Loan Guaranty: Loan Servicing and Claims Procedures Modifications, 8472-8494 [05-3084]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 70, Number 33 (Friday, February 18, 2005)]
[Proposed Rules]
[Pages 8472-8494]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-3084]



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Part III





Department of Veterans Affairs





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38 CFR Part 36



Loan Guaranty: Loan Servicing and Claims Procedures Modifications; 
Proposed Rule

Federal Register / Vol. 70, No. 33 / Friday, February 18, 2005 / 
Proposed Rules

[[Page 8472]]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 36

RIN 2900-AL65


Loan Guaranty: Loan Servicing and Claims Procedures Modifications

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

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SUMMARY: This document proposes to amend the Department of Veterans 
Affairs (VA) Loan Guaranty regulations related to several aspects of 
the servicing and liquidating of guaranteed housing loans in default, 
and submitting of guaranty claims by loan holders. Specific topics 
addressed include: Increased authority of servicers to implement loss-
mitigation options, incentive payments to servicers for successful 
alternatives to foreclosure implemented, establishing a system of 
measuring and ranking servicer performance, permitting loan holders to 
review liquidation appraisals, requiring holders to calculate the net 
value of the security property prior to foreclosure, establishing a 
timeframe for when foreclosure of a defaulted loan would be expected to 
have been completed, limiting the amount of interest and other fees and 
charges that may be included in a guaranty claim, establishing 
attorneys fees allowed to be included in the guaranty claim, 
establishing a deadline for the submission of guaranty claims, 
modifying the requirements for title evidence for properties conveyed 
to VA following foreclosure, modifying the requirements for how long a 
holder must maintain records relating to loans for which VA has paid a 
claim on the guaranty, and eliminating the requirement for the 
submission of legal procedural papers to VA.

DATES: Comments must be received on or before April 19, 2005.

ADDRESSES: Written comments may be submitted by: mail or hand-delivery 
to Director, Regulations Management (00REG1), Department of Veterans 
Affairs, 810 Vermont Ave., NW., Room 1068, Washington, DC 20420; fax to 
(202) 273-9026; e-mail to VAregulations@mail.va.gov; or, through http:/
/www.Regulations.gov. Comments should indicate that they are submitted 
in response to ``RIN 2900-AL65.'' All comments received will be 
available for public inspection in the Office of Regulation Policy and 
Management, Room 1063B, between the hours of 8 a.m. and 4:30 p.m., 
Monday through Friday (except holidays). Please call (202) 273-9515 for 
an appointment.

FOR FURTHER INFORMATION CONTACT: Richard P. Fyne, Assistant Director 
for Loan Management (261), Veterans Benefits Administration, Department 
of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC 20420, at 
202-273-7380, e-mail lgyrfyne@vba.va.gov.

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.
    In connection with this program, VA is conducting an internal, in-
depth review of the entire Loan Administration process. ``Loan 
Administration''ludes the servicing of existing loans, dealing with 
loans in default and loans being terminated, and the processing of 
claims by loan holders under the guaranty after defaulted loans have 
been foreclosed or otherwise terminated. Loan Administration also 
includes efforts by VA and private loan holders to assist homeowners 
whose loans are in default to cure the default, retain their home if 
possible, or find other means short of foreclosure. VA hopes to revise 
the Loan Administration process to reflect changes in the loan 
servicing industry in recent years, as well as advances in technology. 
VA is moving toward placing greater reliance on private-sector 
servicing in accordance with VA guidelines, with VA using advanced 
technology to oversee holder actions.
    VA is now proposing a number of changes to current procedures, 
including: giving servicers increased authority to implement loss-
mitigation alternatives to foreclosure and paying servicers an 
incentive bonus for each successful loss-mitigation intervention 
alternative to foreclosure implemented; establishing a performance-
based tier-ranking system for servicers; permitting qualified loan 
holders to review liquidation appraisals and establish the fair market 
value of the property; requiring loan holders to calculate the net 
value of properties securing loans prior to foreclosure; establishing 
timeframes for when VA would expect holders, exercising reasonable 
diligence, should be able to complete the foreclosure of defaulted 
loans; limiting the amount of interest and other fees and charges that 
may be included in a guaranty claim; establishing reasonable and 
customary attorney fees allowed to be claimed under the guaranty; 
establishing a deadline for holders to submit claims under the guaranty 
and to request reconsideration of denied claims; modifying the 
requirements for title evidence submitted to VA when the holder is 
conveying the property to VA following the liquidation sale; modifying 
the requirements for how long a holder must maintain records relating 
to loans for which VA has paid a claim on the guaranty; modifying the 
requirements for holders to report key events with regard to loans 
being serviced; and repealing the requirement for holders to provide VA 
with procedural papers in legal or equitable proceedings related to a 
loan on the security property.

Loss Mitigation Options/Alternatives to Foreclosure

    VA has always stressed the importance of loan holders and servicers 
finding alternatives to foreclosure. Under current regulations, 
however, holders generally need VA consent before they could accept a 
deed-in-lieu of foreclosure or approve a compromise sale. Further, 
holders have limited authority to modify existing loans without prior 
approval. VA is proposing to delegate more authority to servicers to 
approve these foreclosure alternatives by removing many existing 
restrictions on holders with regard to such alternatives to 
foreclosure, publishing clear rules for how holders may use such 
alternatives, and establishing a hierarchy of alternatives to use in 
determining which alternative should be considered and under what 
conditions they should be pursued.

Loan Modification

    VA is proposing to modify Sec.  36.4314 by removing restrictive and 
confusing conditions and providing clear and understandable rules to 
apply when considering whether or not to modify a loan to avoid 
termination. The industry has indicated that the current regulation is 
not in line with industry practices and this has resulted in both under 
use of this alternative to foreclosure and improper use in some cases.
    VA is also proposing to make a conforming amendment to Sec.  
36.4311(c). That section currently prohibits a loan holder from 
charging an interest rate in excess of the rate reported by the lender 
when the loan was made, on any advance or in the event of delinquency 
or default. The proposed amendment would make an exception to that 
prohibition to allow such an increased interest rate as permitted under 
the proposed amendments to Sec.  36. 4314.

