03-3176. Loan Guaranty: Implementation of Public Law 107-103.

AGENCY:

Department of Veterans Affairs.

ACTION:

Interim final rule.

SUMMARY:

The Department of Veterans Affairs (VA) amends its loan guaranty regulations to implement sections 401 through 404 of Pub. L. 107-103, the Veterans Education and Benefits Expansion Act of 2001. VA is incorporating into the regulations the following statutory changes: an increase in the maximum amount of loan guaranty entitlement from $50,750 to $60,000, a liberalization of the requirements regarding Memoranda of Understanding between VA and Native American Tribes in order for their members to qualify for direct housing loans to Native American veterans, a revision of the requirement that loan instruments used in connection with VA guaranteed loans contain a statement that such loans are not assumable without prior VA approval, and an increase in the specially adapted housing grant from $43,000 to $48,000 and in the special housing adaptations grant from $8,250 to $9,250.

DATES:

Effective Date: This interim final rule is effective February 10, 2003. Comments must be received on or before April 11, 2003.

ADDRESSES:

Mail or hand deliver written comments to: Director, Office of Regulations Management (02D), Department of Veterans Affairs, 810 Vermont Avenue, NW., Room 1154, Washington, DC 20420; or fax comments to [phone]; or e-mail comments to [e-mail]. Comments should indicate that they are submitted in response to “RIN 2900-AL23.” All written comments received will be available for public inspection at the above address in the Office of Regulations Management, Room 1158, between the hours of 8 a.m. and 4:30 p.m., Monday through Friday (except holidays).

FOR FURTHER INFORMATION CONTACT:

Mr. Robert D. Finneran, Assistant Director for Policy and Valuation (262), Loan Guaranty Service, Veterans Benefits Administration, Department of Veterans Affairs, Washington, DC 20420, [phone].

SUPPLEMENTARY INFORMATION:

Under 38 U.S.C. chapter 37, VA guarantees loans made by private lenders to veterans for the purchase, construction, and refinancing of homes owned and occupied by veterans. VA also makes direct housing loans to Native American veterans living on tribal trust land.

In addition, under 38 U.S.C. chapter 21, VA provides grants to certain severely-disabled veterans with qualifying permanent and total service-connected disabilities to make adaptations to their homes that are necessary because of the nature of the veterans' disabilities.

VA is amending its loan guaranty regulations (38 CFR part 36) to implement changes to those housing programs made by sections 401 through 404 of Pub. L. 107-103.

Section 401 of Pub. L. 107-103 increased the maximum guaranty on a housing loan made to eligible veterans from $50,750 to $60,000. VA is making conforming changes to § 36.4302 to reflect the new statutory maximum.

Prior to enactment of Pub. L. 107-103, 38 U.S.C. 3762 required that, before VA could make a housing loan under 38 U.S.C. chapter 37, subchapter V to a Native American veteran, the tribal organization having jurisdiction over the veteran must have entered into a Memorandum of Understanding (MOU) with the Secretary of Veterans Affairs spelling out the conditions under which the program would operate on its trust lands. Section 402(b) of Pub. L. 107-103 allows VA to make loans under this program to a Native American veteran if the tribe has entered into an MOU with another Federal agency with regard to loans to Native Americans residing on tribal lands, so long as the Secretary of VA determines that the MOU substantially complies with VA's home loan requirements. VA is amending 38 CFR 36.4527 to reflect this change. The amendment requires that the MOU between the Tribe and the other Federal agency complies with the requirements now set forth in paragraph (b) of § 36.4527.

The goal of this statutory change and the new rule is to expand the number of Native American tribes participating in the VA Native American veteran direct loan program, ultimately increasing the number of Native American veterans obtaining housing loans from VA. VA is aware that many tribes do not wish to go through the process of negotiating an MOU with VA.

VA has participated in inter-agency task forces seeking to increase the availability of housing loans on Native American tribal trust land. These include the Executive Branch's One-Stop Mortgage Initiative during the Clinton Administration, and a task force created by the Federal National Mortgage Association (FNMA, commonly known as “Fannie Mae”). VA believes that the standards for an MOU contained in paragraph (b) of § 36.4527 mirror requirements by other Federal agencies. Therefore, an MOU between a tribe and another Federal agency would likely meet the requirements in paragraph (b).

VA specifically solicits comments from the public as to whether those requirements for an MOU between another Federal agency and a Native American tribe to be acceptable to VA are reasonable, or if they should be further modified.

