[Federal Register Volume 60, Number 143 (Wednesday, July 26, 1995)]
[Rules and Regulations]
[Pages 38256-38262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18182]
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DEPARTMENT OF VETERANS AFFAIRS
38 CFR Part 36
RIN 2900-AG14
Loan Guaranty: Implementation of Public Laws 102-547, 103-66,
103-78, 103-325, 103-353, and 103-446
AGENCY: Veterans Benefits Administration, Department of Veterans
Affairs.
ACTION: Final rule.
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SUMMARY: This document amends the Department of Veterans Affairs (VA)
loan guaranty regulations to implement certain provisions of various
public laws. VA is amending its regulations to provide for loans to
Reservists and members of the National Guard, loans with negotiated
interest rates, adjustable rate mortgages, restoration of entitlement
in certain cases, energy efficient mortgages, and flood zone
determination fees. VA is also amending its regulations in the areas of
manufactured housing certifications, certain interest rate reduction
refinancing loans, and conveyance of properties notwithstanding
overbids. In addition, the regulations are amended to reflect a reduced
funding fee for interest rate reduction refinancing loans and an
increase in the maximum guaranty amount. These changes increase the
types of loans available to veterans and the categories of veterans
eligible for VA home loans.
EFFECTIVE DATE: This final rule is effective on August 25, 1995.
FOR FURTHER INFORMATION CONTACT: Ms. Judith Caden, Assistant Director
for Loan Policy (264), Loan Guaranty Service, Veterans Benefits
Administration, Department of Veterans Affairs, Washington, DC 20420,
(202) 273-7368.
SUPPLEMENTARY INFORMATION: On February 24, 1994, VA published in the
Federal Register (59 FR 8881) proposed regulatory amendments
implementing Public Laws 102-547, 103-66, and 103-78. The proposed
amendments were published to change: [1] 38 CFR 36.4312, to add a
funding fee structure for loans to members of the Selected Reserves;
[2] Secs. 36.4212 and 36.4311, to allow VA guaranteed loans to bear
interest at rates agreed upon by the veteran and the lender; [3]
Secs. 36.4212(b) and 36.4311(b), to provide that discount points cannot
be financed, except for interest rate reduction refinancing loans; [4]
Secs. 36.4212 and 36.4311, to provide for VA guaranteed loans with
adjustable interest rates; [5] Secs. 36.4302 and 36.4336, to provide
for energy efficient mortgages; [6] Secs. 36.4232, 36.4254, and
36.4312, to reduce the funding fee for interest rate reduction
refinancing loans to 0.50 percent of the total loan amount; [7]
Sec. 36.4312, to increase the funding fee on most guaranteed loans and
for the second and subsequent use of the loan guaranty benefit, except
for interest rate reduction refinancing loans; and [8] Secs. 36.4223
and 36.4302, to revise the guaranty percentage for certain interest
rate reduction refinancing loans. Please refer to the February 24,
1994, Federal Register for a complete discussion of the proposed
amendments. This document adopts the regulatory amendments as
originally proposed, except for a technical change discussed below,
revisions of authority citations, amendments reflecting statutory
changes made by Public Laws 103-325, 103-353, and 103-446, and non-
substantive changes.
VA received three comments on the proposed amendments. Two
commenters noted that the veteran is permitted to finance discount
points on interest rate reduction refinancing loans, and suggested that
the veteran be allowed to finance discount points on purchase loans as
well. This suggestion cannot be adopted because the financing of
discount points on purchase loans is prohibited by statute; see 38
U.S.C. 3703(c).
A third commenter supported the amendments which allow VA to
guarantee a loan above the reasonable value of the property for the
purpose of adding energy efficient improvements to the home. This
commenter recommended that language be added to the regulations
requiring ``that financed energy improvements meet efficiency standards
that exceed, by some pre-determined level, those otherwise applicable
in the jurisdiction.''
We do not believe it would be appropriate to require specific
standards for energy efficient improvements. Local variations in
climate, energy sources and energy efficiency requirements would make
it difficult to implement and monitor the use of such standards.
Furthermore, standards for energy efficient improvements could be
perceived by program participants as unnecessarily complicating the
lending process and have an adverse impact on this area of VA's home
loan program.
This commenter also suggested that prior to the closing of a VA
guaranteed loan the purchaser be required to obtain an energy audit
which would provide an estimate of home energy consumption and
information about potential cost-effective improvements to reduce that
consumption. VA is
[[Page 38257]]
opposed to a mandatory energy audit. At this time, it is uncertain
whether reliable energy audits can be obtained by home purchasers in
all parts of the country for an affordable cost. Furthermore, the
requirement could be perceived by program participants as unnecessarily
complicating the lending process and increasing the cost of
homeownership. However, the Certificate of Reasonable Value (VA Form
26-1843) or the lender's Notice of Value is issued for each property to
be purchased with a VA guaranteed loan. These notices do recommend that
the veteran purchaser obtain such an audit.