Refunding

    VA is proposing to amend Sec.  36.4318 by adding language that 
would require servicers to provide VA with the necessary loan transfer 
documents, including all loan assignments, within

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60 days from receipt of VA's decision to refund the loan and further 
provides for a penalty that may be imposed on servicers who continually 
fail to provide loan transfer documents timely. VA anticipates that the 
number of loans refunded by VA will be dramatically reduced because of 
the revisions being made to the loan modification authority and feels 
that 60 days is a reasonable amount of time for servicers to obtain and 
provide the documents required to VA.
    VA also proposes to amend Sec.  36.4330 relating to records 
retention. See the discussion under the heading ``Records Retention and 
Post-Audit,'' below.

Deeds-in-Lieu of Foreclosure and Compromise Sales

    Under Sec.  36.4324(a), a holder currently may not, without the 
prior consent of the VA, release a lien on the property securing the 
loan. There are, however, circumstance where VA believes that it is in 
the best interests of all concerned to permit a loan holder to take 
prompt action and allow a transfer of title to the property securing 
the loan to resolve a serious default short of actual foreclosure.
    One such case would be to allow the holder to accept a deed to the 
property tendered by the obligor. Another situation is what VA refers 
to as a ``compromise sale.'' This is when the property cannot be sold 
for an amount that will generate proceeds sufficient to repay the 
entire loan balance. Under current VA procedures, the holder must 
obtain prior VA approval to accept a deed-in-lieu of foreclosure or 
conduct a compromise sale.
    VA believes the delays caused by VA needing to review and approve 
such transactions in advance have resulted, in a number of cases, in 
missed opportunities to resolve defaults in a quick, cost-efficient 
manner. VA further believes that holders, given appropriate guidelines, 
can make proper decisions on approving deeds-in-lieu and compromise 
sales.
    Accordingly, VA is proposing paragraphs (f), (g), and (h) to the 
new 38 CFR 36.4319a. These paragraphs will delegate authority to 
servicers to approve a compromise sale of the property or accept a 
deed-in-lieu of foreclosure and will specify the conditions under which 
servicers may exercise that authority.
    Under the proposed Sec.  36.4319a(f), a holder would be permitted 
to approve a compromise sale if the holder determines the loan is 
insoluble, the net sale proceeds will equal or exceed the net value of 
the property as computed by the holder, and that the estimated guaranty 
payment it would receive following the compromise sale would not exceed 
the guaranty payment following an actual foreclosure. In addition, the 
holder would be required to ensure that the current owner of the 
property will not share in any of the sales proceeds. Finally, certain 
obligors will be required to execute a repayment agreement before the 
holder may approve the compromise sale. (See discussion of the proposed 
Sec.  36.4319a(h), below.)
    In the event all conditions specified in this proposed paragraph 
(f) cannot be met, but the holder believes a compromise sale would be 
in the best interest of the veteran and the Secretary, the holder may 
request advance approval from VA for a compromise sale.
    Under the proposed Sec.  36.4319a(g), holders would be permitted to 
accept deeds-in-lieu of foreclosure. VA regards compromise sales as 
preferable to deeds-in-lieu of foreclosure. Under a compromise sale, 
the property will be sold at approximately the fair market price, and 
VA will not be required to incur the expenses of acquiring, managing, 
and reselling the property. Therefore, the proposed paragraph (g) would 
require that, before a holder may accept a deed-in-lieu, the holder 
must consider a compromise sale and find it is not practical. As with 
compromise sales, the holder would be required to estimate that the 
guaranty payment it would receive following the deed-in-lieu would not 
exceed the guaranty payment following an actual foreclosure. In 
addition, the holder would be required to determine that the current 
owner can convey clear and marketable title of the property to VA. 
Finally, certain obligors will be required to execute a repayment 
agreement before the holder may approve the deed-in-lieu. (See 
discussion of the proposed Sec.  36.4319a(h), below.)
    Also, as with compromise sales, in the event all conditions 
specified in this proposed paragraph (g) cannot be met, but the holder 
believes a deed-in-lieu would be in the best interest of the veteran 
and the Secretary, the holder may request advance approval from VA for 
accepting a deed-in-lieu.
    VA also proposes to add a new Sec.  36.4319a(h) regarding repayment 
agreements. Under current Sec.  36.4323, which is not being modified in 
this regard by this proposed rule, certain individuals are deemed to be 
liable to the Government if VA is required to make a payment under the 
guaranty. Generally, veterans whose loans have closed on or before 
December 31, 1989, and individuals who have been approved to assume a 
veteran's loan so the veteran may be released from further liability on 
the loan under 38 U.S.C. 3713 and 3714 have such liability. The 
proposed paragraph (h) defines the term ``liable obligor'' to include 
such individuals. The proposed paragraph (h) would require liable 
obligors to execute an agreement to repay VA 50 percent of the debt 
that would otherwise be assessed under existing Sec.  36.4323. Reducing 
the obligor's debt to VA should help induce liable obligors to 
cooperate with holders in compromise sales and deeds-in-lieu.
    The repayment agreement would require that the first payment would 
be due on the first day of the first month which is one year after the 
deed-in-lieu is executed or the compromise sale is closed. For example, 
if the deed-in-lieu were executed October 23, 2004, the first payment 
would be due November 1, 2005. The obligation would bear interest as 
established by the Secretary under 38 U.S.C. 5315(b)(2). That statute 
mandates collecting interest on VA benefit debts. Interest would accrue 
from the date the first payment was due. The agreement would require 
equal monthly payments, with the total debt repaid within 5 years after 
the first payment was due.
    The signing of the required repayment agreement would not preclude 
a veteran from seeking to have the debt waived by VA pursuant to 38 
U.S.C. 5302.
    Finally, the proposed paragraph (h) would require a written notice, 
sent by VA to the obligor by certified mail, return receipt requested, 
of the actual amount of the debt, the rate of interest, the required 
monthly payment, the rate of interest, and the right of veterans to 
request waiver. This notice will be sent after VA pays the guaranty 
claim because the amount paid under the guaranty establishes the debt. 
In this case, the debt would normally be 50 percent of such claim 
payment, plus interest.
    VA is also proposing to add a new definition to 38 CFR 36.4301 for 
the term ``compromise sale.'' This term will mean a sale to a third 
party for an amount less than is sufficient to repay the unpaid balance 
on the loan where the holder has agreed in advance to release the lien 
in exchange for the proceeds of such sale. In addition, VA is proposing 
a conforming amendment to Sec.  36.4324.

