) Variations of lot lines. Variations
The price designated by the owner as of such property: between the length of the subject
the asking price; the appraised value of (1) Building or use restrictions. property lines as shown on the plot plan
the property; or the original purchase Provided: or other exhibits submitted to
price of the property, increased by a (i) No violation exists, Department of Veterans Affairs and as
factor reflecting all or a reasonable (ii) The proposed use by a veteran shown by the record or possession lines,
portion of the increased costs of housing does not presage a violation of a provided such variations do not
or the percentage increase in median condition affording a right of reverter, interfere with the current use of any of
income in the area between the date of and the improvements on the subject
original purchase and resale, plus the (iii) Any right of future modification property and do not involve a
reasonable value or actual costs of any contained in the building or use deficiency of more than 2 percent with
capital improvements made by the restrictions is not exercisable, by its respect to the length of the front line or
owner plus a reasonable real estate own terms, until at least 10 years more than 5 percent with respect to the
commission less the cost of necessary following the date of the loan. length of any other line.
repairs required to place the property in (2) Violations of racial and creed (Authority: 38 U.S.C. 3703(c))
saleable condition; or other reasonable restrictions. Violations of a restriction
based on race, color, creed, or national § 36.4855 Loans, first, second, or
formula approved by the Secretary. The unsecured.
veteran must be fully informed and origin, whether or not such restriction
provides for reversion or forfeiture of Loans for the purchase of real
consent in writing to the housing property or a leasehold estate as limited
restrictions. A copy of the veteran’s title or a lien for liquidated damages in
the event of a breach. in the regulations concerning guaranty
consent statement must be forwarded or insurance of loans to veterans, or for
with the application for home loan (3) Violations of building or use
restrictions of record. Violations of the alteration, improvement, or repair
guaranty or the report of a home loan thereof, and for more than $1,500 and
processed on the automatic basis. building or use restrictions of record
which have existed for more than 1 more than 40 percent of the reasonable
(Authority: 38 U.S.C. 3703(c)) year, are not the subject of pending or value of such property or estate prior
(B) A recorded restriction on title threatened litigation, and which do not thereto shall be secured by a first lien
designed to provide housing for older provide for a reversion or termination of on the property or estate. Loans for such
persons, provided that the restriction is title, or condemnation by municipal alteration, improvement, or repairs for
acceptable under the provisions of the authorities, or, a lien for liquidated more than $1,500 but 40 percent or less
Fair Housing Act, title VIII of the Civil damages which may be superior to the of the prior reasonable value of the
Rights Act of 1968, as amended by the lien of the guaranteed or insured property shall be secured by a lien
Fair Housing Amendments Act of 1988, mortgage. reasonable and customary in the
42 U.S.C. 3601 et seq. The veteran must (4) Easements. (i) Easements for community for the type of alteration,
be fully informed and consent in writing public utilities along one or more of the improvement, or repair financed. Those
to the restrictions. A copy of the property lines and easements for for $1,500 or less need not be secured,
veteran’s consent statement must be drainage or irrigation ditches, provided and in lieu of the title examination the
forwarded with the application for the exercise of the rights thereof do not lender may accept a statement from the
home loan guaranty or the report of a interfere with the use of any of the borrower that he or she has an interest
home loan processed on the automatic buildings or improvements located on in the property not less than that
basis. the subject property. prescribed in § 36.4854(a).
(ii) Mutual easements for joint (Authority 38 U.S.C. 3703(c)(1))
(Authority: 38 U.S.C. 501, 3703(c)(1))
driveways located partly on the subject
(6) Building and use restrictions property and partly on adjoining § 36.4856 Tax, special assessment and
whether or not enforceable by a reverter property, provided the agreement is other liens.
clause if there has been no breach of the recorded in the public records. Tax liens, special assessment liens,
conditions affording a right to an (iii) Easements for underground and ground rents shall be disregarded
exercise of the reverter; conduits which are in place and which with respect to any requirement that
(7) Any other covenant, condition, do not extend under any buildings in loans shall be secured by a lien of
restriction, or limitation approved by the subject property. specified dignity. With the prior
the Secretary in the particular case. (5) Encroachments. (i) On the subject approval of the Secretary, Under
Such approval shall be a condition property by improvements on the Secretary for Benefits, or Director, Loan
Guaranty Service, liens retained by the holder’s insurance account may be the guaranty or insurance of loans to
nongovernmental entities to secure made: Provided further, that the prior veterans. Sections 36.4857, 36.4859, and
assessments or charges for municipal approval of the Secretary shall be 36.4869 shall not be applicable.
type services and facilities clearly required if: (b) Definitions. On and after July 1,
within the public purpose doctrine may (1) The loan will be made by a lender 1979, the following definitions shall be
be disregarded. In determining whether who is not the holder of the currently applicable to each condominium loan
a loan for the purchase or construction guaranteed or insured obligation; or entitled to be guaranteed or insured, and
of a home is secured by a first lien the (2) The loan will be made by a lender shall be applicable to such loans
Secretary may also disregard a superior not of a class specified in 38 U.S.C. previously guaranteed or insured to the
lien created by a duly recorded 3702(d); or extent that no legal rights vested
covenant running with the realty in (3) An obligor liable on the currently thereunder are impaired. Whenever
favor of a private entity to secure an outstanding obligation will be released used in 38 U.S.C. chapter 37 or this
obligation to such entity for the from personal liability. subpart, unless the context otherwise
homeowner’s share of the costs of the (b) In any case in which the unpaid requires, the terms defined in this
management, operation, or maintenance balance of the prior loan currently paragraph shall have the meaning
of property, services or programs within outstanding is combined or stated.
and for the benefit of the development consolidated with the amount of the (1) Affiliate of declarant. Affiliate of
or community in which the veteran’s supplemental loan, the entire aggregate declarant means any person or entity
realty is located, if the Secretary indebtedness shall be repayable in full which controls, is controlled by, or is
determines that the interests of the within the maximum maturity currently under common control with, a
veteran-borrower and of the prescribed by statute for the original declarant.
Government will not be prejudiced by loan. No supplemental loan for the (i) A person or entity shall be
the operation of such covenant. In repair, alteration, or improvement of considered to control a declarant if that
respect to any such superior lien to be residential property will be eligible for person or entity is a general partner,
created after June 6, 1969, the guaranty or insurance unless such officer, director, or employee of the
Secretary’s determination must have repair, alteration, or improvement declarant who:
been made prior to the recordation of substantially protects or improves the (A) Directly or indirectly or acting in
the covenant. basic livability or utility of the property concert with one or more persons, or
involved. through one or more subsidiaries, owns,
(Authority: 38 U.S.C. 3703(d)(3)) (c) Such loans shall be secured as controls, or holds with power to vote, or
§ 36.4857 Combination residential and required in § 36.4855: Provided, that a holds proxies representing, more than
business property. lien of lesser dignity than therein 20 percent of the voting shares of the
If otherwise eligible, a loan for the specified will suffice if the lien obtained declarant;
purchase or construction of a is immediately junior to the lien of the (B) Controls in any manner the
combination of residential property and original guaranteed or insured election of a majority of the directors of
business property which the veteran obligation: Provided further, that the the declarant; or
proposes to occupy in part as a home liens of successive supplemental loans (C) Has contributed more than 20
will be eligible under 38 U.S.C. 3710, if may be of lesser dignity so long as they percent of the capital of the declarant.
the property is primarily for residential are immediately junior to the lien of the (ii) A person or entity shall be
purposes and no more than one last previous guaranteed or insured considered to be controlled by a
business unit is included in the obligation having a lien of required declarant if the declarant is a general
property. dignity. partner, officer, director, or employee of
(d) Upon providing or extending that person or entity who:
(Authority: 38 U.S.C. 3703(c)(1)) guaranty or insurance coverage in (A) Directly or indirectly or acting in
§ 36.4858 [Reserved] respect to any such supplemental loan, concert with one or more persons or
the rights of the Secretary to the through one or more subsidiaries, owns,
§ 36.4859 Supplemental loans. proceeds of the sale of security shall be controls, or holds with power to vote, or
(a) Any loan for the alteration, repair, subordinate to the right of the holder to holds proxies representing, more than
improvement, extension, replacement, satisfy therefrom the indebtedness 20 percent of the voting shares of that
or expansion of a home, with respect to outstanding on the original and person or entity;
which a guaranteed or insured supplemental loans. (B) Controls in any manner the
obligation of the borrower is currently (Authority: 38 U.S.C. 3703(c)(1), 3710(b)(6)) election of a majority of the directors of
outstanding, may be reported for that person or entity; or
guaranty or insurance coverage, if such § 36.4860 Condominium loans—general. (C) Has contributed more than 20
loan is made by the holder of the (a) Authority—applicability of other percent of the capital of that person or
currently outstanding obligation, loan guaranty regulations, 38 CFR Part entity.
notwithstanding the fact no guaranty 36. A loan to an eligible veteran to (2) Condominium. Unless otherwise
entitlement remains available to the purchase a one-family residential unit provided by State law, a condominium
borrower; Provided, that if no in a condominium housing is a form of ownership in which the
entitlement remains available the development or project shall be eligible buyer receives title to a three
maximum amount payable on the for guaranty or insurance to the same dimensional air space containing the
revised guaranty shall not exceed the extent and on the same terms as other individual living unit together with an
