[Federal Register Volume 64, Number 78 (Friday, April 23, 1999)]
[Rules and Regulations]
[Pages 19906-19910]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10146]
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DEPARTMENT OF VETERANS AFFAIRS
38 CFR Part 36
RIN 2900-AI92
Loan Guaranty: Requirements for Interest Rate Reduction
Refinancing Loans
AGENCY: Department of Veterans Affairs.
ACTION: Final rule.
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SUMMARY: This document amends our loan guaranty regulations concerning
the requirements for Interest Rate Reduction Refinancing Loans
(IRRRLs). Under the final rule, generally to obtain an IRRRL the
veteran's monthly mortgage payment must decrease. Also, the final rule
provides that the loan being refinanced must not be delinquent or the
veteran seeking the loan must meet certain credit standard provisions.
We believe these changes are necessary to ensure that IRRRLs provide a
real benefit to veterans and protect the financial interest of the
Government.
DATES: Effective Date: May 24, 1999.
FOR FURTHER INFORMATION CONTACT: R.D. Finneran, Supervisory Loan
Specialist (264), Loan Guaranty Service, Veterans Benefits
Administration, Department of Veterans Affairs, 810 Vermont Avenue,
NW., Washington, DC 20420, (202) 273-7369.
SUPPLEMENTARY INFORMATION: Under the authority of 38 U.S.C. chapter 37,
VA guarantees loans made by lenders to eligible veterans to purchase,
construct, improve, or refinance their homes (the term veteran as used
in this document includes any individual defined as a veteran under 38
U.S.C. 101 and 3701 for the purpose of housing loans). This document
amends VA's loan guaranty regulations by revising the requirements for
VA-guaranteed IRRRLs.
The IRRRL program was established by Public Law 96-385, October 7,
1980. IRRRLs are designed to assist veterans by allowing them to
refinance an outstanding VA-guaranteed loan with a new loan at a lower
rate. The provisions of 38 U.S.C. 3703(c)(3) and 3710(e)(1)(C) allow
the veteran to do so without having to pay any out-of-pocket expenses.
The veteran may include in the new loan the outstanding balance of the
old loan plus reasonable closing costs, including up to two discount
points.
In a document published in the Federal Register on June 3, 1998 (63
FR 30162), we proposed to amend the loan guaranty regulations
concerning the requirements for IRRRLs. Under the proposal, generally
to obtain an IRRRL the veteran's monthly mortgage payment must
decrease. Also, if the loan being refinanced is delinquent the lender
must submit the proposed IRRRL to VA for prior approval of the
veteran's creditworthiness. With respect to the proposal, we provided a
60-day comment period, which ended August 3, 1998. In the proposal, we
also stated that we would consider comments submitted in response to a
rescinded interim rule (62 FR 52503, 63454) which addressed the same
issues that were addressed in the proposal. We received many thousands
of comments, most of which were groups of identical responses in form
letters. The issues raised in the comments are discussed below.
Based on the rationale set forth in the proposed rule and in this
document, we are adopting the provisions of the proposed rule as a
final rule without change except for nonsubstantive changes for
purposes of clarity.
Monthly Payment Reduction
The final rule generally requires that the monthly payment
(principal and interest) on the new loan be lower than the monthly
payment on the loan being refinanced. A number of commenters supported
this change. Some commenters stated that they generally opposed any
changes regarding IRRRLs and one commenter raised specific objections
regarding the issue of monthly payment reduction. This commenter
submitted an alternative to the proposal which would allow 10 percent
of a lender's volume of IRRRLs closed during any calendar month to
exceed the previous monthly payment on the loan being financed while
not simultaneously reducing the term of the loan, and provide for
sanctions if the 10 percent threshold were exceeded.