Servicer Tier Rankings and Loss-Mitigation Incentive Payments

    In newly proposed 38 CFR 36.4316 VA proposes to rank servicers into 
four tiers, depending on their performance, with tier one being the 
highest rated and

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tier four the lowest. VA is modeling the tier ranking system after that 
used by the Federal Home Loan Mortgage Corporation (FHLMC), also known 
as Freddie Mac. Specific criteria are not yet established. VA is 
soliciting comments on criteria to be used in developing the tier 
rankings. A servicer's performance and tier ranking will not be 
publicly disclosed.
    For at least the first year, all servicers will be presumed to be 
in tier two, and eligible for loss-mitigation incentives paid for that 
level.
    After VA has collected data under the new reporting requirements 
(see discussion under ``Revised Reporting Requirements,'' below) for 
six months, VA intends to review the data and develop the criteria for 
ranking servicers. Those criteria will then be published in the Federal 
Register for notice and comment. VA expects that the computer system 
for such reporting will be operational by Summer 2005, and proposed 
rules for tier ranking will be published in early calendar year 2006. 
Those projected dates could be subject to adjustment due to technical 
delays in the development of the new system.
    Once VA has adopted final rules for tier rankings, VA will monitor 
and grade servicer performance on a quarterly basis, and annually 
adjust the tier ranking depending on the servicer's performance over 
the past four calendar quarters using those standards. All servicers 
will remain in tier two until their performance has been evaluated for 
four calendar quarters after final tier ranking rules have been 
adopted.
    VA is also proposing to add a new 38 CFR 36.4317 which provides for 
making incentive payments to loan servicers in tier ranks one through 
three upon their successful completion of certain foreclosure 
avoidance, loss-mitigation options. Currently, loan servicers receive 
incentive payments from the Department of Housing and Urban 
Development, Fannie Mae, Freddie Mac, and some private mortgage 
insurance companies for implementing various foreclosure-avoidance 
procedures on loans in serious default. As explained below, VA 
currently pays such incentives under limited circumstances.
    In July 1995, VA administratively instituted the Servicer Loss 
Mitigation Program (SLMP). Participation in SLMP has been voluntary. 
Under SLMP, VA pays participating servicers an incentive for deeds-in-
lieu of foreclosure and compromise sales. SLMP currently requires 
servicers to obtain VA consent before completing either of these 
alternatives to foreclosure.
    VA has received anecdotal evidence that some servicers place less 
emphasis on widespread use of foreclosure-avoidance measures on VA 
loans due to the fact that VA normally does not pay the incentives 
which have become the industry standard.
    A major goal of the VA housing loan program is to assist veterans 
in obtaining home financing, and doing so with the least risk of loss 
upon default to both the veteran and VA as guarantor of the loan and, 
ultimately, to the Federal Treasury. VA strives to avoid foreclosure 
whenever reasonably possible. If a means can be found to keep a veteran 
and the veteran's family in the home or, if that is not possible, to 
terminate the loan without foreclosure, VA wishes to pursue that 
alternative. This will be less costly to both VA and the veteran, will 
prevent the veteran's credit record from reflecting a foreclosure, and 
if necessary, allow the veteran a reasonable time to voluntarily vacate 
and move from the home.
    Therefore, VA is now proposing to expand the incentive payment 
program by increasing the number of options for which incentives will 
be paid, increasing the number of servicers that may qualify for 
incentives, and formalizing the rules regarding the amount of the 
incentive payments, the timing of the payments, and the tests for 
qualifying for such payments.
    Under the proposed Sec.  36.4317, VA will pay any servicer in tiers 
one, two, and three an incentive payment for successfully completing 
any of the following loss-mitigation options: repayment plan, special 
forbearance, loan modification, compromise sale, and deed-in-lieu of 
foreclosure. Only one incentive payment will be made with respect to a 
default required to be reported to the Secretary under the proposed new 
Sec.  36.4315a(d). That section would require reporting a default to VA 
within 5 business days after a loan has been delinquent for 61 days.
    The amount of the incentive payment is set forth in a chart 
contained in the proposed Sec.  36.4317(b), and will depend upon the 
servicer's tier ranking and the type of loss-mitigation action. The 
incentive payment will range from $1,000 (to a servicer in tier one for 
a compromise sale) to $120 (for a servicer in tier three for a 
repayment plan or special forbearance).
    The criteria for when a loss-mitigation option will be considered 
successfully completed are contained in the proposed Sec.  36.4317(c). 
A repayment plan would be deemed successful when four consecutive 
payments under the plan have been made or when the total delinquency 
has been repaid, whichever occurs sooner. Special forbearance will be 
deemed successful when the loan reinstates. A loan modification would 
be deemed completed when the modification agreement is signed and the 
loan reinstates. Finally, a compromise sale or deed-in-lieu of 
foreclosure will be deemed successful when the servicer submits a claim 
under the guaranty.
    Finally, Sec.  36.4317(d) provides that incentive payments for 
successful repayment plans, special forbearance, and loan modifications 
will be made to eligible servicers monthly. Payments for compromise 
sales and deeds-in-lieu of foreclosure will be paid with the guaranty 
claim.
    No incentive payment will be made to a servicer in tier four. 
While, as stated above, the exact criteria for ranking servicers are 
still being developed, VA anticipates that tier four will be reserved 
for servicers whose performance has been significantly and repeatedly 
below acceptable VA and industry standards. VA does not believe 
additional rewards should be provided to a servicer whose performance 
has been consistently below an acceptable level. The successful 
completion of loss-mitigation options by tier four servicers will, 
however, be considered in future rankings. Thus tier four servicers 
will have an incentive to successfully complete these options.