Section 403 of Pub. L. 107-103 liberalized the requirement that loan instruments used in connection with VA guaranteed loans contain a statement that such loans are not assumable without prior VA approval. Prior to enactment of Pub. L. 107-103, 38 U.S.C. 3714(d) required that the following notice, in all capital letters, using a font at least 21/2 times larger than the regular type, be placed on the first page of the mortgage or deed of trust as well as any other instrument evidencing the loan, “This Loan is not Assumable Without the Approval of the Department of Veterans Affairs or its Authorized Agent.” As modified by section 403 of Pub. L. 107-103, section 3714(d) requires that such notice appear conspicuously on at least one of the instruments evidencing the loan or the security therefor.

VA is therefore amending § 36.4308 to reflect this change. Under the new rule, the required language must appear on one of the following instruments: The note, the mortgage, the deed of trust, or a VA-specific rider to any of those documents. This language must appear in a typeface which is the larger of either twice the largest font size contained elsewhere in the body of the instrument or 18 points. VA is eliminating the current requirements that this notice be on the first page of the document and that it be in all capital letters.

The former statute imposed a significant paperwork burden on lenders, and made it virtually impossible for lenders to use uniform loan instruments available for FHA and conventional loans for VA guaranteed loans. VA believes the requirements in the new rule will provide adequate notice to borrowers regarding the restrictions on assumption of VA guaranteed loans while significantly reducing the administrative burden the former statute placed on lenders. Because VA believes lenders should be able to take immediate advantage of the new liberalization, VA is issuing this amendment as an interim-final rule. VA is soliciting comments from the public regarding whether the standards for such notice are adequate to provide reasonable notice to veteran borrowers without imposing an undue burden on our industry partners. VA will carefully consider comments received and, if warranted, further amend the standards for the required notice.

Section 404 of Pub. L. 107-103 increased the maximum grants VA may make under 38 U.S.C. chapter 21, to certain veterans with total and permanent service-connected disabilities to assist those veterans in adapting housing to their special needs. The maximum Specially Adapted Housing grant authorized by 38 U.S.C. 2101(a) for veterans who have lost or lost the use of both lower extremities or have lost or lost the use of one lower extremity and also are blind in both eyes or have residuals of organic disease or injury so as to preclude locomotion without the aid of braces, crutches, canes, or a wheelchair was increased from $43,000 to $48,000. The maximum Special Housing Adaptations grant authorized by 38 U.S.C. 2101(b) to veterans with blindness in both eyes or whose disability includes the anatomical loss or loss of use of both hands was increased from $8,250 to $9,250. VA is making conforming changes to § 36.4404 to reflect these statutory increases.

Administrative Procedure Act

These amendments are published without regard to the notice and comment and delayed effective date provisions of 5 U.S.C. 533 since amendments to §§ 36.4302, 36.4527, and 36. 4404 merely conform existing rules to statutory amendments or, in the case of the amendment to § 36. 4308, liberalize existing requirements pursuant to new statutory authority. We find that compliance with those provisions of 5 U.S.C. 533 would be impracticable, unnecessary, and contrary to the public interest.

Unfunded Mandates

The Unfunded Mandates Reform Act requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before developing any rule that may result in expenditure by State, local, or tribal governments, in the aggregate, or by the private sector of $100 million or more in any given year. This rule would have no consequential effect on State or local governments. With regard to the impact of this rule, on tribal governments, the amendments regarding MOUs with tribal governments are, as explained above, a liberalization of existing requirements. This rule may eliminate the necessity of some tribes having to negotiate a separate MOU with the Secretary. Accordingly, this rule may result in some cost saving to tribal government. Once VA approves making loans to members of a particular tribe, the loans would be funded by VA. Although the Indian housing authority may have some involvement in the servicing of some of these loans, any costs should be insignificant. Based on the current low loan volume in the Native American Veteran Direct Loan Program, VA anticipates making fewer than a dozen loans a year to American Indian tribal members.

Paperwork Reduction Act

This document contains no provisions constituting a collection of information under the Paperwork Reduction Act (44 U.S.C. 3501-3520).

Executive Order 12866

This document has been reviewed by the Office of Management and Budget under Executive Order 12866.

Regulatory Flexibility Act

The Secretary hereby certifies that this interim final rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. The amendments regarding increases in the guaranty amount and specially adapted housing grant merely conform the regulations to statutory increases. The amendments regarding MOUs with tribal governments will not impact private entities. The liberalization of the notice requirements regarding loan assumptions should enable lenders to use standard loan instruments (such as note, mortgage, or deed of trust) they now use with regard to FHA, FNMA and FHLMC loans on VA loan transactions. Any costs to small entities originating VA loans with respect to these new requirements for loan instruments should be minimal. Therefore, pursuant to 5 U.S.C. 605(b), this interim rule is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

The Catalog of Federal Domestic Assistance Program numbers are 64.114 and 64.119.