amount payable on the original guaranty loans under 38 U.S.C. 3710 provided the undivided interest or share in the
on the date of closing the supplemental loan conforms to the provisions of ownership of common elements
loan, and the percentage of guaranty chapter 37, title 38 U.S.C., except for (restatement of § 36.4801,
shall be based upon the proportion the sections 3711 (direct loans), and 3727 Condominium).
said maximum amount bears to the (structural defects). The loan must also (3) Conversion condominium.
aggregate indebtedness, or, in the case of conform to the otherwise applicable Condominium projects not originally
an insured loan, no additional credit to provisions of the regulations concerning built and sold as condominiums but
subsequently converted to the under another living unit, e.g., garden Such interest may be allocated equally
condominium form of ownership. apartment or walk-up project. to each unit, may be proportionate to
(4) Declarant. Any person who has (12) Proposed condominium. A that unit’s relative size or value, or may
executed a declaration or an amendment condominium project that is to be be allocated according to any other
to a declaration to add additional real constructed or is under construction. In specified criteria provided that the
estate to the project or any successors or the case of a condominium conversion, method chosen is equitable and
assigns of the declarant who offers to the declarant proposes to convert a reasonable for that condominium.
sell or sells units in the condominium building or buildings to the (Authority: 38 U.S.C. 3703(c)(1), (d)(3),
project and who assumes declarant condominium form of ownership, or the 3710(a)(6))
rights in the project including the right declarant is in the process of converting
(c) Condominium documentation—(1)
to: Add, convert or withdraw real estate the building or buildings to the
Compliance with applicable law. The
from the condominium project; condominium form of ownership.
declaration, bylaws and other enabling
maintain sales offices, management (13) Series condominium. A number
documentation shall conform to the
offices and rental units; exercise of adjoining but separately constituted
laws governing the establishment and
easements through the common condominiums. An association of
maintenance of condominium regimes
elements for the purpose of making owners is established for each project,
within the jurisdiction in which the
improvements within the and each association is responsible for
condominium is located, and to all
condominium; or exercise control of the maintenance and upkeep of the
other laws which apply to the
owner’s association. Declarant is further common elements in its own project.
condominium.
defined as any sponsor of a project or Cross-easements between the separate
(2) Recordation. The declaration and
affiliate of the declarant who is acting condominiums may be created to permit
all amendments or modifications thereof
on behalf of or exercising the rights of members of the separate condominiums
shall be placed of record in the manner
the declarant. to use the common areas of the other
prescribed by the appropriate
(5) Existing—declarant in control or condominiums.
jurisdiction. If recording of plats, plans,
marketing units. A condominium in (c) Project approval. Prior to
or bylaws or equivalent documents and
which all onsite or offsite improvements Department of Veterans Affairs guaranty
all amendments or modifications thereof
were completed or the conversion was of an individual unit loan in a
is the prevailing practice or is required
completed prior to appraisal by the condominium, the legal documentation
by law within the jurisdiction where the
Department of Veterans Affairs, but the establishing the condominium project or
project is located, then such documents
declarant is in control of the owners’ development must be approved by the
shall be placed of record. If the bylaws
association and/or is currently Secretary.
are not recorded, then covenants,
marketing units for initial transfer to (Authority: 38 U.S.C. 3703(c)(1), (d)(3), restrictions and other matters requiring
individual unit owners. 3710(a)(6)) record notice should be contained in the
(6) Existing—resale. A condominium declaration or equivalent document.
§ 36.4861 Acceptable ownership
in which all onsite or offsite (3) Availability. The owner’s
arrangements and documentation.
improvements were completed, or the association shall be required to make
conversion was completed prior to (a) Types of condominium ownership.
The following types of basic ownership available to unit owners, lenders and
appraisal by the Department of Veterans the holders, insurers and guarantors of
Affairs, and the declarant is no longer in arrangements are generally acceptable
provided they are established in the first mortgage on any unit, current
control of the owners’ association and/ copies of the declaration, bylaws and
or marketing units for initial transfer to compliance with the applicable
condominium law of the jurisdiction(s) other rules governing the condominium,
individual unit owners. and other books, records and financial
(7) Expandable condominium. A in which the condominium is located:
(1) Ownership of units by individual statements of the owners’ association.
project which may be increased in size The owners’ association also shall be
owners coupled with an undivided
by the declarant. An expandable required to make available to
interest in all common elements.
condominium is constructed in phases prospective purchasers current copies of
(2) Ownership of units by individual
(or stages). After each phase is the declaration, bylaws, other rules
owners coupled with an undivided
completed and constituted, the common governing the condominium, and the
interest in general common elements
estates are merged. Each unit owner, most recent annual audited financial
and specified limited common
thereby, gains an individual interest in statement, if such is prepared.
elements.
all of the facilities of the common estate. (3) Individual ownership of units ‘‘Available’’ as used in this paragraph
(8) Foreclosure. Foreclosure shall coupled with an undivided interest in (c)(3) shall at least mean available for
mean the termination of a lien by either the general common elements and/or inspection, upon request, during normal
judicial or nonjudicial procedures in limited common elements, with title to business hours or under other
accordance with local law or the additional property for common use reasonable circumstances.
voluntary transfer of property by a deed- vested in an association of unit owners, (4) Amendments to documents after
in-lieu of foreclosure or similar with mandatory membership by unit Department of Veterans Affairs project
procedures. owners or owners’ associations. Any approval. While the declarant is in
(9) High rise condominium. A such arrangement must not be control of the owners’ association,
condominium project which is a multi- precluded by applicable State law. amendments to the declaration, bylaws
story elevator building. or other enabling documentation must
(10) Horizontal condominium. A (Authority: 38 U.S.C. 3710(a)(6)) be approved by the Secretary. The
condominium project in which (b) Estate of unit owner. The legal declarant should have proposed
generally no part of a living unit extends estate of each unit owner must comply amendments reviewed prior to
over or under another living unit. with the provisions of § 36.4854. The recordation. This provision does not
(11) Low rise condominium. A declaration or equivalent document apply to amendments which annex
condominium project in which all or a shall allocate an undivided interest in additional phases to the condominium
part of a living unit extends over or the common elements to each unit. regime in accordance with a general
plan of development (§§ 36.4864(a)(3) reasonable and set forth in the development and operation of the
and 36.4865(b)(6)). declaration. project.
(Authority: 38 U.S.C. 3703(c)(1), 3710(a)(6)) (2) Examples of reserved rights of (3) Responsibility for damage to
declarant, sponsor, or affiliate of common elements and units. A
(d) Real property descriptions in the declarant which are usually provision may be made in the
declaration—(1) Clarity—conformity unacceptable. Binding the owners’ declaration or bylaws for allocation of
with the law of the jurisdiction. The association either directly or indirectly responsibility for damages resulting
description of the units, common to any of the following agreements is not from the exercise of any of the above
elements, any recreational facilities and acceptable unless the owners’ rights.
other related amenities, and any limited association shall have a right of (4) Assessments—(i) Levy and
common elements shall be clear and in termination thereof which is exercisable collection. The declaration or its
conformity with the law of the without penalty at any time after equivalent shall describe the authority
jurisdiction where the project is located. transfer of control, upon not more than of the owners’ association to levy and
Responsibility for maintenance and 90 days’ notice to the other party enforce the collection of general and
repair of all portions of the thereto: special assessments for common
condominium shall be set forth clearly. (i) Any management contract, expenses and shall describe adequate
(2) Developmental plan—proposed employment contract or lease of remedies for failure to pay such
condominiums. The declaration or other recreational or parking areas or common expenses. The common
legally enforceable and binding facilities. expenses assessed against any unit, with
document must state in a reasonable (ii) Any contract or lease, including interest, late charges, costs and a
manner the overall development plan of franchises and licenses, to which a reasonable attorney’s fee shall be a lien
the condominium, including building declarant is a party. upon such unit in accordance with
types, architectural style and the size of (iii) The requirements of paragraphs applicable law. Each such assessment,
the units for those phases of the (a)(2)(i) and (ii) of this section do not together with interest, late charges,
condominium which are required to be apply to acceptable ground leases. costs, and attorney’s fee, shall also be
built. Under the applicable provisions of (3) Examples of reserved rights which the personal obligation of the person
the declaration or such other legally are usually acceptable. The following who was the owner of such unit at the
enforceable and binding document, the rights in the common elements may time the assessment fell due. The
development of the required portion of usually be reserved by the declarant for personal obligation for delinquent
the condominium must be consistent a reasonable period of time, subject to assessments shall not pass to successors
with the overall plan, except that the a concomitant obligation to restore: in title or interest unless assumed by
declarant may reserve the right to (i) Easement over and upon the them, or required by applicable law.
change the overall plan or decide not to common elements and upon lands Common expenses as used in this
construct planned units or appurtenant to the condominium for the subdivision shall mean expenditures
improvements to the common elements purpose of completing improvements made or liabilities incurred by or on
if the declaration sets forth the for which provision is made in the behalf of the owners’ association,
conditions required to be satisfied prior declaration, but only if access thereto is together with any assessments for the