Revised Reporting Requirements

    VA is also proposing to significantly revise the requirements for 
holders to report the status of all guaranteed loans in their portfolio 
and also to report significant events in the servicing and termination 
of such loans.
    Currently, Sec.  36.4315(a) requires the holder to notify VA within 
45 days after the debtor is 60 days in default on a payment (in effect, 
not later than 105 days after the borrower fails to make a payment 
due). This section also requires reporting within 45 days after the 
obligor has failed to pay real estate taxes when due and such taxes 
have remained unpaid for at least 180 days, or the obligor has been in 
default on any other obligation under the loan for at least 90 days 
after receiving notice from the lender to comply with such requirement.
    Currently, Sec.  36.4316 establishes conditions under which 
servicers may, at their option, file the notice prescribed in Sec.  
36.4317, Notice of Intention to Foreclose. This section, as well as the 
related Sec.  36.4317, are being eliminated in their entirety because 
they will no longer be necessary under the reporting

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requirements defined in the new Sec.  36.4315(a).
    VA is proposing to delete the current default and foreclosure 
reporting requirements cited in paragraph (a) of Sec.  36.4315, and 
Sec. Sec.  36.4316, 36.4317. VA is proposing to add a new Sec.  
36.4315a which will establish the new servicer reporting requirements 
for all outstanding guaranteed loans.
    This new section will require all holders to report information 
electronically to VA by use of a computer. VA is currently developing a 
computer-based system for this purpose. It is contemplated that holders 
will have the option of using a variety of methods to input data to 
VA's system. These include:
    Data file exchange.
    Direct system interface.
    Direct input to VA through the Internet.
    More specific information regarding the use of this system will be 
provided later through industry releases, conferences, and training 
provided by VA prior to implementation. Holders will need to obtain a 
user identification and password from VA. Procedures for this will be 
announced at a later date.
    The existing paragraph (b) of Sec.  36.4315, pertaining to 
acceptance of partial payments by a holder, will remain in a renamed 
Sec.  36.4315, with minor, non-substantive editorial revisions.

Procedural Papers

    Currently, paragraph (a) of Sec.  36.4319 requires that, when a 
loan holder initiates or becomes a party to a legal or equitable 
proceeding involving a guaranteed housing loan or the property securing 
such loan, the holder provide VA with copies of all legal procedural 
papers related to such action. Paragraph (b) of that section requires 
the holder to provide VA with a copy of the notice of sale with respect 
to the property securing such loans at least 30 days prior to the 
liquidation sale or within 5 days after first publication, whichever is 
later. Paragraphs (c) through (e) of that section relate to service of 
such papers when the Secretary is a party to a legal proceeding.
    VA believes the requirement to provide VA with all such papers when 
VA is not a party to the litigation imposes an unnecessary paperwork 
burden on holders and their counsel. The vast majority of papers filed 
in legal proceedings are ordinarily of little benefit to VA. Should VA 
have a need to review certain documents, VA can make a specific request 
to the holder for copies of any specific documents VA needs to review. 
In addition, under the proposed reporting requirements, discussed 
above, holders would be required to inform VA within 5 business days 
after any bankruptcy or other legal, equitable, or administrative 
proceeding is filed that would materially affect the loan termination, 
the lien, or the security property.
    Accordingly, VA is proposing to delete paragraphs (a), (b), and (c) 
of Sec.  36.4319. VA is further proposing to rewrite the existing 
paragraph (d) of Sec.  36.4319, which would become paragraph (a), by 
requiring that any legal process in an action to which VA is a party, 
prior to VA entering an appearance, shall be served on the VA Regional 
Counsel, the Attorney General, and the United States Attorney having 
jurisdiction over the area where the court is located. Currently, this 
paragraph requires service on the Loan Guaranty Officer. VA believes 
these pleadings should be served on VA's counsel rather than the 
program official. Service on the Attorney General and United States 
Attorney are required by the Federal Rules of Civil Procedure. The 
existing paragraph (e), relating to service of papers after the 
Secretary's attorney in a legal proceeding has entered an appearance, 
is being redesignated as paragraph (b).
    Paragraph (f) of Sec.  36.4319 does not pertain to procedural 
papers. It is being deleted for the reasons explained under the 
heading, Time for Loan Termination and Limit on Interest and Charges, 
below.

Calculation of Net Value

    Under the governing statute, 38 U.S.C. 3732(c)(3), when VA receives 
a notice that a guaranteed loan in default is about to be terminated, 
VA is required to compute the ``net value'' of the property securing 
the guaranteed loan. The term ``net value'' is defined in 38 CFR 
36.4301. Generally, ``net value'' is the fair market value of the 
property minus the costs VA estimates it would incur to acquire and 
dispose of the property. Those costs are computed using the methodology 
contained in that definition. Currently, VA calculates the net value 
and provides this value in writing to the holder along with 
instructions regarding the holder's bid at the liquidation sale. Under 
detailed formulae contained in 38 U.S.C. 3732(c), the relationship 
between the veteran's total indebtedness at time of foreclosure, the 
net value of the property, and the amount that the holder bids or 
receives at the foreclosure sale determines the amount that VA will pay 
the loan holder on a guaranty claim and whether or not the holder has 
the option to convey the property to VA following foreclosure.
    The computation of the net value for a specific property involves a 
simple mathematical computation. All that is required is knowing the 
fair market value of the property and the percentage factor used by VA 
to represent the cost to VA of acquiring and disposing of the property. 
Multiplying the fair market value by the cost factor produces the 
amount to subtract from the fair market value and arrive at the net 
value. That percentage is determined annually by VA pursuant to 38 CFR 
36.4301 (definition of net value) and published in the Federal 
Register. Currently, that factor is 11.87 percent. If the property has 
a fair market value of $100,000, the net value would be calculated as 
follows:

Fair market value..........................................     $100,000
Cost factor (11.87 percent of $100,000)....................     (11,870)
  Net Value................................................       88,130
 

    Program participants have complained that VA has not been providing 
bidding instructions in a timely fashion. Program participants have 
also advised that delays on the part of the agency have resulted in 
delayed or postponed foreclosure sales and ultimately increased costs 
of loan termination to VA, the veteran, and the loan holder.
    Accordingly, VA is proposing to add a new Sec.  36.4319a, entitled 
``Loan Termination.'' This new section will require loan holders to 
calculate the net value of the security property for each loan being 
terminated. Under the proposed rule, at least 30 days prior to the 
scheduled or anticipated date of the liquidation sale, the loan holder 
must request that VA assign an appraiser to conduct a liquidation 
appraisal.
    Under existing regulations, Sec.  36.4301, the term ``liquidation 
sale'' includes voluntary deeds-in-lieu of foreclosure. VA is proposing 
to amend the definition of ``liquidation sale'' to clarify that such 
term includes a ``compromise sale'' (see the discussion under the 
heading, ``Deeds-in-lieu of Foreclosure and Compromise Sales,'' above). 
Following a compromise sale, the holder will submit a claim under the 
guaranty to VA for the unpaid balance on the loan.
    The liquidation appraisal will ordinarily be valid for 6 months. VA 
may, however, specify a shorter validity period on the appraisal if 
rapidly-changing market conditions make such shorter period in the best 
fiscal interests of the United States.
    At this point, one of two scenarios will occur. VA is proposing to 
permit certain loan holders, within guidelines being established by VA, 
to review the appraisal report and determine the fair

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market value of the property (see the discussion under the heading, 
Servicer Appraisal Processing Program, below).
    If the holder is not eligible to participate in the Servicer 
Appraisal Processing Program (SAPP), VA will review the liquidation 
appraisal report and determine the fair market value of the property. 
VA will then inform the holder of such fair market value in writing.
    Once the holder has either been advised of or determined the fair 
market value of the security property, the holder will then calculate 
the net value using the published percentage-factor. The holder will 
then determine what to bid on the property at the liquidation sale, 
taking into account the net value of the property the holder has 
calculated, the obligor's total indebtedness, and the formulae 
contained in 38 U.S.C. 3732(c).
    The loan holder's accounting records will contain sufficient 
information to enable the holder to determine the total indebtedness. 
VA also proposes to insert in Sec.  36.4301 a definition of the term 
``Total Indebtedness.'' For purposes of 38 U.S.C. 3732(c), ``Total 
Indebtedness'' will mean the sum of the unpaid principal on the loan as 
of the date of the liquidation sale, accrued unpaid interest, subject 
to the maximum interest allowable (which is discussed below under the 
heading Time for Loan Termination and Limit on Interest and Charges) 
and fees and charges permitted to be included in the guaranty claim by 
the regulations.
    Because the statute contains clear guidance regarding how the 
guaranty is calculated and when the holder may convey the security to 
VA, there is no need for VA to provide bidding instructions in each 
case where there is an actual foreclosure proceeding or other 
liquidation sale. VA will, however, provide periodic training for all 
loan holders and servicers regarding net value calculation and bidding 
procedures.
    VA is also proposing a clarifying amendment to Sec.  36.4321 
regarding claim payments when the holder accepts a voluntary conveyance 
of the property in lieu of foreclosure. Under the formulae contained in 
38 U.S.C. 3732(c), in order for VA to compute the guaranty claim 
payable to the holder, it is necessary to know the amount for which the 
holder acquired the property at the liquidation sale. Unlike a 
traditional foreclosure sale, when a holder accepts such a voluntary 
conveyance there is no public bid or exchange of funds. Therefore, VA 
is proposing to add language to Sec.  36.4321(c)(2) stating that, in 
the case of a voluntary conveyance in lieu of foreclosure, the holder 
shall be deemed to have acquired the property at the liquidation sale 
for the lesser of the net value of the property or the obligor's total 
indebtedness.
    Editorial changes are also proposed to be made to Sec.  36.4320 to 
reflect that the holder will be computing the net value and to remove 
unnecessary language that merely repeats, without further elaboration, 
the formulae contained in 38 U.S.C. 3732(c). In addition, VA is 
proposing to delete the provision in Sec.  36.4320(c), which requires a 
holder to obtain advance approval from VA before accepting a deed-in-
lieu of foreclosure.

Servicer Appraisal Processing Program

    Under current procedures, prior to the liquidation sale loan 
holders request that VA assign an appraiser from the VA fee panel to 
perform a liquidation appraisal. VA then reviews this appraisal and 
determines the fair market value of the property. As explained above, 
this fair market value is used to calculate the net value of the 
property.
    As discussed above, industry representatives have complained that 
VA does not furnish timely bidding information. VA believes that 
permitting holders to complete the net value computation will help 
alleviate this situation. VA recognizes, however, that delays can still 
occur when VA obtains and reviews the liquidation appraisal. VA has 
received suggestions that VA move to another method of valuing 
properties at liquidation, such as broker price opinions and automated 
valuation models. VA carefully considered such alternatives, and 
concluded not to adopt an alternative valuation method at this time. VA 
believes by randomly assigning the valuation to a member of VA's fee 
panel, the opportunity for fraud and undue influence is greatly 
reduced. Further, VA already has a panel of appraisers in place. VA 
will continue to monitor the work of its fee appraisers, and emphasize 
the necessity of performing liquidation appraisals in a timely manner.
    Public Law 100-198, enacted December 21, 1987, authorized the 
Lender Appraisal Processing Program (LAPP) where VA could permit 
qualified lenders, under guidelines issued by VA, to review loan-
origination appraisals, ensure adherence to VA-published minimum 
property requirements, and set the reasonable value of properties for 
purposes of determining the maximum loan VA could guarantee. VA's 
experience is that the LAPP has worked well and often expedites the 
loan-origination process.
    Accordingly, VA is also proposing to establish a Servicer Appraisal 
Processing Program (SAPP), modeled after the LAPP guidelines, which are 
contained in Sec.  36.4344.
    Under the proposed SAPP, VA is proposing to delegate authority to 
qualified employees of the servicer to review liquidation appraisals 
and issue Notices of Value that establish the fair market value of the 
property for use when determining the net value of the property for 
liquidation purposes. The proposed SAPP will be similar to the current 
LAPP guidelines and will require the same qualifications for Staff 
Appraisal Reviewer approval.