A technical change is being made to 38 CFR 36.4212(f)(2) and
36.4311(d)(2) by adding a new sentence to each. The proposed
regulations failed to specify what would be the effective date of the
new interest rate on an adjustable rate mortgage. The additional
sentence provides that when the rate is adjusted, the new rate will
become effective the first day of the month following the adjustment
date; the corresponding change in the monthly payment of principal and
interest will occur one month later, because interest is collected in
arrears. These changes reflect standard practice in the industry.
This final rule also contains new provisions to incorporate changes
made by Public Laws 103-325, 103-353 and 103-446.
First, 38 CFR 36.4203(a) and 36.4302 are amended to reflect the
change by Public Law 103-446 to 38 U.S.C. 3702 to permit a veteran's
home or manufactured home loan entitlement to be restored, on a one-
time basis, if the veteran has repaid the prior VA loan in full, but
has not disposed of the property securing that loan. After one such
restoration, any future restoration of that entitlement will require
the veteran to have disposed of all property previously financed with a
VA loan using that entitlement.
The manufactured home warranty requirements of Sec. 36.4231(b) are
amended to reflect the provisions of Public Law 103-446 abolishing the
requirement for VA inspections of the manufacturing process and onsite
inspections of manufactured homes sold to veterans. Also, as required
by Public Law 103-446, the provisions of Sec. 36.4231(b) are amended to
provide that any manufactured home properly displaying a certificate of
conformity with all applicable Federal manufactured home construction
and safety standards is eligible for VA financing.
Public Law 103-353 increased the maximum guaranty amount on loans
greater than $144,000 from $46,000 to $50,750. This final rule
accordingly amends 38 CFR 36.4302(a) and (d) to incorporate the
increased guaranty amount for VA loans over $144,000.
38 CFR 36.4306a(a) is amended to incorporate the changes made by
Public Law 103-446 with regard to energy efficient improvement costs to
be included in interest rate reduction refinancing loans (IRRRLs).
Under the provisions of the new law, IRRRLs may now include additional
funds for energy efficient improvements.
This final rule also adds new provisions at the end of
Secs. 36.4212(a) and 36.4311(a). Public Law 103-446 amended 38 U.S.C.
3710(e) to provide that, for an adjustable rate mortgage being
refinanced under 38 U.S.C. 3710(a)(8), (a)(9)(B)(i), or (a)(11) by a
fixed rate mortgage, the interest rate on the new loan may be higher
than the current rate on the adjustable rate loan. The new language
merely reflects the statutory change.
This document amends 38 CFR 36.4320(a)(1)(ii)(B) to conform with
new statutory language regarding the conveyance of property. Public Law
103-446 amended 38 U.S.C. 3732(c)(7) to provide that VA may now accept
conveyance of property securing a guaranteed loan from the loan holder
notwithstanding the holder's overbid at the liquidation sale. This was
previously allowed only where State law requirements resulted in an
overbid. This change extends to all overbids, including those caused by
lender or attorney error.
Finally, the National Flood Insurance Reform Act of 1994, title V
of Public Law 103-325, permits lenders to charge borrowers a reasonable
fee for certain costs of determining whether the home or manufactured
home is located in an area having special flood hazards. 38 CFR
36.4232, 36.4254, and 36.4312 are amended accordingly.
The Secretary hereby certifies that this 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 final rule essentially restates statutory provisions and
reflects statutory requirements. Therefore, pursuant to 5 U.S.C.
605(b), this final rule is exempt from the initial and final regulatory
flexibility analysis requirements of Secs. 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, Handicapped, Housing Loan programs--housing and
community development, Manufactured homes, Veterans.
Approved: July 17, 1995.
Jesse Brown,
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, Secs. 36.4201 through
36.4287 is revised to read as follows:
Authority: Sections 36.4201 through 36.4287 issued under 38
U.S.C. 501, 3701-3704, 3707, 3710-3714, 3719, 3720, 3729, unless
otherwise noted.
2. Section 36.4203 is amended by revising the remainder of
paragraphs (a)(2) and (a)(3 and adding new paragraph (a)(4) to read as
follows:
Sec. 36.4203 Eligibility of the veteran for the manufactured home loan
benefit under 38 U.S.C. 3712.
(a) * * *
(2)(i) The loan has been repaid in full or the Secretary has been
released from liability as to the loan, or if the Secretary has
suffered a loss on said loan, such loss has been paid in full; or
(ii) A veteran-transferee has agreed to assume the outstanding
balance on the loan and consented to the use of his or her entitlement
to the extent the entitlement of the veteran-transferor had been used
originally, and the veteran-transferee otherwise meets the requirements
of 38 U.S.C. chapter 37.