to the exercise of that right the time otherwise not reasonably available. creation and maintenance of reserves.
within which the right may be (ii) Easement over and upon the (ii) Reserves and working capital.
exercised, and any other limitations and common elements for the purpose of There shall be in new or proposed
criteria that would be necessary or making repairs required pursuant to the condominium projects (including
appropriate under the particular declaration or contracts of sale made conversions) a provision for an adequate
circumstances. Such conditions, time with unit purchasers. reserve fund for the periodic
restraints and other limitations must be (iii) Right to maintain facilities in the maintenance, repair and replacement of
reasonable in light of the overall plan common areas which are identified in the common elements, which fund shall
for the condominium. In an expandable the declaration and which are be maintained out of regular
project, additional phases which are not reasonably necessary to market the assessments for common expenses.
required to be built may be described in units. These may include sales and Additionally, a working capital fund
the development plan in very general management offices, model units, must be established for the initial
terms, or the declaration may provide parking areas, and advertising signs. months of the project operations equal
that the declarant makes no assurances to at least a 2 months’ estimated
(Authority: 38 U.S.C. 3704(c)(1), 3710(a)(6)) common area charge for each unit.
concerning the construction, building
types, architectural style and size of the (b) Owners’ association’s rights and (iii) Priority of lien. Any assessment
units, etc. of these phases. However, the restrictions—(1) Right of entry upon lien must be subordinate to any
minimum number of units to be built units and limited common elements. Department of Veterans Affairs
should be that which would be adequate The owners’ association shall be granted guaranteed mortgage except as provided
to reasonably support the common a right of entry upon unit premises and in § 36.4856. A lien for common
elements. (See § 36.4864(a)(6).) any limited common elements to effect expense charges and assessments shall
emergency repairs, and a reasonable not be affected by any sale or transfer of
(Authority: 38 U.S.C. 3703(c)(1), 3710(a)(6))
right of entry thereupon to effect other a unit except that a sale or transfer
(The Office of Management and Budget has repairs, improvements, replacement or pursuant to a foreclosure of a first
requirements in this section under control maintenance as necessary. mortgage shall extinguish a subordinate
number 2900–0448.) (2) Power to grant rights and lien for common expense charges and
restrictions in common elements. The assessments which became payable
§ 36.4862 Rights and restrictions. owners’ association should be granted prior to such sale or transfer. Any such
(a) Declarant’s rights and other rights, such as the right to grant sale or transfer pursuant to a foreclosure
restrictions—(1) Disclosure and utility easements under, through or over shall not relieve the purchaser or
reasonableness of reserved rights. Any the common elements, which are transferee of a unit from liability for, nor
right reserved by the declarant must be reasonably necessary to the ongoing the unit so sold or transferred from the
lien of, any common expense charges its boundaries rather than the metes and owners’ association, its executive board,
thereafter becoming due. bounds expressed in the deed, plat or or a majority of unit owners, and control
(Authority: 38 U.S.C. 3703(c)(1), (d)(3), plan, regardless of settling or lateral of the owners’ association shall pass to
3710(a)(6)) movement of the building, or minor the owners of units within the project,
variance between boundaries shown on not later than the earlier of the
(c) Unit owners’ rights and following:
the plats, plans or in the deed and those
restrictions—(1) Obligation to pay (i) 120 days after the date by which 75
of the building. The declaration should
expenses. The declaration or equivalent percent of the units have been conveyed
provide reasonable limits on the extent
document shall establish a duty on each to unit purchasers,
of any such revised boundary(ies)
unit owner, including the declarant, to (ii) The last date of a specified period
created by the overlap of units, common
pay a proportionate share of common of time following the first conveyance to
elements, and limited common elements
expenses upon being assessed therefor a unit purchaser; such period of time is
resulting from such encroachments.
by the owners’ association. Such share (5) Right of first refusal. The right of to be reasonable for the particular
may be allocated equally to each unit, a unit owner to sell, transfer, or project. The maximum acceptable
may be proportionate to that unit’s otherwise convey his or her unit in a period usually will be from 3 to 5 years
common element interest, relative size condominium shall not be subject to for single-phased condominium regimes
or value, or may be allocated according any right of first refusal or similar and 5 to 7 years for expandable
to any other specified criteria provided restriction if the declaration or similar condominiums, or
that the method chosen is equitable and document is recorded on or after (iii) On a case basis, modifications or
reasonable for that condominium. December 1, 1976. If the declaration was variations of the requirements of
(2) Voting rights. The declaration or paragraphs (a)(1)(i) and (ii) of this
recorded prior to December 1, 1976, the
equivalent document shall allocate a section will be acceptable, particularly
right of first refusal must comply with
portion of the votes in the association to in circumstances involving very large
§ 36.4854(b)(5)(ii); Provided, however,
each unit. Such portion may be condominium developments.
restrictions on the basis of age or
allocated equally to each unit, may be (2) Declarant’s unit votes after
restrictions established by a State,
proportionate to that unit’s common transfer of control. The requirements of
Territorial, or local government agency
expense liability, common element paragraph (a)(1) of this section shall not
as part of a program for providing
interest, relative size or value, or may be affect the declarant’s rights, as a unit
assistance to low- and moderate-income
allocated according to any other owner, to exercise the votes allocated to
purchasers shall be governed by
specified criteria provided that the units which the declarant owns.
§ 36.4854(b)(5)(iv).
method is equitable and reasonable for (3) Unit owners’ participation in
that condominium. The declaration may (Authority: 38 U.S.C. 3703(c)) management. Declarant should provide
provide different criteria for allocations (6) Leasing restrictions. Except as for and foster early participation of unit
of votes to the units on particular provided in this paragraph, there shall owners in the management of the
specified matters and may also provide be no prohibition or restriction on a project.
different percentages of required unit condominium unit owner’s right to (b) Taxes. Unless otherwise provided
owner approvals for such particular lease his or her unit. The following by State law, real estate taxes must be
specified matters. restrictions are acceptable: assessed and be lienable only against
(3) Ingress and egress of unit owners. (i) A requirement that leases have a the individual units, together with their
There may not be any restriction upon minimum initial term of up to 1 year; undivided interests in the common
any unit owner’s right of ingress and or elements, and not against the
egress to his or her unit. (ii) Age restrictions or restrictions multifamily structure. The owners’
(4) Encroachments—(i) Easements for imposed by State or local housing association usually owns no real estate,
encroachments. In the event any portion authorities which are allowable under so it has no obligation concerning ad
of the common elements encroaches § 36.4809(e) or § 36.4854(b)(5)(iv). valorem taxes. Unless taxes are assessed
upon any unit or any unit encroaches (d) Rights of action. The owners’ only against the individual units, a tax
upon the common elements or another association and any aggrieved unit lien could amount to more than the
unit as a result of the construction, owner should be granted a right of value of any particular unit in the
reconstruction, repair, shifting, action against unit owners for failure to structure.
settlement, or movement of any portion comply with the provisions of the (c) [Reserved]
of the improvements, a valid easement declaration, bylaws, or equivalent (d) Policies for bylaws. The bylaws of
for the encroachment and for the documents, or with decisions of the the condominium should be sufficiently
maintenance of the same shall exist so owners’ association which are made detailed for the successful governance of
long as the encroachment exists. The pursuant to authority granted the the condominium by unit owners.
declaration may provide, however, owners’ association in such documents. Among other things, such documents
reasonable limits on the extent of any Unit owners should have similar rights should contain adequate provisions for
easement created by the overlap of of action against the owners’ the election and removal of directors
units, common elements, and limited association. and officers.
common elements resulting from such (Authority: 38 U.S.C. 3703(c)(1), 3710(a)(6)) (e) Insurance and related
encroachments; or requirements—(1) Insurance. The
(ii) Monuments as boundaries. If § 36.4863 Miscellaneous legal holder shall require hazard and flood
permitted by the governing law within requirements. insurance policies to be procured and
the jurisdiction where the project is (a) Declarant transfer of control of maintained in accordance with
located, the existing physical owners’ association—(1) Standards for § 36.4829. Because of the nature of
boundaries of a unit or a common transfer of control. The declarant shall condominiums, additional types of
element or the physical boundaries of a relinquish all special rights, expressed insurance coverages—such as tort
unit or a common element reconstructed or implied, through which the declarant liability insurance for injuries sustained
in substantial accordance with the may directly or indirectly control, on the premises, personal liability
original plats and plans thereof become direct, modify, or veto any action of the insurance for directors and officers
managing association affairs, boiler previously approved general plan for (b) Series projects. (1) Each phase in
insurance, etc.—should be considered the total development. A copy of the the series approach is to be considered
in appropriate circumstances. amendment to the declaration or other as a separate project. A separate set of
(2) Fidelity bond coverage. The annexation document which adds each legal documents must be filed for each
securing of appropriate fidelity bond phase must be submitted to the phase or project that relates to the
coverage is recommended but not Secretary in accordance with condominium within its own boundary.
required, for any person or entity § 36.4865(b)(6). The declaration for each phase must
handling funds of the owners’ (4) Liens arising in connection with describe the particular project as a part
association, including, but not limited the declarant’s ownership of, and of the whole development area, but