Time for Loan Termination and Limit on Interest and Charges

    In computing the guaranty claim, as explained above under the 
heading ``Calculation of Net Value,'' when VA computes the amount 
payable under the guaranty, one of the statutory factors affecting this 
calculation is the obligor's total indebtedness. Under the legal 
instruments evidencing the loan, an obligor's total debt would 
ordinarily include all accrued but unpaid interest through the date of 
the liquidation sale. In addition, Sec.  36.4313 allows a holder to 
advance and include as part of the total indebtedness certain 
reasonable costs and charges. VA is permitted by 38 U.S.C. 3732(a)(3), 
however, to establish a date not later than the date of judgment or 
decree of foreclosure or sale, upon which the accrual of interest and 
other charges shall cease. Currently, Sec.  36.4319(f) provides that if 
the holder does not bring appropriate action to terminate the loan 
within 30 days after being requested to do so by VA, than VA may fix a 
date after which interest and other charges will no longer accrue.
    As part of the Loan Administration redesign process, VA has 
concluded that holders should be given a reasonably-objective standard 
for determining when the foreclosure of a defaulted loan would be 
expected to have been completed. VA further has concluded that the 
accrual of interest and other charges, for purposes of a guaranty 
claim, should cease after the holder has had such reasonable time to 
complete loan termination.
    VA is therefore proposing to repeal the existing Sec.  36.4319(f) 
which currently provides for an interest cut-off date.
    VA is also proposing to add a new Sec.  36.4319a that would require 
a holder of a loan in serious default to expeditiously and diligently 
pursue foreclosure as permitted under law once the decision to 
foreclose has been made. This section contains a table stating the 
length of time a holder, exercising reasonable diligence, should be 
able to complete the foreclosure in each State.

[[Page 8477]]

In formulating that table, VA will consider the published foreclosure 
timeframes for similar loans used by the U.S. Department of Housing and 
Urban Development (HUD), Fannie Mae, and Freddie Mac. VA will 
periodically review the continued reasonableness of such timeframes, 
and propose adjustments if needed, especially if changes in State law 
have a significant impact on the continued ability of holders to meet 
such timeframes.
    VA is also proposing to require holders to notify VA five business 
days prior to the foreclosure of any loan where the veteran has 
substantial equity in the property securing the loan. Holders will 
determine the equity by subtracting the total indebtedness on the 
guaranteed loan plus the balance owed on other liens of record from the 
fair market value of the property securing the loan. If the equity 
equals at least 25% percent of the fair market value of the security, 
this notice will be required.
    VA expects loan holders to aggressively work with veterans in 
default who have significant equity and attempt to find ways to avoid 
foreclosure. As discussed above, VA is also proposing to provide 
servicers incentives for the successful implementation of loss-
mitigation alternatives to foreclosure options. VA believes these loss-
mitigation servicing efforts are and will be generally successful. 
Nevertheless, VA is proposing to require this notice as a final effort 
to try to prevent a veteran needlessly losing substantial equity 
through foreclosure. This notice will enable VA to review the servicing 
history and ensure that every reasonable effort was made to avoid 
foreclosure.
    Once the holder has given VA this notice, the holder may proceed 
with the foreclosure unless specifically instructed by VA to do 
otherwise. VA does not intend that this requirement will give veterans 
who have substantial equity in the property any special rights or 
treatment, or that the notice will automatically trigger any delay in 
the foreclosure. It merely provides VA the opportunity to take one last 
look and intervene in cases where VA, in its sole judgment, considers 
such action to be appropriate.
    This proposal will also define the term ``business day'' to be 
Monday through Friday, inclusive, excluding Federal holidays.
    In lieu of the current procedure where VA notifies holders on a 
case-by-case basis of a cut-off date after which interest and fees will 
no longer be paid, VA is proposing to amend Sec.  36.4321 to provide 
that the maximum unpaid interest which will be allowed under a guaranty 
claim will be the lesser of total unpaid interest as of the liquidation 
sale or interest for the timeframe VA specified under the proposed 
Sec.  36.4319a(a) plus 180 days. VA is also proposing to amend Sec.  
36.4313 to state that advances and property expenses accruing more than 
the number of months VA specifies for liquidation to be completed plus 
180 days from the date of the first uncured default may not be included 
in the claim.
    VA may, however, permit additional interest, fees, and charges if 
the holder was unable to complete the foreclosure due to bankruptcy of 
the debtor, appeals of the foreclosure judgments, forbearance in excess 
of 30 days granted at the request of VA, or other factors beyond the 
control of the holder. The determination of whether to permit 
additional interest and charges to be included in the claim will be 
made by those officials specified in Sec.  36.4342(b). This rule will 
further provide that the Loan Guaranty Officer is authorized to 
redelegate the authority to make determinations to allow additional 
interest and other costs.
    VA wishes to note that establishing a maximum amount of interest 
allowable in a claim is not intended to be a deadline for initiating 
foreclosure. VA will include sufficient time in the foreclosure 
completion timeframes to allow a holder exercising reasonable diligence 
to complete the foreclosure without losing the right to include in the 
guaranty claim all unpaid interest and otherwise-allowable fees and 
charges.
    The proposed rule would also make editorial changes to paragraphs 
(b) and (c) of Sec.  36.4321 consistent with this proposed rule.