(3) In a case in which the veteran still owns a property purchased
with a VA-guaranteed loan, the Secretary may, one time only, restore
entitlement if:
(i) The loan has been repaid in full, or, if the Secretary has
suffered a loss on the loan, the loss has been paid in full; or
(ii) The Secretary has been released from liability as to the loan
and, if the Secretary has suffered a loss on the loan, the loss has
been paid in full.
(4) The Secretary may, in any case involving circumstances deemed
appropriate, waive either or both of the requirements set forth in
paragraphs (a)(1) and (a)(2)(i) of this section.
(Authority: 38 U.S.C. 3702, 3712)
3. Section 36.4212 is revised to read as follows:
Sec. 36.4212 Interest rates and late charges.
(a) In guaranteeing or insuring loans under 38 U.S.C. chapter 37,
the Secretary may elect to require that such loans either bear interest
at a rate that is agreed upon by the veteran and the lender, or bear
interest at a rate not in
[[Page 38258]]
excess of a rate established by the Secretary. The Secretary may, from
time to time, change that election by publishing a notice in the
Federal Register. Provided, however, that the interest rate of a loan
for the purpose of an interest rate reduction under 38 U.S.C.
3712(a)(1)(F) must be less than the interest rate of the VA loan being
refinanced. This paragraph (a) does not apply in the case of an
adjustable rate mortgage being refinanced with a fixed rate loan.
(Authority: 38 U.S.C. 3703, 3712)
(b) For loans bearing an interest rate agreed upon by the veteran
and the lender, the veteran may pay reasonable discount points in
connection with the loan. The discount points may not be included in
the loan amount, except for interest rate reduction refinancing loans
under 38 U.S.C. 3712(a)(1)(F).
(Authority: 38 U.S.C. 3703, 3712)
(c) The rate of interest in instruments securing the indebtedness
for all loans may be expressed in terms of add-on or discount.
(Authority: 38 U.S.C. 3710, 3712)
(d) Interest in excess of the rate reported by the lender when
requesting evidence of guaranty or insurance shall not be payable on
any advance, or in the event of any delinquency or default; Provided,
that a late charge not in excess of an amount equal to 4 percent of any
installment paid more than 15 days after due date shall not be
considered a violation of this limitation.
(Authority: 38 U.S.C. 3712)
(e) Adjustable rate mortgage loans which comply with the
requirements of this paragraph are eligible for guaranty.
(1) Interest rate index. Changes in the interest rate charged on an
adjustable rate mortgage must correspond to changes in the weekly
average yield on one year (52 week) Treasury bills adjusted to a
constant maturity. Yields on one year Treasury bills at ``constant
maturity'' are interpolated by the United States Treasury from the
daily yield curve. This curve, which relates the yield on the security
to its time to maturity, is based on the closing market bid yields on
actively traded one year Treasury bills in the over-the-counter market.
The weekly average one year constant maturity Treasury bill yields are
published by the Federal Reserve Board of the Federal Reserve System.
The Federal Reserve Statistical Release Report H.15 (519) is released
each Monday. These one year constant maturity Treasury bill yields are
also published monthly in the Federal Reserve Bulletin, published by
the Federal Reserve Board of the Federal Reserve System, as well as
quarterly in the Treasury Bulletin, published by the Department of the
Treasury.
(2) Frequency of interest rate changes. Interest rate adjustments
must occur on an annual basis, except that the first adjustment may
occur not sooner than 12 months nor later than 18 months from the date
of the borrower's first mortgage payment. The adjusted rate will become
effective the first day of the month following the adjustment date; the
first monthly payment at the new rate will be due on the first day of
the following month. To set the new interest rate, the lender will
determine the change between the initial (i.e., base) index figure and
the current index figure. The initial index figure shall be the most
recent figure available before the date of mortgage loan origination.
The current index figure shall be the most recent index figure
available 30 days before the date of each interest rate adjustment.
(3) Method of rate changes. Interest rate changes may only be
implemented through adjustments to the borrower's monthly payments.
(4) Initial rate and magnitude of changes. The initial contract
interest rate of an adjustable rate mortgage shall be agreed upon by
the lender and the veteran. The rate must be reflective of adjustable
rate lending. Annual adjustments in the interest rate shall be set at a
certain spread or margin over the interest rate index prescribed in
paragraph (e)(1) of this section. Except for the initial rate, this
margin shall remain constant over the life of the loan. Annual
adjustments to the contract interest rate shall correspond to annual
changes in the interest rate index, subject to the following conditions
and limitations:
(i) No single adjustment to the interest rate may result in a
change in either direction of more than one percentage point from the
interest rate in effect for the period immediately preceding that
adjustment. Index changes in excess of one percentage point may not be
carried over for inclusion in an adjustment in a subsequent year.