We believe that with the four exceptions discussed below, there is
no legitimate reason for allowing the monthly payment (principal and
interest) on the new loan to be as high or higher than the monthly
payment on the loan being refinanced. The final rule is intended to
prevent the veteran's monthly payment from increasing because of
extensive costs added to the loan (including closing costs), even
though the interest rate is lowered slightly. This is consistent with
the Congressional intent of the IRRRL program as expressed in the House
Report (H. Rep. No. 96-1165, July 21, 1980, at p. 3) which states:
``[T]he bill is * * * intended to assist veterans by allowing their
monthly payments to be reduced. * * * ''
The final rule also provides that the monthly payment reduction
requirement would not apply to four limited situations where VA
believes that other factors offset the risk of loss from an increase in
monthly payment. These four situations are cases in which an adjustable
rate mortgage (ARM) is being refinanced with a fixed-rate loan; cases
in which the term of the new loan is shorter than the term of the loan
being refinanced; cases in which the increase in monthly payment is
attributable to the inclusion of energy efficient improvements, as
provided in Sec. 36.4336(a)(4); and cases in which the Secretary
approves the new loan, on a case-by-case basis, in order to prevent an
imminent foreclosure. We reaffirm the following rationale which was
stated in the proposal (63 FR 30163) for establishing these four
exceptions:
``With regard to ARMs, there is already a possibility that the
monthly payment will increase in future years.
[[Page 19907]]
The certainty that the payment on the new loan will not increase in
future years offsets the increased risk associated with the immediate
increase over the veteran's current payment. VA may establish limits on
the amount of such increase in future rulemaking. Although the monthly
payments on shorter term loans are higher, they amortize faster, thus
reducing the risk of loss to both the veteran and the Government. In
future rulemaking, VA may address minimum term reduction. Current law
allows veterans to include additional costs of energy efficient
improvements in IRRRLs; thus, this exception would merely continue
current law. Finally, with regard to imminent foreclosure, the risk of
loss to the Government and veteran from such foreclosure could be
greater than permitting a new loan at a higher monthly payment. VA
would have to approve each such loan on a case-by-case basis under
existing credit underwriting standards set forth at 38 CFR 36.4337 to
ensure that it is in the best interest of the Government and that the
veteran is able to afford the new payment.''
Accordingly, we are not adopting the proposed alternative suggested
by the commenter. For the reasons set forth above, VA does not believe
any IRRRL where the monthly payment will exceed the payments on the
loan being refinanced should be permitted unless it falls within the
standards discussed above. Further, VA does not believe a lender should
be limited to an arbitrary 10 percent threshold for IRRRLs having an
increased monthly payment if the payment increase on each individual
loan is permitted under these standards.
Delinquent Loans--General Comments
Prior to the effective date of this document, VA administratively
required prior approval review for an IRRRL in accordance with 38 CFR
36.4303(c) if a scheduled monthly mortgage payment of the loan being
refinanced were more than 90 days past due. The final rule states that
a loan being refinanced is considered delinquent and an IRRRL replacing
such loan is subject to such prior approval procedures if a scheduled
monthly mortgage payment of the loan being refinanced is more than 30
days past due.
Almost all commenters asserted that VA should continue to require
prior approval review for an IRRRL only if a scheduled monthly mortgage
payment of the loan being refinanced were more than 90 days past due.
We respectfully disagree with the commenters.
This final rule makes changes needed to prevent lenders from
encouraging veterans to default on their current loans, and then to
refinance the delinquent loans with IRRRLs that include missed
payments, fees, and late charges.
VA has become aware of a number of lenders who encourage veterans
to skip two or three mortgage payments and then obtain an IRRRL which
includes the missed payments, fees, and late charges. We believe the
provisions of the final rule are necessary to meet the intended
requirements of Public Law 96-385 which established the IRRRL program.
In this regard, the legislative history of Public Law 96-385 states
that ``a veteran would not be permitted under the bill to obtain cash
from the proceeds of the refinancing loan for other purposes.'' H.R.
Report 96-1165, 96th Congress 2d. Session (1980) at 3.