Attorneys Fees

    Currently, Sec.  36.4313(b)(5) permits a holder that has foreclosed 
a VA-guaranteed loan to include as part of their guaranty claim a 
reasonable amount for legal services necessary to terminate the loan. 
The amount of attorney fees which may be included in the claim may not 
exceed the lesser of 10 percent of the outstanding indebtedness or 
$850. The current regulation also permits additional fees approved in 
advance by VA. By administrative circular, VA has given blanket consent 
to field offices permitting some additional fees for bankruptcy. In 
addition, the current rule restricts the combined total of attorney 
fees and trustee fees allowed by Sec.  36.4313(b)(4) to $850.
    It has been the position of VA that the allowance of legal fees was 
never intended to limit the amount the loan holder may pay for legal 
services. It merely limited the amount that VA would reimburse the 
holder. As a practical matter, however, VA has been advised, on 
numerous occasions, that many loan holders effectively limit what they 
will pay counsel for legal services in connection with the termination 
of VA guaranteed loans to what VA will reimburse the holder. The legal 
fees VA permits are often significantly less than fees for similar 
services permitted under other Federal housing programs or by 
federally-chartered market investors. VA believes that, in some 
instances, attorneys give less priority to work related to the 
termination of VA guaranteed loans than to loans where attorney fees 
are greater. That can lead to costly delays.
    Under the proposed rule, Sec.  36.4313 will be amended to permit 
holders to include in their claim legal fees not to exceed the 
reasonable and customary charge for such services in the State where 
the property is located. VA will publish at least annually following 
publication of the final rule in the Federal Register a schedule 
listing the reasonable and customary fees for various services such as 
foreclosure actions, deeds-in-lieu of foreclosure, and bankruptcies for 
each State. In formulating this schedule, VA will consider the 
published allowance for attorney fees permitted for single-family loan 
terminations by HUD, Fannie Mae, and Freddie Mac.
    Upon publication of the final rule, the following schedule of 
allowable fees for services will be effective and will remain unless 
changed by publication in the Federal Register as stated in the above 
paragraph:
BILLING CODE 4191-02-P

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BILLING CODE 4191-02-C

[[Page 8480]]

    The rule will retain the limit that the combined total of attorney 
fees and trustee fees may not exceed the maximum allowance for attorney 
fees.

Submitting Claims Under the Guaranty

    Under current regulations, the holder does not have any deadline 
for filing a claim with respect to a terminated guaranteed housing 
loan.
    The Federal Credit Reform Act of 1990, 2 U.S.C. 661, requires all 
Federal agencies to determine the actual cost of making and 
guaranteeing loans. For budgetary purposes, the cost is attributed to 
the ``cohort year'' in which the loan is guaranteed or made. For 
example, all costs related to a loan guaranteed by VA in Fiscal Year 
2002 are attributed to the funds appropriated for that year, regardless 
of when a particular loan is terminated or when a specific cost is 
actually paid. Agencies are required to re-estimate the costs annually 
of all loans guaranteed or made for each cohort year. The fact that a 
certain number of loans for a particular cohort year were terminated 
and the Government was required to pay a claim or acquire a property is 
important information needed to make the annual re-estimate.
    To ensure accuracy in the Federal budget process, VA needs to know 
within a reasonable time that specific loans for particular cohort 
years have been terminated and that costs will be incurred.
    VA recognizes that holders cannot file a claim immediately upon 
termination because the holders need time to receive all bills and 
reconcile their accounts. VA believes, however, that holders should be 
able to ascertain all necessary information and submit a claim within 1 
year of the completion of the loan termination process.
    Accordingly, VA is proposing to amend Sec.  36.4321 to require a 
holder to submit a guaranty claim electronically within 1 year of the 
completion of the liquidation sale. For purposes of this requirement, 
the liquidation sale will be considered completed when the last act 
required under state law is taken to either make the liquidation sale 
final, or obtain a judgment, a confirmation, or an approval of the 
sale, excluding any redemption period.
    When the holder accepts a voluntary conveyance in lieu of 
foreclosure, the liquidation sale will be deemed completed when the 
owner executes a deed to the holder or the holder's designee. In the 
case of a compromise sale, the liquidation sale will be deemed 
completed on the date of settlement.
    With respect to any loan where the liquidation sale was completed 
prior to the effective date of the final rule, the guaranty claim must 
be submitted within 1 year after the effective date of the final rule.
    If a holder files a claim within this one-year period and new 
information subsequently comes to light, this proposal would also 
permit supplemental claims based on this new information, provided that 
the supplemental claims are filed within this one-year window. No 
claims will be considered if they are filed after this one-year period 
has elapsed.
    This section will also permit a holder to request that the Loan 
Guaranty Officer reconsider any item in the claim that was denied, 
provided that such a request for reconsideration is made electronically 
within 30 days after the holder is advised that one or more items in 
their claim have been denied. This rule will further provide that the 
Loan Guaranty Officer is authorized to redelegate the authority to make 
a determination on a reconsideration.