Adjustments in the effective rate of interest over the entire term of
the mortgage may not result in a change in either direction of more
than five percentage points from the initial contract interest rate.
(ii) At each adjustment date, changes in the index interest rate,
whether increases or decreases, must be translated into the adjusted
mortgage interest rate, rounded to the nearest one-eighth of one
percent, up or down. For example, if the margin is 2 percent and the
new index figure is 6.06 percent, the adjusted mortgage interest rate
will be 8 percent. If the margin is 2 percent and the new index figure
is 6.07 percent, the adjusted mortgage interest rate will be 8\1/8\
percent.
(5) Pre-loan disclosure. The lender shall explain fully and in
writing to the borrower, no later than on the date upon which the
lender provides the prospective borrower with a loan application, the
nature of the obligation taken. The borrower shall certify in writing
that he or she fully understands the obligation and a copy of the
signed certification shall be placed in the loan folder and included in
the loan submission to VA. Such lender disclosure must include the
following items:
(i) The fact that the mortgage interest rate may change, and an
explanation of how changes correspond to changes in the interest rate
index;
(ii) Identification of the interest rate index, its source of
publication and availability;
(iii) The frequency (i.e., annually) with which interest rate
levels and monthly payments will be adjusted, and the length of the
interval that will precede the initial adjustment; and
(iv) A hypothetical monthly payment schedule that displays the
maximum potential increases in monthly payments to the borrower over
the first five years of the mortgage, subject to the provisions of the
mortgage instrument.
(6) Annual disclosure. At least 25 days before any adjustment to a
borrower's monthly payment may occur, the lender must provide a notice
to the borrower which sets forth the date of the notice, the effective
date of the change, the old interest rate, the new interest rate, the
new monthly payment amount, the current index and the date it was
published, and a description of how the payment adjustment was
calculated. A copy of the annual disclosure shall be made a part of the
lender's permanent record on the loan.
(Authority: 38 U.S.C. 3707, 3712)
4. Section 36.4223 is amended by revising paragraph (a)(4) to read
as follows:
Sec. 36.4223 Interest rate reduction refinancing loan.
(a) * * *
(4) The dollar amount of the guaranty of the 38 U.S.C.
3712(a)(1)(F) loan may not exceed the greater of the original guaranty
amount of the loan being refinanced, or 25 percent of the loan; and
(Authority: 38 U.S.C. 3703, 3712)
* * * * *
[[Page 38259]]
5. Section 36.4231 is amended by revising paragraph (b) to read as
follows:
Sec. 36.4231 Warranty requirements.
* * * * *
(b) Any manufactured housing unit properly displaying a
certification of conformity to all applicable Federal manufactured home
construction and safety standards pursuant to 42 U.S.C. 5415 shall be
acceptable as security for a VA guaranteed loan.
(Authority: 38 U.S.C. 3712)
* * * * *
6. In Sec. 36.4232, paragraph (a)(2) is amended by removing the
period at the end thereof and by adding in its place a semi-colon;
paragraphs (a)(5) and (a)(6) are amended by removing ``, and'' and by
adding to each paragraph at the end thereof a semi-colon; and paragraph
(a)(7) is amended by removing the period at the end thereof and adding
in its place ``; and''. Section 36.4232 is also amended by adding a new
paragraph (a)(8) and by revising paragraph (e)(1), to read as follows:
Sec. 36.4232 Allowable fees and charges; manufactured home unit.
(a) * * *
(8) The actual amount charged for flood zone determinations,
including a charge for a life-of-the-loan flood zone determination
service purchased at the time of loan origination, if made by a third
party who guarantees the accuracy of the determination. A fee may not
be charged for a flood zone determination made by a Department of
Veterans Affairs appraiser or for the lender's own determination.
(Authority: 38 U.S.C. 3712; 42 U.S.C. 4001 note, 4012a)
* * * * *
(e)(1) Subject to the limitations set out in paragraph (e)(4) of
this section, a fee must be paid to the Secretary. A fee of 1 percent
of the total amount must be paid in a manner prescribed by the
Secretary before a manufactured home unit loan will be eligible for
guaranty. Provided, however, that the fee shall be 0.50 percent of the
total loan amount for interest rate reduction refinancing loans
guaranteed under 38 U.S.C. 3712(a)(1)(F). All or part of the fee may be
paid in cash at loan closing or all or part of the fee may be included
in the loan without regard to the reasonable value of the property or
the computed maximum loan amount, as appropriate. In computing the fee,
the lender shall disregard any amount included in the loan to enable
the borrower to pay such fee.