VA is aware that it is common for persons who refinance home loans
to skip the payment due on the first day of the month in which their
new loan will close. For example, if a lender expects to close an IRRRL
on or about October 18, the lender may tell the veteran that he or she
may skip the payment due October 1. The skipped payment is then
included in the principal balance of the IRRRL. The changes made by
this final rule would not affect this common practice. Under the final
rule, only ``delinquent'' loans are subject to the prior approval
procedures. Since the final rule, consistent with industry practice,
defines ``delinquent'' as being more than 30 days past due, the loan in
this example is not delinquent and would be eligible for streamlined
processing, i.e., processing without regard to VA prior approval
procedures.
As noted above, the final rule states that a loan being refinanced
is delinquent and an IRRRL replacing such loan is subject to prior
approval procedures if a scheduled monthly mortgage payment of the loan
being refinanced is more than 30 days past due. Not only is the final
rule needed to prevent lenders from causing veterans to default on
their current loans, it is needed to prevent lenders from closing poor-
quality IRRRLs.
Commenters disagreed with the conclusion that action was necessary
because of poor quality IRRRLs. They asserted that when VA guaranteed
the original loan for a veteran, VA assumed a certain risk and that a
subsequent IRRRL does not increase the Government's risk. Commenters
further asserted that the risk of default on an IRRRL is reduced
because the interest rate is lowered. With respect to loans that are
current, VA presumes that the veteran, having established
creditworthiness for the original loan, continues to be creditworthy
for an IRRRL. VA notes, however, that loans more than 30 days past due
reflect that two payments were missed. This raises the question as to
whether an underlying financial problem exists that requires attention.
An IRRRL which capitalizes missed payments, fees, and late charges
would have a higher loan-to-value ratio than the loan being refinanced.
Thus, the IRRRL, at least initially, would be less secure than the
original loan. If an IRRRL is foreclosed shortly after being made, the
loss to the taxpayers likely would be greater than would have been the
case had the original loan been foreclosed. Sometimes a lower interest
rate on an IRRRL would reduce the monthly payment sufficiently to allow
a veteran in financial distress to make the payments. This is not
always true. In fact, in many cases a veteran's degree of financial
distress would prevent the veteran from making even the reduced monthly
payment on the IRRRL. Accordingly, prior approval procedures are
necessary to ensure that the veteran who is delinquent can meet the
payment terms of the IRRRL.
As noted above, the final rule states that prior approval
procedures must be met for an IRRRL if a scheduled monthly mortgage
payment of the loan being refinanced is more than 30 days past due.
Commenters recommended that, as a compromise, the 30 day time period be
changed to 59 or 60 days. One commenter submitted an alternative to the
proposal which would allow an unlimited number of a lender's volume of
IRRRLs closed during any calendar month to be up to 60 days past due
and to allow 10 percent of a lender's volume of IRRRLs closed during
any calendar month to be between 60 and 90 days past due, and provide
for sanctions if the 10 percent threshold were exceeded. In response,
we conclude that this would not prevent individuals from skipping
payments to obtain cash and would not provide adequate protection
against loans that are in financial difficulty.
Further, VA disagrees with suggestions from some commenters that
skipping more than one payment is necessary for lenders to obtain
accurate pay-off figures from the holder of the loan being refinanced.
The modern loan servicing industry is highly computerized, and loan
balances which include the latest payment are obtainable from holders
within a day or two after their receipt of that payment. Lenders
normally obtain pay-off figures from holders by fax or overnight
express. Thus, as an example, there is no practical need for a lender
which
[[Page 19908]]
anticipates making an IRRRL in mid-October to urge the borrower to skip
the payment due September 1 in order to obtain accurate payoff
information.
Commenters asserted that the final rule could cause some veterans
to lose their homes due to foreclosure by removing the ability to
refinance during a period of delinquency. VA agrees that there are
instances where being able to refinance a loan will make a difference
between saving a home or losing it to foreclosure. The final rule does
not automatically preclude such a veteran from obtaining an IRRRL. If
VA determines that the veteran is creditworthy and able to make the
payments on the proposed IRRRL and thereby save the home, VA would
approve the IRRRL. In cases where VA, after carefully considering the
veteran's entire financial circumstances, concludes the veteran is
unlikely to be able to make the payments on the IRRRL, the IRRRL would
not be approved. Such an IRRRL would only delay for a short time an
inevitable foreclosure, causing greater expense to both the veteran and
the Government. If a veteran's current loan is delinquent and VA
determines that the veteran does not qualify for an IRRRL because of
financial difficulties, VA will use its supplemental servicing
procedures to determine if other viable alternatives to foreclosure
exist.