to, employees of the professional construction of improvements upon, the subject only the one phase to the
managers. Such fidelity bonds should property to be added must not adversely condominium regime. A separate unit
name the association as an obligee, and affect the rights of existing unit owners, ratio must be established that would
be written in an amount equal to at least or the priority of first mortgages on units relate each unit to all units of the
the estimated maximum of funds, in the existing condominium property. particular condominium for purposes of
including reserve funds, in the custody All taxes, assessments, mechanic’s liens, ownership in the common areas, voting
of the owners’ association or the and other charges affecting such rights and assessment liability. A
management agent at any given time property, covering any period prior to separate association may be created to
during the term of the fidelity bond. the addition of the property, must be govern the affairs of each condominium.
However, the bond should not be less paid or otherwise satisfactorily provided Each phase is subject to a separate
than a sum equal to 3 months’ aggregate for by the declarant. presale requirement.
assessments on all units plus reserve (5) The declarant must purchase (at (2) In the case of proposed projects, or
funds. declarant’s own expense) a general projects under construction, the
(Authority: 38 U.S.C. 3703(c)(1), 3710(a)(6)) liability insurance policy in an amount declaration should state the number of
not less than $1 million for each total units that the developer intends to
§ 36.4864 Documentation and related occurrence, to cover any liability which build on other sections of the
requirements—flexible condominiums and owners of previously sold units are development area.
condominiums with offsite facilities. exposed to as a result of further (c) Other flexible condominiums.
(a) Expandable condominiums. The condominium project development. Condominiums containing
following policies apply to (6) Each expandable project shall have withdrawable real estate (contractable
condominium regimes which may be a specified maximum number of units condominiums) and condominiums
increased in size by the declarant: which will give each unit owner a containing convertible real estate
(1) The declarant’s right to expand the minimum percentage of interest in the (portions of the condominium within
regime must be fully described in the common elements. Each project shall which additional units or limited
declaration. The declaration must also have a specified minimum number common elements, or both, may be
contain provisions adequate to ensure of units which will give each unit owner created) will be considered acceptable
that future improvements to the a maximum percentage of interest in the provided the flexible condominium
condominium will be consistent with common elements. The minimum complies with the § 36.4800 series.
initial improvements in terms of quality number of units to be built should be (Authority: 38 U.S.C. 3703(c)(1), 3710(a)(6))
of construction. The declarant must that which would be adequate to
build each phase in accordance with an reasonably support the common approved the information collection
approved general plan for the total elements. The maximum number of requirements of this section under control
development (§ 36.4861(d)(2)) units to be built should be that which number 2900–0448.)
supported by detailed plats and plans of would not overload the capacity of the
each phase prior to the construction of common facilities. The maximum § 36.4865 Appraisal requirements.
the particular phase. possible percentage(s) and the minimum (a) Existing resale condominiums.
(2) The reservation of a right to possible percentage(s) of undivided Upon acceptance by the local office of
expand the condominium regime, the interest in the common elements for the organizational documents, the
method of expansion and the result of each type of unit must be stated in the project and unit(s) proposed as security
an expansion must not affect the declaration or equivalent document. for guaranteed financing shall be
statutory validity of the condominium (7) The declaration or equivalent appraised to ensure that they meet
regime or the validity of title to the document shall set forth clearly the MPRs (Minimum Property
units. basis for reallocation of unit owner’s Requirements) and are safe, sanitary,
(3) The declaration or equivalent ownership interests, common expense and structurally sound. The Department
document must contain a covenant that liabilities and voting rights in the event of Veterans Affairs MPRs for existing
the condominium regime may not be the number of units in the construction apply to all existing resale
amended or merged with a successor condominium is increased. Such condominiums including conversions,
condominium regime without prior reallocation shall be according to the except that water, heating, ventilating,
written approval of the Secretary. The applicable criteria set forth in air conditioning and sewer service may
declarant may have the proposed legal §§ 36.4861(b) and 36.4862(c)(1) and (2). be supplied from a central source.
documentation to accomplish the (8) The declarant’s right to expand the (Authority: 38 U.S.C. 3703(c)(1), 3710(a)(6),
merger reviewed prior to recordation. condominium must be for a reasonable (b)(5))
However, the Secretary’s final approval period of time with a specific ending (b) Proposed condominiums or
of the merger will not be granted until date. The maximum acceptable period existing condominiums with declarant
the successor condominium has been will usually be from 5 to 7 years after in control or marketing units—(1) Low
legally established and construction the date of recording the declaration. On rise and high rise condominiums. Low
completed. The declarant may add a case basic, longer periods of expansion rise and high rise condominiums shall
phases to an expandable condominium rights will be acceptable, particularly in comply with local building codes. Only
regime without the prior approval of the circumstances involving sizable the alterations, improvements, or repairs
Secretary if the phasing implements a condominium developments. to low rise and high rise buildings
proposed to be converted to the amenities as well as the common reserve fund must be specified in the
condominium form of ownership must elements of the project, must be information brochure.
comply with current local building substantially completed and available (6) Evidence of proper phasing. In an
codes, unless local authorities require for use by the unit owners. In large expandable or flexible condominium,
total code compliance on the entire multi-phase projects, the declarant evidence of the addition of each phase
structure when a building is being should construct common elements in a in accordance with a previously
converted to the condominium form of manner consistent with the addition of approved general plan of development
ownership. In those areas where local units to support the entire development. must be submitted to the Secretary prior
standards are nonexistent, inferior to, or The Secretary, in appropriate cases, may to the guaranty of the first loan in the
in conflict with Department of Veterans approve the placement of adequate added area.
Affairs objectives, a certification will be funds by the declarant in an escrow or (7) Additional condominium
required from a registered professional otherwise earmarked account or accept conversion requirements. (i) The
architect and/or registered engineer a letter of credit or surety bond to assure declarant of any condominium project
certifying that the plans and completion of amenities and allow must furnish structural and mechanical
specifications conform to one of the closing of VA-guaranteed (or insured) common element component statements
national building codes which is typical loans. Such funds must be adequate to on the present condition of all
of similar construction methods and assure completion of the amenities free accessible structural and mechanical
standards for condominiums used in the and clear of all liens. components material to the use and
area. Those portions of the (Authority: 38 U.S.C. 3703(c)(1), 3710(a)(6))
enjoyment of the condominium. These
condominium conversion which are not statements must be completed by a
being altered, improved or repaired (5) Information brochure/public registered professional engineer and/or
must be appraised in accordance with offering statement. When units are being architect prior to the guaranty of the
paragraph (a) of this section. sold by the declarant (not applicable to first unit loan in the project. Each
(2) Horizontal condominiums. resales), an information brochure/public statement must also give an estimate of
Department of Veterans Affairs policies offering statement must be given to the expected useful life of the roof,
and procedures applicable to single- veteran buyers prior to the time a down elevators, heating and cooling,
family residential construction shall payment is received and an agreement plumbing and electrical systems
also apply to horizontal condominiums. is signed, unless State law authorized assuming normal maintenance. A
Proposed or existing (declarant in receipt of the down payment and minimum of 10 years estimated
control or marketing units) horizontal delivery of the information brochure remaining useful life is required on all
condominium conversions shall comply followed by a period in which structural and mechanical components.
with current local building codes for purchasers may cancel the purchase In the alternative, the declarant may
alterations and improvements or repairs agreement without penalty for a contribute an amount of funds to the
made to convert the building to the specified number of days. Information condominium reserve fund equal to a
condominium form of ownership unless brochures must be written in simple minimum of 1⁄10 (one-tenth) of the
local authorities require total code terms to inform buyers that the estimated costs of replacement of a
compliance on the entire structure when association does not provide owner’s major structural or mechanical
a building is being converted to the contents and personal liability policies component (as determined by an
condominium form of ownership. In which are the owner’s responsibility. In independent registered professional
those areas where local standards are the event the development is architect or engineer) for each year of
nonexistent, inferior to, or in conflict expandable, series, etc., there must be estimated remaining useful life less than
full disclosure of the impact of the total 10 years, e.g. 7 years remaining useful
with Department of Veterans Affairs
development plan. In expandable, series life equals a 3⁄10 required declarant
objectives, a certification will be
or other projects with more than one contribution to the reserve fund of the
required from a professional architect
phase, the information brochure must component’s estimated replacement
and/or registered engineer certifying
disclose fully later development rights, cost. The noted statements and
that the plans and specifications
and the general plans of the declarant remaining useful life requirement are
conform to one of the national building
for additional phases. If the declarant not applicable to existing resale
codes which is typical of similar
makes no assurance concerning phases conversion projects when the declarant
construction methods and standards for