(Authority: 38 U.S.C. 3729(a))
* * * * *
7. Section 36.4254 is amended by redesignating paragraph (a)(7) as
paragraph (a)(8); and is further amended by adding a new paragraph
(a)(7), by adding an authority citation following paragraph (a)(8), and
by revising paragraph (d)(1), to read as follows:
Sec. 36.4254 Fees and charges.
(a) * * *
(7) The actual amount charged for flood zone determinations,
including a charge for a life-of-the-loan flood zone determination
service purchased at the time of loan origination, if made by a third
party who guarantees the accuracy of the determination. A fee may not
be charged for a flood zone determination made by a Department of
Veterans Affairs appraiser or for the lender's own determination, and
(8) * * *
(Authority: 38 U.S.C. 3712; 42 U.S.C. 4001 note, 4012a)
* * * * *
(d)(1) Notwithstanding the provisions of paragraph (c) of this
section and subject to the limitations set out in paragraphs (d)(4) and
(d)(5) of this section, a fee must be paid to the Secretary. A fee of 1
percent of the total loan amount must be paid to the Secretary before a
combination manufactured home and lot loan (or a loan to purchase a lot
upon which a manufactured home owned by the veteran will be placed)
will be eligible for guaranty. Provided, however, that the fee shall be
0.50 percent of the total loan amount for interest rate reduction
refinancing loans guaranteed under 38 U.S.C. 3712(a)(1)(F). All or part
of such fee may be paid in cash at loan closing or all or part of the
fee may be included in the loan without regard to the reasonable value
of the property or the computed maximum loan amount, as appropriate. In
computing the fee, the lender will disregard any amount included in the
loan to enable the borrower to pay such fee.
(Authority: 38 U.S.C. 3729(a))
* * * * *
8. The authority citation for part 36, Secs. 36.4300 through
36.4375 is revised to read as follows:
Authority: Sections 36.4300 through 36.4375 issued under 38
U.S.C. 101, 501, 3701-3704, 3710, 3712-3714, 3720, 3279, 3732,
unless otherwise noted.
9. In Sec. 36.4302, paragraphs (c), (d), (e), (f), (g), (h), (i)
and (j) are redesignated as paragraphs (d), (e), (f), (g), (h), (i),
(j) and (l), respectively; and Sec. 36.4302 is further amended by
revising paragraph (a)(4), by revising paragraph (b), by adding a new
paragraph (c), by revising the newly redesignated paragraph (e), by
revising newly redesignated paragraphs (j)(2), (j)(3), and (j)(4), and
by adding a new paragraph (k), to read as follows:
Sec. 36.4302 Computation of guaranties or insurance credits.
(a) * * *
(4) The lesser of $50,750 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.
(b) With respect to an interest rate reduction refinancing loan
guaranteed under 38 U.S.C. 3710(a)(8), (a)(9)(B)(i), or (a)(11), the
dollar amount of guaranty may not exceed the greater of the original
guaranty amount of the loan being refinanced, or 25 percent of the
refinancing loan amount.
(Authority: 38 U.S.C. 3703, 3710)
(c) With respect to a loan for an energy efficient mortgage
guaranteed under 38 U.S.C. 3710(d), the amount of the guaranty shall be
in the same proportion as would have been provided if the energy
efficient improvements were not added to the loan amount, and there
shall be no additional charge to the veteran's entitlement as a result
of the increased guaranty amount.
(Authority: 38 U.S.C. 3703, 3710)
* * * * *
(e) Subject to the provisions of Sec. 36.4303(g), the following
formulas shall govern the computation of the amount of the guaranty or
insurance entitlement which remains available to an eligible veteran
after prior use of entitlement:
(1) If a veteran previously secured a nonrealty (business) loan,
the amount of nonrealty entitlement used is doubled and subtracted from
$36,000. The sum remaining is the amount of available entitlement for
use, except that:
(i) Entitlement may be increased by up to $14,750 if the loan
amount exceeds $144,000 and the loan is for purchase or construction of
a home or purchase of a condominium; and
(ii) Entitlement for manufactured home loans that are to be
guaranteed under 38 U.S.C. 3712 may not exceed $20,000.
(2) If a veteran previously secured a realty (home) loan, the
amount of realty (home) loan entitlement used is subtracted from
$36,000. The sum remaining is the amount of available entitlement for
use, except that:
(i) Entitlement may be increased by up to $14,750 if the loan
amount exceeds $144,000 and the loan is for purchase or construction of
a home or purchase of a condominium; and
[[Page 38260]]
(ii) Entitlement for manufactured home loans that are to be
guaranteed under 38 U.S.C. 3712 may not exceed $20,000.