Delinquent Loans--Streamlined Feature
Commenters asserted that the adoption of the proposed rule would
take away the ``streamlined'' feature of the IRRRL program contrary to
the legislative intent. In response, we note that nothing in the
statutory provisions authorizing the IRRRL program or the relevant
legislative history requires or even suggests that VA is required to
implement a streamlined procedure for closing loans. Further,
streamlined processing would still be available for veterans who are
not delinquent on their current loans.
Some commenters asserted that if the proposed rule is adopted, VA
would be unable to process IRRRLs in a timely manner. In this regard,
one commenter asserted that the review of prior approvals would
increase by 35,000 per year. This commenter further asserted that an
increase would become more burdensome due to a shrinking Federal
workforce. We do not believe that these results suggested by the
commenters will occur. We believe that in most cases this final rule
will cause veterans seeking IRRRLs to make sure that their original
loans are not delinquent. Further, with respect to those that are
delinquent, we believe that this will cause lenders to find the
underlying reason why there is a delinquency and submit to VA for prior
approval only those applications for IRRRLs that have a reasonable
opportunity of being approved. Moreover, we note that VA will do all
that it can to process prior approvals as quickly as possible. In
support of this effort, VA is consolidating its credit underwriting
into nine regional loan centers with the intent to provide adequate
staffing to process all loans in a timely manner. Even so, under the
provisions of 38 U.S.C. 3710(b)(2) and (b)(3), VA has a statutory duty
for all loans, including IRRRLs, to ensure that the veteran is
creditworthy and that the veteran's total income and expenses bear a
proper relationship to the loan repayment terms. This statutory duty to
ensure a veteran's creditworthiness must be met even if compliance were
to cause some delays.
One commenter asserted that VA is unable to provide statistical
data or analysis to suggest that there has been an increased rate of
foreclosure for IRRRLs under the previous policy which provided that an
IRRRL was subject to prior approval review if the scheduled monthly
mortgage payment of the loan being refinanced were more than 90 days
past due. In response, we have compiled the following information from
our loan guaranty records. Four years ago the early foreclosure rate
(i.e., within 2 years of loan closing) on IRRRLs was 25% higher than on
VA guaranteed purchase-money loans. Two years ago the early foreclosure
rate on IRRRLs grew to 61% higher and has now further grown to 63%
higher. VA analysis shows that poor origination of some IRRRLs has
caused this disturbing trend. The final rule is narrowly tailored to
address this issue and will not significantly impact most IRRRLs.
One commenter suggested that because VA collects a fee on the
original VA loan and collects an additional fee on an IRRRL, VA
collects enough to cover any losses on IRRRLs, and, consequently, the
final rule is not necessary. In response, we note that the amount of
fees collected on loans is established by statute (38 U.S.C. 3729).
There are no statutory provisions that require VA to accept a poor
credit risk merely because of fees that may have been collected to
cover amounts paid due to foreclosures. Instead, as noted above, VA
must ensure that all veterans receiving loans are creditworthy.
One commenter asserted that regardless of the number of delinquent
payments, those payments must be allowed to be included in an IRRRL
because the provisions of 38 U.S.C. 3710(e)(1)(C)(i) state that
refinanced loans will include the ``sum of the balance.'' In response,
we note that this must be read together with the provisions of 38
U.S.C. 3710(b)(2) and (b)(3) which provide that a veteran may obtain a
guaranteed loan only if creditworthy. Accordingly, under the final rule
a veteran may obtain a guaranteed loan only if creditworthy, but all of
those IRRRLs that are closed may include the entire balance of the loan
being refinanced, including missed payments, fees, and late charges.