which are not required to be built, the is no longer marketing units and/or in
condominiums used in the area. Those
declarant should state that no control of the association. Expandable
portions of the condominium
assurances are given concerning or series condominium conversions
conversion which are not being altered,
construction, unit sizes, building types, require engineering and architectural
improved or repaired must be appraised
architectural styles, etc. In statements on each stage or phase.
in accordance with paragraph (a) of this
condominium conversions, the (ii) In declarant controlled projects, a
section.
information brochure must list the statement(s) by the local authority(ies)
(Authority: 38 U.S.C. 3703(c)(1)) major structural and mechanical of the adequacy of offsite utilities
(3) Unit completion. All units in the components and the estimated servicing the site (e.g., sanitary or water)
individual project or phase must be remaining useful life of the components. is required. If a local authority(ies)
substantially completed except for A brief explanation must be furnished declines to issue such a statement(s), a
customer preference items, such as in the brochure explaining that certain statement(s) may be obtained from a
interior finishes, appliances or major structural or mechanical registered professional engineer. If local
equipment. components may require replacement authority(ies) declines to issue such a
(4) Common element completion. All within a specified time period. If the statement(s), a statement(s) may be
amenities of the condominium (to declarant has elected to place funds into obtained from a registered professional
include offsite community facilities), a condominium reserve fund for engineer.
that are to be considered in the unit replacement of a major component (c) Presale requirements:
value, must be bound legally to the under the provisions of § 36.4865(b)(7), (1) Proposed construction or existing
condominium regime. All such the amount of the contribution into the declarant in control. Bona fide
agreements of sale must have been renovation, restoration, or replacement reserve fund for replacements,
executed by purchasers other than the of any of the components constituting maintenance and operation of the offsite
declarant (who are obligated the unit or common elements. Items of facility. The share of said expenses shall
contractually to complete the purchase) maintenance relating to the unit or be determined equitably. Failure to pay
of 70 percent of the total number of common elements are not covered by such assessment must result in a lien
units in the project. Lenders shall certify the warranty. No certificate of guaranty against the individual unit in the same
as to satisfaction of the presale or insurance credit shall be issued manner as unpaid assessments by the
requirement prior to VA guaranty of the unless a copy of such warranty, duly association of owners of the
first unit loan. When a declarant can receipted by the purchaser, is submitted condominium. If each condominium
demonstrate that a lower percentage with the loan papers. owners’ association is a member of the
would be justified, the Secretary, on an (e) Ownership and operation of offsite offsite facility in lieu of individual unit
individual case basis, may approve a facilities—(1) Title requirements. owners, failure of the condominium
presale requirement of less than 70 Evidence must be presented that the owners’ association to pay its equitable
percent. Reduction of the 70 percent offsite facility owned by an owners’ assessment to the offsite facility must
presale requirement will be considered association with mandatory result in an enforceable lien.
when: membership by condominium unit (3) Declarant payment of offsite
(i) Strong initial sales demonstrate a owners or condominium unit owners’ facility in a series project. Until the
ready market, or associations has been completed and declarant has completed all of the
(ii) The declarant will provide cash conveyed free of encumbrances by the intended condominium phases in a total
assets or acceptable bonds for payment declarant for the benefit of the unit condominium development or
of full common area assessments to the owners with title insured by an owner’s established each condominium regime
owners’ association until such title policy or other acceptable title by filing a separate declaration in a
assessments are assumed by unit evidence. Offsite facilities conveyed to a series development, the balance of the
purchasers, or nonprofit corporation are the preferred total sum of the expenses of the offsite
(iii) Subsequent phases of an overall method of offsite facilities ownership; facility not covered by the assessment
development are being undertaken in a however, the Secretary will consider against the unit owners should be
proven market area, or other forms of ownership on an
(iv) Previous experience in similar assessed against and be payable by the
individual case basis. declarant commencing on the first day
projects in the same market area (2) Mandatory membership. The
indicates strong market acceptance, or of the first month after the first unit is
declaration of the condominium (each
(v) The development is in a market conveyed to a homeowner in the first
condominium in a series development)
area that has repeatedly indicated phase. If this balance is not paid, it must
and the legal documentation of the
acceptance of such projects. become a lien against those parcels of
corporation or association which owns
(2) Multiphase—proposed or existing land in the development area which are
the offsite facility must provide the
declarant in control. The requirements owned by the declarant. The collection
following:
of paragraph (c)(1) of this section shall (i) The owner of a condominium unit of such debt and enforcement of such
apply to each individual phase of a is automatically a member of the offsite lien may be by foreclosure or such other
multiphase development, taking into facility corporation or association and remedies afforded the corporation or
consideration that each individual that upon the sale of the unit, association under local law.
phase must be capable of self-support in membership is transferred automatically (f) Professional management. Many
the event that the developer does not to the new owner/purchaser. It is also condominiums are small enough and
complete all planned phases. acceptable if each condominium their common areas so minimal that
(d) Warranty. Except in condominium owners’ association (in lieu of each professional management is not
conversion projects, each CRV individual unit owner) is automatically necessary. VA does not have a
(Certificate of Reasonable Value) issued a member of the offsite facility requirement for professional
by the Secretary relating to a proposed corporation or association coupled with management of condominiums. The
or existing not previously occupied use rights for each of the unit owners or powers given to the owners’ association
dwelling unit in a condominium project residents. If membership in an offsite by the declaration and bylaws are
shall be subject to the express condition owners’ association is voluntary, no fundamentally for ‘‘use control’’ and
that the builder, seller, or the real party credit in the CRV valuation may be maintenance of the undivided interest
in interest in the transaction shall given for such offsite amenities. all of the owners have in the common
deliver to the veteran purchasing the (ii) Each member of the offsite facility areas. These powers normally include
dwelling unit with the aid of a corporation or association must be management which may, if desired, be
guaranteed or insured loan a warranty entitled to a representative vote at delegated to a professional manager.
against defects for the unit and common meetings of the offsite facility However, if the board of directors wants
elements. The unit shall be warranted corporation or association. If the professional management, the
for 1 year from the date of settlement or individual condominium owners’ management agreement must be
the date of occupancy (whichever first association is a member of the offsite terminable for cause upon 30 days’
occurs). The common elements shall be facility corporation or association, each notice, and run for a reasonable period
warranted for 2 years from the date each condominium owners’ association must of from 1 to 3 years and be renewable
of the common elements is completed be entitled to a representative vote at for consent of the association and the
and available for use by the unit owners, meetings of the offsite facility management. (Management contracts
or 2 years from the date the first unit is corporation or association. negotiated by the declarant should not
conveyed to a unit owner other than the (iii) Each member must agree by exceed 2 years.)
declarant, whichever is later, in the acceptance of the unit deed to pay a (g) Commercial areas. With respect to
particular phase of the condominium share of the expenses of the offsite existing and proposed condominiums,
containing the common element. For facility corporation or association as commercial areas within condominium
these purposes, defects shall be those assessed by the corporation or developments are acceptable, but such
items reasonably requiring the repair, association for upkeep, insurance, interests will be considered in value.
(Authority: 38 U.S.C. 3703(c)(2), 3710(a)(6)) interest between the builder and the insured by the Secretary. A borrower
(The Office of Management and Budget has seller of the lot. under a direct, guaranteed or insured
approved the information collection (c) Each builder, sponsor or other mortgage loan on the same dwelling
requirements in this section under control seller requesting approval of site and which was made, guaranteed or insured
number 2900–0448.) subdivision planning shall be required subsequent to the first such loan shall
§ 36.4867 Requirement of construction
to furnish a certification, in the form be entitled to file an application if it is
warranty. prescribed by the Secretary, that neither filed not later than 4 years after the date
it nor anyone authorized to act for it on which such first loan was made,
Each certificate of reasonable value will decline to sell any property guaranteed or insured by the Secretary.
issued by the Secretary relating to a included in such request to a (c) An applicant for assistance under
proposed or newly constructed dwelling prospective purchaser because of his or this section must establish that:
unit, except those covering one-family her race, color, religion, sex or national (1) The applicant is the owner of a
residential units in condominium origin. Site and subdivision analysis one- to four-family dwelling which was
housing developments or projects will not be commenced by the inspected during construction by the
within the purview of §§ 36.4860 Department of Veterans Affairs prior to Department of Veterans Affairs or the
through 36.4865, shall be subject to the receipt of such certification. Federal Housing Administration.
express condition that the builder, (d) No commitment shall be issued (2) The applicant is an original
seller, or the real party in interest in the and no loan shall be guaranteed or veteran-borrower on an outstanding
transaction shall deliver to the veteran insured under 38 U.S.C. chapter 37 guaranteed, insured or direct loan
constructing or purchasing such unless the veteran certifies, in such form secured by a mortgage on such dwelling
dwelling with the aid of a guaranteed or as the Secretary shall prescribe, that which was made, guaranteed or insured