(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 $14,750 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, 3712)
* * * * *
(j) * * *
(2)(i) The loan has been repaid in full or the Secretary has been
released from liability as to the loan, or if the Secretary has
suffered a loss on said loan, such loss has been paid in full; or
(ii) A veteran-transferee has agreed to assume the outstanding
balance on the loan and consented to the use of his or her entitlement
to the extent the entitlement of the veteran-transferor had been used
originally; or
(3) The loan has been repaid in full, and the loan for which the
veteran seeks to use entitlement is secured by the same property which
secured the fully repaid loan; or
(4) In a case in which the veteran still owns the property
purchased with a VA-guaranteed loan, the Secretary may, one time only,
restore entitlement used on that loan if:
(i) the loan has been repaid in full or, if the Secretary has
suffered a loss on the loan, the loss has been paid in full; or
(ii) the Secretary has been released from liability as to the loan,
and, if the Secretary has suffered a loss on the loan, the loss has
been paid in full.
(k) The Secretary may, in any case involving circumstances deemed
appropriate, waive either or both of the requirements set forth in
paragraphs (j)(1) and (j)(2)(i) of this section.
(Authority: 38 U.S.C. 3702(b), 3710)
* * * * *
10. In Sec. 36.4306a, the introductory text of paragraph (a) and
paragraph (a)(3) are revised, to read as follows:
Sec. 36.4306a Interest rate reduction refinancing loan.
(a) Pursuant to 38 U.S.C. 3710(a)(8), (a)(9)(B)(i), and (a)(11), a
veteran may refinance an existing VA guaranteed, insured, or direct
loan to reduce the interest rate payable on the existing loan provided
the following requirements are met:
* * * * *
(3) The amount of the refinancing loan may not exceed:
(i) An amount equal to the sum of the balance of the loan being
refinanced and such closing costs as authorized by Sec. 36.4312(d) and
a discount not to exceed a dollar amount determined in accordance with
Sec. 36.4312(d)(7)(i); 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, an amount equal to the sum of the amount
referred to with respect to the loan under paragraph (a)(3)(i) of this
section and the amount authorized by Sec. 36.4336(a)(4);
(Authority: 38 U.S.C. 3710(a))
* * * * *
11. Section 36.4311 is revised to read as follows:
Sec. 36.4311 Interest rates.
(a) In guaranteeing or insuring loans under 38 U.S.C. chapter 37,
the Secretary may elect to require that such loans either bear interest
at a rate that is agreed upon by the veteran and the lender, or bear
interest at a rate not in excess of a rate established by the
Secretary. The Secretary may, from time to time, change that election
by publishing a notice in the Federal Register. However, the interest
rate of a loan for the purpose of an interest rate reduction under 38
U.S.C. 3710(a)(8), (a)(9)(B)(i), or (a)(11) must be less than the
interest rate of the VA loan being refinanced. This paragraph does not
apply in the case of an adjustable rate mortgage being refinanced under
38 U.S.C. 3710(a)(8), (a)(9)(B)(i), or (a)(11) with a fixed rate loan.
(Authority: 38 U.S.C. 3703, 3710)
(b) For loans bearing an interest rate agreed upon by the veteran
and the lender, the veteran may pay reasonable discount points in
connection with the loan. The discount points may not be included in
the loan amount, except for interest rate reduction refinancing loans
under 38 U.S.C. 3710(a)(8), (a)(9)(B)(i), and (a)(11). For loans
bearing an interest rate agreed upon by the veteran and the lender, the
provisions of Sec. 36.4312(d)(6) and (d)(7) do not apply.
(Authority: 38 U.S.C. 3703, 3710)
(c) Interest in excess of the rate reported by the lender when
requesting evidence of guaranty or insurance shall not be payable on
any advance, or in the event of any delinquency or default: Provided,
that a late charge not in excess of an amount equal to 4 percent on any
installment paid more than 15 days after due date shall not be
considered a violation of this limitation.
(Authority: 38 U.S.C. 3710)
(d) Adjustable rate mortgage loans which comply with the
requirements of this paragraph (d) are eligible for guaranty.
(1) Interest rate index. Changes in the interest rate charged on an
adjustable rate mortgage must correspond to changes in the weekly
average yield on one year (52 weeks) Treasury bills adjusted to a
constant maturity. Yields on one year Treasury bills at ``constant
maturity'' are interpolated by the United States Treasury from the
daily yield curve. This curve, which relates the yield on the security
to its time to maturity, is based on the closing market bid yields on
actively traded one year Treasury bills in the over-the-counter market.
The weekly average one year constant maturity Treasury bill yields are
published by the Federal Reserve Board of the Federal Reserve System.