One commenter asserted that the final rule would cause lenders to
make extensive adjustments regarding computer systems and training. We
agree that some lenders may have to make some adjustments. However, we
do not believe that any necessary adjustments will be significant.
Delinquent Loans--Denial of Benefit
Commenters asserted that veterans who are delinquent on their loan
payments will be denied the benefit of an IRRRL. This final rule will
not automatically deny any veteran who is delinquent on an existing VA
guaranteed loan the opportunity to obtain an IRRRL. In the event that a
veteran is more than 30 days past due on the loan, the final rule
requires that VA perform the same creditworthiness review prior to
approving the IRRRL that is now performed on all other VA housing
loans. If the veteran is found creditworthy, the IRRRL will be
guaranteed. If the veteran is found not creditworthy, VA must decline
to guarantee the loan. However, as noted above, VA will use its
supplemental servicing procedures to determine if other viable
alternatives to foreclosure exist.
Delinquent Loans--Out-of-Pocket Expenses
Some commenters asserted that veterans subject to the prior
approval procedures would be required to provide out-of-pocket expenses
at closing and that this ``will mark the beginning of the end'' of the
IRRRL program by making such loans less appealing to the borrower. The
vast majority of veterans seeking to obtain IRRRLs will not be in
default and will be eligible to use the streamlined procedures, with
only nominal, if any, out-of-pocket expenses. For those subject to the
prior approval procedures, the cost of a credit report (approximately
$50) would be the only additional expense the veteran is likely to
incur. This cost may be included in
[[Page 19909]]
the loan amount. Accordingly, those subject to the prior approval
procedures may avoid out-of-pocket expenses.
Delinquent Loans--Solicitation to Skip Payments
Some commenters asserted that instead of the changes made in the
final rule concerning delinquent loans, VA should establish
prohibitions against lenders who advertise or otherwise solicit
veterans to skip payments so that they can include missed payments,
fees, and late charges in an IRRRL. Some commenters asserted that VA
should rely on other agencies, including the Federal Trade Commission,
to enforce such prohibitions. The adoption of these suggestions would
not address our concerns noted above regarding poor-quality loans.
Further, in our view, the adoption of these suggestions would not
provide an adequate system for regulating lenders who advertise or
otherwise solicit veterans to skip payments. There is no practical way
for VA or other agencies to monitor and regulate the possible means of
advertising or other solicitations made by lenders. Because of the
sheer volume of advertising or other solicitations (e.g., telephone,
radio, cable TV, direct mail) by thousands of companies, it is not
practical for VA or other agencies to even be aware of all of them, let
alone review their content.
Delinquent Loans--Clarification
In Sec. 36.4306, paragraph (a)(5) provides that if a loan is
delinquent the new loan will be guaranteed only if the Secretary
approves it in advance based on a finding that the borrower ``through
the lender'' has provided certain information and meets certain
criteria. One commenter asserted that the term ``through the lender''
is confusing and should be clarified. In response, we note that
``through the lender'' merely means that the borrower submits
information to the lender who in turn submits it to VA. We believe the
proposed language conveys this concept clearly to readers.
Paperwork Reduction Act
We submitted the collection of information contained in the notice
of the proposed rulemaking to the Office of Management and Budget (OMB)
for review in accordance with the Paperwork Reduction Act (44 U.S.C.
3507(d)). The information collection subject to this rulemaking, set
forth at Sec. 36.4306a(a)(3) and (a)(5), concerns requirements for
certain IRRRLs. The final rule states that a loan being refinanced is
delinquent and an IRRRL replacing such loan is subject to prior
approval procedures if a scheduled monthly mortgage payment of the loan
being refinanced is more than 30 days past due. Under the prior
approval procedures, lenders must collect certain information about the
veteran (and spouse or other co-borrower, as applicable), and the
veteran's credit history to ensure that the veteran is creditworthy.
Collection of this type of information is normal business practice for
mortgage lenders.
We invited interested parties to submit comments on the collection
of information. However, we received no comments. OMB has approved this
information collection under control number 2900-0601, which expires
October 31, 2001.