insured loan a warranty, in the form (1) Neither he/she, nor anyone on or after May 8, 1968. The Secretary
prescribed by the Secretary, that the authorized to act for him/her, will may, however, recognize an applicant
property has been completed in refuse to sell or rent, after the making of who is not the original veteran-borrower
substantial conformity with the plans a bona fide offer, or refuse to negotiate but who contracted to assume such
and specifications upon which the for the sale or rental of, or otherwise borrower’s personal obligation
Secretary based the valuation of the make unavailable or deny the dwelling thereunder, if the Secretary determines
property, including any modifications or property covered by this loan to any that such recognition would be in the
thereof, or changes or variations therein, person because of race, color, religion, best interests of the Government in the
approved in writing by the Secretary, sex, or national origin; particular case.
and no certificate of guaranty or (2) He/she recognizes that any (3) There exists in such dwelling a
insurance credit shall be issued unless restrictive covenant on the property structural defect, not the result of fire,
a copy of such warranty duly receipted relating to race, color, religion, sex or earthquake, flood, windstorm, or waste,
by the purchaser is submitted with the national origin is illegal and void and which seriously affects the livability of
loan papers. any such covenant is specifically the dwelling.
disclaimed; and (4) The applicant has made reasonable
(Authority: 38 U.S.C. 3703(c)(1), 3705)
(3) He/she understands that civil efforts to obtain correction of such
§ 36.4868 Nondiscrimination and equal action for preventive relief may be structural defect by the builder, seller,
opportunity in housing certification brought by the Attorney General of the or other person or firm responsible for
requirements. United States in any appropriate U.S. the construction of the dwelling.
(a) Any request for a master certificate District Court against any person (d) In those instances in which the
of reasonable value on proposed or responsible for a violation of the Secretary determines that assistance
existing construction, and any request applicable law. under this section is appropriate and
for appraisal of individual existing (Authority: 38 U.S.C. 3703(c)(1)) necessary the Secretary may take any of
housing not previously occupied, which the following actions:
§ 36.4869 Correction of structural defects. (1) Pay such amount as is reasonably
is received on or after November 21,
1962, will not be assigned for appraisal (a) The purpose of this section is to necessary to correct the defect, or
prior to receipt of a certification from specify the types of assistance that the (2) Pay the claim of the borrower for
the builder, sponsor or other seller, in Secretary may render pursuant to 38 reimbursement of the borrower’s
the form prescribed by the Secretary, U.S.C. 3727 to an eligible borrower who expenses for correcting or obtaining
that neither it nor anyone authorized to has been unable to secure satisfactory correction of the defect, or
act for it will decline to sell any correction of structural defects in a (3) Acquire title to the property upon
property included in such request to a dwelling encumbered by a mortgage terms acceptable to the borrower and
prospective purchaser because of his or securing a guaranteed, insured or direct the holder of the guaranteed or insured
her race, color, religion, sex or national loan, and the terms and conditions loan.
origin. under which such assistance will be (e) To the extent of any expenditure
rendered. made by the Secretary pursuant to
(b) On requests for appraisal of (b) A written application for paragraph (d) of this section the
individual proposed construction assistance in the correction of structural Secretary shall be subrogated to any
received on or after November 21, 1962, defects shall be filed by a borrower legal rights the borrower or applicant
the prescribed nondiscrimination under a guaranteed, insured or direct described in paragraph (c)(2) of this
certification will be required if the loan with the Director of the Department section may have against the builder,
builder is to sell the veteran the lot on of Veterans Affairs office having loan seller, or other persons arising out of the
which the dwelling is to be constructed, jurisdiction over the area in which the structural defect or defects.
but will not be required if: dwelling is located. The application (f) The borrower shall not be entitled,
(1) The veteran owns the lot; or must be filed not later than 4 years after as a matter of right, to receive the
(2) The lot is being acquired by the the date on which the first direct, assistance in the correction of structural
veteran from a seller other than the guaranteed or insured mortgage loan on defects provided in this section. Any
builder and there is no identity of the dwelling was made, guaranteed or determination made by the Secretary in
connection with a borrower’s amount to the holder’s insurance after giving the notices prescribed in
application for assistance shall be final account. §§ 36.4817 and 36.4850 if security is
and conclusive and shall not be subject (Authority: 38 U.S.C. 3703(a)(2)) available. The net loss shall be reported
to judicial or other review. Authority to to the Secretary with proper claim,
act for the Secretary under this section § 36.4877 Transfer of insured loans. whereupon the holder shall be entitled
is delegated to the Under Secretary for (a) In cases involving the transfer from to payment of the claim within the
Benefits. one insured financial institution to amount then available for such payment
(g) For the purpose of this section, the another insured institution of loans under the payee’s related insurance
term ‘‘structural defects seriously which are transferred without recourse, account. Subject to the provisions of the
affecting livability’’ shall in no event be guaranty, or repurchase agreement, if no paragraph (b) of this section and to
deemed to include— payment on any loan included in the § 36.4875(b) a supplemental claim for
(1) Defects of any nature in a dwelling transfer is past due more than one any balance of an insurance loss may be
in respect to which the applicant for calendar month at the time of transfer filed at any time within 5 years after the
assistance under this section was the there shall be transferred from the date of the original claim.
builder or general contractor, or insurance account of the transferor to (b) The basis of the claim for an
(2) Structural features, improvements, the insurance account of the transferee insured loss shall consist in the
amenities, or equipment which were not an amount equal to the original unrealized principal or the amount paid
taken into account in the Secretary’s percentage credited to the insurance for the obligation, if less, plus
determination of reasonable value. account in respect to each loan being unrealized interest to the date of claim
(Authority: 38 U.S.C. 3703(c)(1), 3727) transferred applied to the unpaid or the date of sale whichever is earlier,
balance of such loans, or to the purchase and those expenses, if any, allowable
§ 36.4870 Advertising and solicitation price, whichever is the lesser. under § 36.4814, but subject to proper
requirements. (b) Transfers between insurance credits because of payments, set-off,
Any advertisement or solicitation in accounts in a manner or under proceeds of security or otherwise,
any form (e.g., written, electronic, oral) conditions not provided in paragraph (a) provided that if there is no liquidation
from a private lender concerning of this section must have the prior of security the claim shall not include
housing loans to be guaranteed or approval of the Secretary. an accrual of interest for a period in
insured by the Secretary: (c) Where loans are transferred with excess of 6 months from the date of the
(a) Must not include information recourse or under a guaranty or first uncured default.
falsely stating or implying that it was repurchase agreement no insurance (Authority: 38 U.S.C. 3703(c)(1))
issued by or at the direction of VA or credit will be transferred or insurance
any other department or agency of the account affected and no reports will be § 36.4880 Reports of insured institutions.
United States, and required. An insured financial institution shall
(b) Must not include information (d) In all cases of transfer of loans make such reports respecting its
falsely stating or implying that the from one insured financial institution to insurance accounts as the Secretary may
lender has an exclusive right to make another insured institution, except as from time to time require, not more
loans guaranteed or insured by VA. provided in paragraph (c) of this frequently than semiannually.
(Authority: 38 U.S.C. 3703(c)(1)) section, a report on a prescribed form (Authority: 38 U.S.C. 3703(c)(1))
executed by the parties and showing
§ 36.4875 Insured loan and insurance their agreement with regard to the § 36.4890 Purpose.
account. transfer of insurance credits shall be Sections 36.4890 through 36.4893 are
(a) Loans otherwise eligible may be made to the Secretary. promulgated to achieve the aims of the
insured when purchased by a lender (Authority: 38 U.S.C. 3703(c)(1)) applicable provisions of Executive
eligible under 38 U.S.C. 3703(a) if the Orders 11246 and 11375 and the
purchaser (lender) submits with the § 36.4878 Debits and credits to insurance regulations of the Secretary of Labor
loan report evidence of an agreement, account under § 36.4820.
with respect to federally assisted
general or special, made prior to the In the event that an insured loan is construction contracts.
closing of the loan, to purchase such transferred under the provisions of
loan subject to its being insured. § 36.4820, there shall be charged to the § 36.4891 Applicability.
(b) A current account shall be insurance account of the transferor a (a) For the purposes of the home loan
maintained in the name of each insured sum equal to the amount paid transferor guaranty and insurance and direct loan
lender or purchaser. The account shall on account of the indebtedness less the programs of the Department of Veterans
be credited with the appropriate current market value of the property Affairs, the term ‘‘applicant for Federal
amounts available for the payment of transferred as security therefor as assistance’’ or ‘‘applicant’’ in Part III of
losses on insured loans made or determined by an appraiser designated Executive Order 11246, shall mean the
purchased. The account shall be debited by the Secretary, or the amount builder, sponsor or developer of land to
with appropriate amounts on account of chargeable to such insurance account in be improved by such builder, sponsor or
transfers, purchases under § 36.4820, or the event of a transfer under § 36.4877, developer for the purpose of
payment of losses. The Secretary may whichever sum is the greater. The credit constructing housing thereon for sale to
on 6 months’ notice close any lender’s to the insurance account of the eligible veterans with financing which
insurance account. Such account after transferee will be computed in is to be guaranteed or insured or made
expiration of the 6-month period shall accordance with § 36.4877(a). under the provisions of 38 U.S.C.
be available only as to loans embraced (Authority: 38 U.S.C. 3703(c)(1)) chapter 37, or the builder, sponsor or
therein. developer of housing to be constructed