The Federal Reserve Statistical Release Report H. 15 (519) is released
each Monday. These one year constant maturity Treasury bill yields are
also published monthly in the Federal Reserve Bulletin, published by
the Federal Reserve Board of the Federal Reserve System, as well as
quarterly in the Treasury Bulletin, published by the Department of the
Treasury.
(2) Frequency of interest rate changes. Interest rate adjustments
must occur on an annual basis, except that the first adjustment may
occur no sooner than 12 months nor later than 18 months from the date
of the borrower's first mortgage payment. The adjusted rate will become
effective the first day of the month following the adjustment date; the
first monthly payment at the new rate will be due on the first day of
the following month. To set the new interest rate, the lender will
determine the change between the initial (i.e., base) index figure and
the current index figure. The initial index figure shall be the most
recent figure available before the date of mortgage loan origination.
The current index figure shall be the most recent index figure
available 30 days before the date of each interest rate adjustment.
(3) Method of rate changes. Interest rate changes may only be
implemented through adjustments to the borrower's monthly payments.
[[Page 38261]]
(4) Initial rate and magnitude of changes. The initial contract
interest rate of an adjustable rate mortgage shall be agreed upon by
the lender and the veteran. The rate must be reflective of adjustable
rate lending. Annual adjustments in the interest rate shall be set at a
certain spread or margin over the interest rate index prescribed in
paragraph (d)(1) of this section. Except for the initial rate, this
margin shall remain constant over the life of the loan. Annual
adjustments to the contract interest rate shall correspond to annual
changes in the interest rate index, subject to the following conditions
and limitations:
(i) No single adjustment to the interest rate may result in a
change in either direction of more than one percentage point from the
interest rate in effect for the period immediately preceding that
adjustment. Index changes in excess of one percentage point may not be
carried over for inclusion in an adjustment in a subsequent year.
Adjustments in the effective rate of interest over the entire term of
the mortgage may not result in a change in either direction of more
than five percentage points from the initial contract interest rate.
(ii) At each adjustment date, changes in the index interest rate,
whether increases or decreases, must be translated into the adjusted
mortgage interest rate, rounded to the nearest one-eighth of one
percent, up or down. For example, if the margin is 2 percent and the
new index figure is 6.06 percent, the adjusted mortgage interest rate
will be 8 percent. If the margin is 2 percent and the new index figure
is 6.07 percent, the adjusted mortgage interest rate will be 8\1/8\
percent.
(5) Pre-loan disclosure. The lender shall explain fully and in
writing to the borrower, no later than on the date upon which the
lender provides the prospective borrower with a loan application, the
nature of the obligation taken. The borrower shall certify in writing
that he or she fully understands the obligation and a copy of the
signed certification shall be placed in the loan folder and included in
the loan submission to VA. Such lender disclosure must include the
following items:
(i) The fact that the mortgage interest rate may change, and an
explanation of how changes correspond to changes in the interest rate
index;
(ii) Identification of the interest rate index, its source of
publication and availability;
(iii) The frequency (i.e., annually) with which interest rate
levels and monthly payments will be adjusted, and the length of the
interval that will precede the initial adjustment; and
(iv) A hypothetical monthly payment schedule that displays the
maximum potential increases in monthly payments to the borrower over
the first five years of the mortgage, subject to the provisions of the
mortgage instrument.
(6) Annual disclosure. At least 25 days before any adjustment to a
borrower's monthly payment may occur, the lender must provide a notice
to the borrower which sets forth the date of the notice, the effective
date of the change, the old interest rate, the new interest rate, the
new monthly payment amount, the current index and the date it was
published, and a description of how the payment adjustment was
calculated. A copy of the annual disclosure shall be made a part of the
lender's permanent record on the loan.
(Authority: 38 U.S.C. 3707, 3710)
12. Section 36.4312 is amended by redesignating paragraph
(d)(1)(viii) as paragraph (d)(1)(ix), and by removing from paragraph
(e)(3) ``in paragraphs (e)(4) and (e)(5)'' and replacing it with ``in
paragraph (e)(4)''. Section 36.4312 is further amended by adding a new
paragraph (d)(1)(viii), by revising the authority citation following
paragraph (d)(7)(iv), by adding introductory text to paragraph (e), and
by revising paragraph (e)(1), to read as follows:
Sec. 36.4312 Charges and fees.
* * * * *
(d) * * *
(1) * * *
(viii) The actual amount charged for flood zone determinations,
including a charge for a life-of-the-loan flood zone determination
service purchased at the time of loan origination, if made by a third
party who guarantees the accuracy of the determination. A fee may not
be charged for a flood zone determination made by a Department of
Veterans Affairs appraiser or for the lender's own determination.