List of Subjects in 38 CFR Part 36

• Condominiums
• Flood insurance
• Housing
• Indians
• Individuals with disabilities
• Loan programs-housing and community development
• Loan programs-Indians
• Loan programs-veterans
• Manufactured homes
• Mortgage insurance
• Reporting and recordkeeping requirements
• Veterans

Approved: December 4, 2002.

Anthony J. Principi,

Secretary of Veterans Affairs.

For the reasons set out in the preamble, 38 CFR part 36 is amended as set forth below.

PART 36—LOAN GUARANTY

1. The authority citation for part 36 continues to read as follows:

Authority: 38 U.S.C. 501, 3701-3704, 3707, 3710-3714, 3719, 3720, 3729, 3762, unless otherwise noted.

2. In § 36.4302, paragraphs (a)(4), (e)(1)(i), (e)(2)(i), (e)(3), and the authority citation at the end of paragraph (e)(3) are revised to read as follows:

§ 36.4302

Computation of guaranties or insurance credits.

(a) * * *

(4) The lesser of $60,000 or 25 percent of the original principal loan amount where the loan amount exceeds $144,000 and the loan is for the purchase or construction of a home or the purchase of a condominium unit.

* * * * *

(e) * * *

(1) * * *

(i) Entitlement may be increased by up to $24,000 if the loan amount exceeds $144,000 and the loan is for purchase or construction of a home or purchase of a condominium; and

(2) * * *

(i) Entitlement may be increased by up to $24,000 if the loan amount exceeds $144,000 and the loan is for purchase or construction of a home or purchase of a condominium: and

* * * * *

(3) If a veteran previously secured a manufactured home loan under 38 U.S.C. 3712, the amount of entitlement used for that loan is subtracted from $36,000. The sum remaining is the amount of available entitlement for home loans and the sum remaining may be increased by up to $24,000 if the loan amount exceeds $144,000 and the loan is for purchase or construction of a home or purchase of a condominium. To determine the amount of entitlement available for manufactured home loans processed under 38 U.S.C. 3712, the amount of entitlement previously used for that purpose is subtracted from $20,000. The sum remaining is the amount of available entitlement for use for manufactured home loan purposes under 38 U.S.C. 3712.

(Authority: 38 U.S.C. 3703)

3. Section 36.4308 is amended by removing the first authority citation at the end of the section, and by revising paragraph (c)(2) to read as follows:

§ 36.4308

Transfer of title by borrower or maturity by demand or acceleration.

* * * * *

(c) * * *

(2) With respect to each such loan at least one of the instruments used in the transaction shall contain the following statement: “This loan is not assumable without the approval of the Department of Veterans Affairs or its authorized agent.” This statement must be:

(i) Printed in a font size which is the larger of:

(A) Two times the largest font size contained in the body of the instrument; or

(B) 18 points; and

(ii) Contained in at least one of the following:

(A) The note;

(B) The mortgage or deed of trust; or

(C) A rider to either the note, the mortgage, or the deed of trust.

Authority: (38 U.S.C.3714(d))

4. In § 36.4404, paragraph (a) introductory text, paragraph (b)(2), and the authority citation at the end of the section are revised to read as follows:

§ 36.4404

Computation of cost.

(a) Computation of cost of housing unit. Under section 2101(a) of chapter 21, for the purpose of computing the amount of benefits payable to a veteran-beneficiary, there may be included in the total cost to the veteran the following amount, not to exceed $48,000.

* * * * *

(b) * * *

(2) $9,250.

(Authority: 38 U.S.C. 2102)

5. Section 36.4527(a) is amended by:

A. In paragraph (a)(1), at the end of the paragraph, removing “and” and adding, in its place, “or”.

B. Redesignating paragraph (a)(2) as paragraph (a)(3).

C. Adding a new paragraph (a)(2).

The addition reads as follows:

§ 36.4527

Direct housing loans to Native American veterans on trust lands.

(a) * * *

(2) The tribal organization that has jurisdiction over the veteran has entered into a memorandum of understanding with any department or agency of the United States with respect to such loans and the memorandum complies with the requirements of paragraph (b) of this section.

(Authority: 38 U.S.C. 3762(a))