(c) Amounts received or recovered by § 36.4879 Payment of insurance. for sale to eligible veterans with
the Secretary or the holder with respect (a) Upon the continuance of a default financing which is to be guaranteed or
to a loan after payment of an insured for a period of three months, the holder insured or made under the provisions of
claim thereon will not restore any may proceed to establish the net loss, 38 U.S.C. chapter 37.
(b) The provisions of Executive Department of Veterans Affairs a signed (6) In the event of the contractor’s
Orders 11246 and 11375 and the rules certification in form as follows: noncompliance with the nondiscrimination
and regulations of the Secretary of Labor clauses of this contract or with any of the
To induce the Department of Veterans said rules, regulations or orders, this contract
are applicable to: Affairs to act on any request submitted by or may be canceled, terminated or suspended in
(1) Each Master Certificate of on behalf of the undersigned for site approval whole or in part and the contractor may be
Reasonable Value or extension or of land to be improved for the construction declared ineligible for further Government
modification thereof relating to of housing thereon to be financed with loans contracts or federally assisted construction
proposed construction issued on or after guaranteed, insured or made by the contracts in accordance with procedures
July 22, 1963; Department of Veterans Affairs, or for authorized in Executive Order 11246 of
establishment by the Department of Veterans September 24, 1965, and such other
(2) Each individual Certificate of
Affairs of reasonable value relating to sanctions may be imposed and remedies
Reasonable Value or extension or proposed construction or for direct loan fund
modification thereof relating to invoked as provided in Executive Order
reservation commitments, the undersigned 11246 of September 24, 1965, or by rule,
proposed construction issued on or after hereby agrees that it will incorporate or cause regulation or order of the Secretary of Labor,
July 22, 1963, except as provided in to be incorporated into any contract for or as otherwise provided by law.
paragraph (c)(2) of this section; construction work or modification thereof, as (7) The contractor will include the
(3) Each Special Conditions Letter or defined in the rules and regulations of the provisions of paragraphs (1) through (7) in
modification thereof issued on or after Secretary of Labor relating to the land or every subcontract or purchase order unless
July 22, 1963, in respect to site approval housing included in its request to the exempted by rules, regulations or orders of
Department of Veterans Affairs the following the Secretary of Labor issued pursuant to
of land to be improved by a builder, equal opportunity clause:
sponsor or developer for the section 204 of Executive Order 11246 of
During the performance of this contract the September 24, 1965, so that such provisions
construction of housing thereon; and contractor agrees as follows:
(4) Each direct loan fund reservation will be binding upon each subcontractor or
(1) The contractor will not discriminate vendor. The contractor will take such action
commitment or extension thereof issued against any employee or applicant for with respect to any subcontract or purchase
to builders on or after July 22, 1963. employment because of race, color, religion,
order as the administering agency may direct
(c) The provisions of Executive Orders sex or national origin. The contractor will
as a means of enforcing such provisions,
11246 and 11375 and the rules and take affirmative action to ensure that
including sanctions for noncompliance:
regulations of the Secretary of Labor are applicants are employed, and that employees
Provided, however, That in the event a
are treated during employment without
not applicable to: contractor becomes involved in, or is
regard to their race, color, religion, sex or
(1) Grants under chapter 21, title 38, national origin. Such action shall include,
threatened with, litigation with a
U.S.C.; subcontractor or vendor as a result of such
but not be limited to the following:
(2) Individual Certificates of direction by the agency, the contractor may
Employment, upgrading, demotion or
Reasonable Value issued on or after July request the United States to enter into such
transfer; recruitment or recruitment
22, 1963, if: advertising; layoff or termination; rates of pay litigation to protect the interests of the
United States.
(i) The certificate relates to existing or other forms of compensation; and
selection for training, including Except in special cases and in subcontracts
properties, either previously occupied for the performance of construction work at
or unoccupied; or apprenticeship. The contractor agrees to post
in conspicuous places, available to the site of construction, the clause is not
(ii) The certificate relates to proposed required to be inserted in subcontracts below
employees and applicants for employment,
construction and— the second tier. Subcontracts may
notices to be provided setting forth the
(A) A veteran was named in the provisions of this nondiscrimination clause. incorporate by reference the equal
request for appraisal, or (2) The contractor will, in all solicitations opportunity clause.
(B) A veteran contracted for the or advertisements for employees placed by or The undersigned further agrees that it will
construction or purchase of the home on behalf of the contractor, state that all be bound by the above equal opportunity
prior to issuance of the certificate, or qualified applicants will receive clause in any federally assisted construction
(C) The property was listed in the consideration for employment without regard work which it performs itself other than
Schedule of Reasonable Values on an to race, color, religion, sex or national origin. through the permanent work force directly
(3) The contractor will send to each labor employed by an agency of Government.
outstanding Master Certificate of The undersigned agrees that it will
Reasonable Value issued prior to July union or representative of workers with
which he has a collective bargaining cooperate actively with the administering
22, 1963; agency and the Secretary of Labor in
agreement or other contract or
(3) Any contract or subcontract for understanding, a notice to be provided obtaining the compliance of contractors and
construction work not exceeding advising the said labor union or workers’ subcontractors with the equal opportunity
$10,000; and representative of the contractor’s clause and the rules, regulations and relevant
(4) Any other contract or subcontract commitments under section 202 of Executive orders of the Secretary of Labor, that it will
which is exempted or excepted by the Order 11246 of September 24, 1965, and shall furnish the administering agency and the
regulations of the Secretary of Labor. post copies of the notice in conspicuous Secretary of Labor such information as they
places available to employees and applicants may require for the supervision of such
(Authority: 38 U.S.C. 3703(c)(1)) for employment. compliance, and that it will otherwise assist
(4) The contractor will comply with all the administering agency in the discharge of
§ 36.4892 Certification requirements.
provisions of Executive Order 11246 of the agency’s primary responsibility for
In any case in which §§ 36.4890 September 24, 1965, and of the rules, securing compliance. The undersigned
through 36.4893 are applicable, as set regulations and relevant orders of the further agrees that it will refrain from
forth in § 36.4891, no action will be Secretary of Labor. entering into any contract or contract
taken by the Department of Veterans (5) The contractor will furnish all modification subject to Executive Order
Affairs on any request for appraisal information and reports required by 11246 with a contractor debarred from, or
relating to proposed construction, site Executive Order 11246 of September 24, who has not demonstrated eligibility for,
approval of land to be improved by a 1965, and by the rules, regulations and orders Government contracts and federally assisted
of the Secretary of Labor, or pursuant thereto, construction contracts pursuant to Part II,
builder, sponsor or developer for the and will permit access to his books, records Subpart D of Executive Order 11246 and will
construction of housing thereon, or for and accounts by the administering agency carry out such sanctions and penalties for
a direct loan fund reservation and the Secretary of Labor for purposes of violation of the equal opportunity clause as
commitment unless the builder, sponsor investigation to ascertain compliance with may be imposed upon the contractors and
or developer has furnished the such rules, regulations and orders. subcontractors by the administering agency
or the Secretary of Labor pursuant to Part II, (b) If the existence of a violation is (f) Failure or refusal to comply and
Subpart D of Executive Order 11246. denied by the person, firm or other give satisfactory assurances of future
In addition, the undersigned agrees that if entity against which a complaint has compliance with the equal employment
it fails or refuses to comply with these been made, the Director or designee opportunity requirements shall be
undertakings such failure or refusal shall be
a proper basis for cancellation by the
shall conduct such inquiries and proper basis for applying sanctions. The
Department of Veterans Affairs of any hearings as may be deemed appropriate sanctions shall be applied in accordance
outstanding master certificates of reasonable for the purpose of ascertaining the facts. with the provisions of Executive Order
value or individual certificates of reasonable (c) If it is found that the person, firm 11246 as amended and the regulations
value relating to proposed construction, or other entity against which a of the Secretary of Labor.
except in respect to cases in which an complaint has been made has not (g) Upon written application, a
eligible veteran has contracted to purchase a violated the undertakings referred to in complainant or a person, firm or other
property included on such certificates, and § 36.4892, the parties shall be so entity against which a complaint has
for the rejection of future requests submitted notified. been filed may apply to the Under
by the undersigned or on his or her behalf
(d) If it is found that there has been Secretary for Benefits for a review of the
for site approval, appraisal services, and
direct loan fund reservation commitments a violation of the undertakings referred action taken by a Director. Upon
until satisfactory assurance of future to in § 36.4892, the person, firm or other receiving such application, the Under
compliance has been received from the entity in violation shall be requested to Secretary for Benefits may designate a
undersigned, and for referral of the case to attend a conference for the purpose of representative or representatives to
the Department of Justice for appropriate discussing the matter. Failure or refusal conduct an informal hearing and to
legal proceedings. to attend such a conference shall be make a report of findings. The Under
(Authority: 38 U.S.C. 3703(c)(1)) proper basis for the application of Secretary for Benefits may, after a
sanctions. review of such report, modify or reverse
§ 36.4893 Complaint and hearing
(e) The conference arranged for an action taken by a Director.
procedure.
discussing a violation shall be (h) Reinstatement of restricted
(a) Upon receipt of a written conducted in an informal manner and persons, firms or other entities shall be
complaint signed by the complainant to shall have as its primary objective the within the discretion of the Under
the effect that any person, firm or entity elimination of the violation. If the Secretary for Benefits and under such
has violated the undertakings referred to violation is eliminated and satisfactory terms as the Under Secretary for
in § 36.4892, such person, firm or other assurances are received that the person, Benefits may prescribe.
entity shall be invited to discuss the firm or other entity in violation will (Authority 38 U.S.C. 3703(c)(1))
matter in an informal hearing with the comply with the undertakings pursuant
Director of the Department of Veterans to § 36.4892 in the future, the parties [FR Doc. 08–337 Filed 1–25–08; 8:45 am]
Affairs regional office or center. concerned shall be so notified. BILLING CODE 8320–01–P