* * * * *
(7) * * *
(iv) * * *
(Authority: 38 U.S.C. 3703, 3710; 42 U.S.C. 4001 note, 4012a)
* * * * *
(e) Subject to the limitations set out in paragraph (e)(4) of this
section, a fee must be paid to the Secretary.
(1) The fee on loans to veterans shall be as follows:
(i) On all interest rate reduction refinancing loans guaranteed
under 38 U.S.C. 3710(a)(8), (a)(9)(B)(i), and (a)(11), the fee shall be
0.50 percent of the total loan amount.
(ii) On all refinancing loans other than those described in
paragraph (e)(1)(i) of this section, the funding fee shall be 2.75
percent of the loan amount for loans to veterans whose entitlement is
based on service in the Selected Reserve under the provisions of 38
U.S.C. 3701(b)(5), and 2 percent of the loan amount for loans to all
other veterans; provided, however, that if the veteran is using
entitlement for a second or subsequent time, the fee shall be 3 percent
of the loan amount.
(iii) Except for loans to veterans whose entitlement is based on
service in the Selected Reserve under the provisions of 38 U.S.C.
3701(b)(5), the funding fee shall be 2 percent of the total loan amount
for all loans for the purchase or construction of a home on which the
veteran does not make a down payment, unless the veteran is using
entitlement for a second or subsequent time, in which case the fee
shall be 3 percent. On purchase or construction loans on which the
veteran makes a down payment of 5 percent or more, but less than 10
percent, the amount of the funding fee shall be 1.50 percent of the
total loan amount. On purchase or construction loans on which the
veteran makes a down payment of 10 percent or more, the amount of the
funding fee shall be 1.25 percent of the total loan amount.
(iv) On loans to veterans whose entitlement is based on service in
the Selected Reserve under the provisions of 38 U.S.C. 3701(b)(5), the
funding fee shall be 2.75 percent of the total loan amount on loans for
the purchase or construction of a home on which the veteran does not
make a down payment, unless the veteran is using entitlement for a
second or subsequent time, in which case the fee shall be 3 percent. On
purchase or construction loans on which veterans whose entitlement is
based on service in the Selected Reserve make a down payment of 5
percent or more, but less than 10 percent, the amount of the funding
fee shall be 2.25 percent of the total loan amount. On purchase or
construction loans on which such veterans make a down payment of 10
percent or more, the amount of the funding fee shall be 2 percent of
the total loan amount.
(v) All or part of the fee may be paid in cash at loan closing or
all or part of the fee may be included in the loan without regard to
the reasonable value of the property or the computed maximum loan
amount, as appropriate. In computing the fee, the lender will disregard
any amount included in the loan to enable the borrower to pay such fee.
[[Page 38262]]
(Authority: 38 U.S.C. 3729)
* * * * *
13. Section 36.4320 is amended by revising paragraph (a)(1)(ii)(B)
to read as follows:
Sec. 36.4320 Sale of security.
(a) * * *
(1) * * *
(ii) * * *
(B) The holder acquires the property, or the rights to the
property, at the liquidation sale for an amount in excess of the
specified amount, the indebtedness shall be credited with the proceeds
of the sale. The holder may elect to convey the property to the
Secretary under the terms of paragraph (a)(1)(ii)(A) of this section,
unless a bid in excess of the specified amount was made pursuant to
paragraph (a)(3) of this section.
(Authority: 38 U.S.C. 3732(c))
* * * * *
14. Section 36.4336 is amended by revising paragraph (a)(2)(i) and
by adding a new paragraph (a)(4), to read as follows:
Sec. 36.4336 Eligibility of loans; reasonable value requirements.
(a) * * *
* * * * *
(2)(i) Except as to refinancing loans pursuant to 38 U.S.C.
3710(a)(8), (a)(9)(B)(i), (a)(11), or (b)(7) and energy efficient
mortgages pursuant to 38 U.S.C. 3710(d), the loan (including any
scheduled deferred interest added to principal) does not exceed the
reasonable value of the property or projected reasonable value of a new
home which is security for a graduated payment mortgage loan, as
appropriate, as determined by the Secretary, and
* * * * *
(4) A loan guaranteed under 38 U.S.C. 3710(d) which includes the
cost of energy efficient improvements may exceed the reasonable value
of the property. The cost of the energy efficient improvements that may
be financed may not exceed $3,000; provided, however, that up to $6,000
in energy efficient improvements may be financed if the increase in the
monthly payment for principal and interest does not exceed the likely
reduction in monthly utility costs resulting from the energy efficient
improvements.
(Authority: 38 U.S.C. 3710)
* * * * *
[FR Doc. 95-18182 Filed 7-25-95; 8:45 am]
BILLING CODE 8320-01-P