VA is not authorized to impose a penalty on persons for failure to
comply with information collection requirements which do not display a
current OMB control number, if required.
Executive Order 12866
This final rule has been reviewed by OMB under Executive Order
12866.
Final Regulatory Flexibility Analysis
This final regulatory flexibility analysis is provided to meet the
requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et. seq.).
A copy of this final rule, including the final regulatory flexibility
analysis, is available from the individual referred to in the FOR
FURTHER INFORMATION CONTACT portion of this document.
a. A succinct statement of the need for, and objectives of, the
final rule.
Response: The need for and the objectives of this final rule are to
insure that IRRRLs continue to provide a real benefit to veterans and
to protect the financial interest of the Government.
b. A summary of the significant issues raised by the public
comments in response to the initial regulatory flexibility analysis, a
summary of the assessment of the agency of such issues, and a statement
of any changes made in the proposed rule as a result of such comments.
Response: These matters are discussed above in the preamble portion
of this document.
c. A description of and an estimate of the number of small entities
to which the final rule will apply or an explanation of why no such
estimate is available.
Response: The final rule would apply to all lenders who make
IRRRLs. In Fiscal Year 1997, 1476 lenders made at least one IRRRL. We
believe a number of these lenders are small entities; however, we are
unable to make an informed estimate of the number because VA does not
collect information that would establish whether a lender closing
IRRRLs is a small entity.
d. A description of the projected reporting, recordkeeping, and
other compliance requirements of the final rule, including an estimate
of the classes of small entities which will be subject to the
requirement and the type of professional skills necessary for
preparation of the report or record.
Response: Any reporting or recordkeeping requirements are discussed
in the Paperwork Reduction Act portion of this document. The
requirements of the final rule are discussed above in the preamble
portion of this document. As noted above, we are unable to make an
informed estimate of the number of small entities that would be
affected by the adoption of the final rule. To comply with the
provisions of the final rule, employees of lenders would not need any
professional skills that would be additional to those skills already
needed to process VA home loans.
e. A description of the steps the agency has taken to minimize the
significant economic impact on small entities consistent with the
stated objectives of applicable statutes, including a statement of the
factual, policy, and legal reasons for selecting the alternative
adopted in the final rule and why each one of the other significant
alternatives to the final rule considered by the agency which affect
the impact on small entities was rejected.
Response: Generally, limiting IRRRLs to instances where the
veteran's monthly mortgage payment will decrease and requiring that the
loans being refinanced either be current in their payments or meet
certain credit standard provisions is intended to ensure that IRRRLs
are made only when they provide a real benefit to the veteran and to
protect the financial interest of the Government. One alternative would
be to allow IRRRLs to be made only when the veteran's monthly mortgage
payment would decrease. However, as explained above in the preamble
portion of this document, this document establishes exceptions in those
cases when it appears that the objectives could still be met. Another
alternative would be to require that all IRRRLs meet the credit
standard provisions. However, we believe this is necessary only when
the loan is delinquent. Another alternative would be to transfer
responsibility for policing misleading advertising of offending lenders
to the Federal Trade Commission. Although VA believes referral of
generic misleading advertising issues (such as
[[Page 19910]]
bait and switch or truth in lending violations) to FTC is appropriate,
we do not believe FTC staff would be sufficiently familiar with the
unique requirements of the IRRRL program to oversee lender compliance.
We are aware of no alternatives which could be considered that would
allow the objectives to be met and provide less stringent rules for
small businesses.
The adoption of the final rule would not have a significant impact
on the resources available to small entities. The type of actions that
would be required are the same or similar to types of actions already
being handled by employees of small entities.
We are unaware of any alternatives that would accomplish the
intended purposes. Further, we are unaware of any changes we could
consider regarding clarification, consolidation, or simplification that
could be made for small entities and still protect veterans and the
interests of the Government. The final rule does not include
performance standards because we believe there is no means to ensure
compliance without design standards. Further, we believe there is no
good reason for any lender to act contrary to the final rule.