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Friday,

Non-judicial Judicial Deed-in-lieu of Foreclosure Chapter 13 Chapter 7

Alabama ................................................... 550 N/A 350 350 850 650

Non-judicial Judicial Deed-in-lieu of Foreclosure Chapter 13 Chapter 7

Arizona ..................................................... 625 N/A 350 350 850 650

Alabama ................................................... Non-Judicial ............................................. Sale ......................................................... 60

Florida ...................................................... Judicial ..................................................... Confirmation/Ratification ......................... 150

Illinois ....................................................... Judicial ..................................................... Sale ......................................................... 300

Loans to Veterans subsequent accounting. (i) Have automatic processing

date of receipt of an application for insurance credit. determination of creditworthiness,

Tier ranking One Two Three Four

Repayment Plan .............................................................................................................. $200 $160 $120 $0

compensating factors should represent supplied in the Consumer Expenditure below):

TABLE OF RESIDUAL INCOMES BY REGION

Family size 1 Northeast Midwest South West

1 ....................................................................................................................................... 390 382 382 425

(2) Table of residual incomes by

TABLE OF RESIDUAL INCOMES BY REGION

Family size 1 Northeast Midwest South West

1 ....................................................................................................................................... 450 441 441 491

other income and credit verification

automatic processing authority of both occur when: time or multi-jurisdictional lenders

therein. developer of housing to be constructed

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