The Catalog of Federal Domestic Assistance Program number is
64.114.
List of Subjects in 38 CFR Part 36
Condominiums, Handicapped, 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: March 25, 1999.
Togo D. West, Jr.,
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 Sec. 36.4306a, paragraphs (a)(3) through (a)(5) are revised,
paragraphs (a)(6) and (a)(7) are added, and a parenthetical is added to
the end of the section, to read as follows:
Sec. 36.4306a Interest rate reduction refinancing loan.
(a) * * *
(3) The monthly principal and interest payment on the new loan must
be lower than the payment on the loan being refinanced, except when the
term of the new loan is shorter than the term of the loan being
refinanced; or the new loan is a fixed-rate loan that refinances a VA-
guaranteed adjustable rate mortgage; or the increase in the monthly
payments on the loan results from the inclusion of energy efficient
improvements, as provided by Sec. 36.4336(a)(4); or the Secretary
approves the loan in advance after determining that the new loan is
necessary to prevent imminent foreclosure and the veteran qualifies for
the new loan under the credit standards contained in Sec. 36.4337.
(4) The amount of the refinancing loan may not exceed:
(i) An amount equal to the balance of the loan being refinanced,
which must not be delinquent, except in cases described in paragraph
(a)(5) of this section, and such closing costs as authorized by
Sec. 36.4312(d) and a discount not to exceed 2 percent of the loan
amount; or
(ii) In the case of a loan to refinance an existing VA-guaranteed
or direct loan and to improve the dwelling securing such loan through
energy efficient improvements, the amount referred to with respect to
the loan under paragraph (a)(4)(i) of this section, plus the amount
authorized by Sec. 36.4336(a)(4).
(Authority: 38 U.S.C. 3703, 3710)
(5) If the loan being refinanced is delinquent (delinquent means
that a scheduled monthly payment of principal and interest is more than
30 days past due), the new loan will be guaranteed only if the
Secretary approves it in advance after determining that the borrower,
through the lender, has provided reasons for the loan deficiency, has
provided information to establish that the cause of the delinquency has
been corrected, and qualifies for the loan under the credit standards
contained in Sec. 36.4337. In such cases, the term ``balance of the
loan being refinanced'' shall include any past due installments, plus
allowable late charges.
(6) The dollar amount of guaranty on the 38 U.S.C. 3710(a)(8) or
(a)(9)(B)(i) loan may not exceed the original dollar amount of guaranty
applicable to the loan being refinanced, less any dollar amount of
guaranty previously paid as a claim on the loan being refinanced; and
(7) The term of the refinancing loan (38 U.S.C. 3710(a)(8)) may not
exceed the original term of the loan being refinanced plus ten years,
or the maximum loan term allowed under 38 U.S.C. 3703(d)(1), whichever
is less. For manufactured home loans that were previously guaranteed
under 38 U.S.C. 3712, the loan term, if being refinanced under 38
U.S.C. 3710(a)(9)(B)(i), may exceed the original term of the loan but
may not exceed the maximum loan term allowed under 38 U.S.C.
3703(d)(1).
(Authority: 38 U.S.C. 3703(c)(1), 3710(e)(1))
* * * * *
(The Office of Management and Budget has approved the information
collection requirements in this section under control number 2900-
0601)
3. In Sec. 36.4337, paragraph (a) is revised to read as follows:
Sec. 36.4337 Underwriting standards, processing procedures, lender
responsibility and lender certification.
(a) Use of standards. The standards contained in paragraphs (c)
through (j) of this section will be used to determine whether the
veteran's present and anticipated income and expenses, and credit
history are satisfactory. These standards do not apply to loans
guaranteed pursuant to 38 U.S.C. 3710(a)(8) except for cases where the
Secretary is required to approve the loan in advance under
Sec. 36.4306a.
(Authority: 38 U.S.C. 3703, 3710)
* * * * *
[FR Doc. 99-10146 Filed 4-22-99; 8:45 am]
BILLING CODE 8320-01-P