Records Retention and Post-Audit

    In order to expedite claim payment, VA will not ordinarily require 
the routine submission and review of supporting documentation, such as 
copies of bills and receipts, prior to payment of guaranty claims. In 
order to ensure the fiscal integrity of the program, VA will, however, 
perform a full review, on a post-audit basis, of a random sample of 
claims filed by each servicer to ensure that amounts claimed are proper 
and fully supported. The size of the sample audited and the frequency 
of audits may be increased if VA finds a greater frequency of errors in 
claim submissions by a particular holder. VA anticipates that the size 
of the sample and the frequency of audit would be reduced for servicers 
in tier one, and increased for servicers in tiers three and four. In 
all cases, however, the size and frequency of audit will be based on a 
statistically valid sampling methodology, and the size of the sample 
and the frequency of audit would be immediately adjusted if significant 
errors or irregularities were discovered.
    Likewise, VA will not require holders to submit back-up 
documentation regarding their credit underwriting when holders modify 
existing loans under the proposed revision to Sec.  36.4314. However, 
VA will review the back-up documentation for a sample of modified loans 
as part of the routine post-audit process.
    Accordingly, in order to ensure VA is able to perform such audits 
and ensure the fiscal integrity of the loan guaranty program, VA is 
proposing to amend Sec.  36.4330, which pertains to maintenance of 
records. Currently, this section requires holders to maintain records 
of payments received on a loan and disbursements chargeable to such 
loan until the Secretary is no longer liable as guarantor of such loan. 
It also requires the lender to retain copies of all loan origination 
records for at least two years after loan closing. This section also 
grants VA the right to inspect, examine, or audit these records at a 
reasonable time and place.
    VA is proposing to modify that section to require that, if the 
Secretary pays a claim on a guaranty, the records currently required to 
be maintained by Sec.  36.4330(a) relating to payments received and 
disbursements chargeable to the loan be maintained electronically until 
3 years after the Secretary made such claim payment.
    Pursuant to the proposed amendments to Sec.  36.4314, VA is also 
proposing to require holders who modify loans to maintain the records 
supporting their decision to modify the loan for 3 years after the 
modification agreement is executed. Such records would include credit 
reports, verifications of income, employment, assets, liabilities, and 
other factors affecting the obligor's credit worthiness, work sheets, 
and any other documents supporting the holder's decision to modify the 
loan.

Title Evidence

    VA is proposing to standardize the documentation required as 
evidence of acceptable title to the Secretary. Currently, the 
documentation required may vary significantly depending on the property 
jurisdiction. In many cases, VA is requiring servicers to obtain title 
policies insuring the Secretary following the foreclosure. VA's 
experience has not demonstrated that obtaining title insurance is cost 
effective and this requirement is therefore being eliminated. VA is 
proposing that title evidence presented for conveyance of a property be 
standardized across all jurisdictions and reducing the amount of 
documentation required. VA will accept as evidence of title conveyance: 
a copy of the original mortgage, deed of trust, or other security 
instrument used for the terminated guaranteed loan, a copy of the deed 
or document evidencing transfer of interest and title at the 
foreclosure sale, and a Special Warranty Deed conveying title to the 
Secretary. The holder will be deemed to warrant marketability of the 
title to the property for 3 years after transfer to VA.
    VA is proposing to add a provision that, when property is conveyed 
to VA, title should be conveyed to the ``Secretary of Veterans Affairs, 
an

[[Page 8481]]

Officer of the United States.'' The name of the current incumbent 
Secretary should not be included unless State law requires naming a 
real person. This complies with internal guidance currently contained 
in VA operating manuals.
    VA is also proposing to delete, as obsolete, the language in Sec.  
36.4320(h)(5) (redesignated as paragraph (c)(5) in this proposed rule) 
stating that a violation of a restriction based on race, color, creed, 
or national origin will not cause the conveyance of the property to be 
unacceptable to VA. Court decisions and fair housing laws enacted since 
the current rule was originally issued shortly after World War II have 
made clear that any deed restrictions or recorded covenants purporting 
to restrict the ownership or occupancy of housing based upon race, 
color, religion, national origin, or any other prohibited 
classification are absolutely void and unenforceable, and any attempt 
to enforce such a restriction or otherwise discriminate in the sale, 
rental, financing, or providing of brokerage services with regard to 
residential real property is unlawful. Therefore, VA sees no need to 
continue to refer to such unfortunate historical relics in the title 
regulations.

Miscellaneous Servicing Procedures

    VA is also proposing to amend Sec.  36.4346 which pertains to 
servicing procedures for holders.
    VA proposes to amend paragraph (c) of that section to require the 
holder to provide an annual statement of interest paid, and taxes 
disbursed within 30 days following the end of the calendar year. This 
rule currently requires such statement within 60 days of the end of the 
calendar year. This amendment will conform Sec.  36.4346 to the 
requirements of 12 U.S.C. 2601, et. seq., the Real Estate Settlement 
Procedures Act (RESPA). Because VA assumes holders are now complying 
with RESPA requirements, VA does not believe this proposed change will 
have any impact on holders.
    VA is also proposing to amend paragraph (g)(1) of that section. 
That paragraph sets forth minimum collection actions holders must 
undertake when a guaranteed loan is in default. VA is proposing to 
delete the current requirement that the holder send a written notice to 
any borrower if a loan installment payment is not received within 17 
days after the due date. The current rule requires that this notice be 
mailed no later than the 20th day of the delinquency.
    VA is also proposing to require holders to send a new letter to 
certain delinquent borrowers. This new letter would be required to be 
sent if, within the first 6 months following the loan closing or the 
execution of a modification agreement under the proposed revision to 
Sec.  36.4314, the borrower is 45 days delinquent on a loan payment, 
or, in the case of any other default, a payment is 75 days delinquent. 
This letter must be mailed within 5 business days after the payment is 
delinquent for the time period stated in the preceding sentence. The 
letter shall contain at least the following information:
    (1) A toll-free telephone number and, if available, an e-mail 
address for contacting the servicer;
    (2) Explain the loss mitigation options that may be available to 
the borrower; and
    (3) Emphasize that the intent of loan servicing is to retain home 
ownership whenever possible.
    In addition, this letter must contain the following language:

    The delinquency of your mortgage loan is a serious matter that 
could result in the loss of your home. If you are the veteran whose 
entitlement was used to obtain this loan, you can also lose your 
entitlement to a future VA home loan guaranty. If you are not 
already working with us to resolve the delinquency, please call us 
to discuss your workout options. You may be able to make special 
payment arrangements that will reinstate your loan. You may also 
qualify for a repayment plan or loan modification.
    VA has guaranteed a portion of your loan and wants to ensure 
that you receive every reasonable opportunity to bring your loan 
current and retain your home. VA can also answer any questions you 
have regarding your entitlement. If you have access to the Internet 
and would like to obtain more information, you may access the VA Web 
site at https://www.va.gov. You may also learn where to speak to a VA 
Loan Administration representative by calling 1-800-827-1000.

    In addition, VA is proposing to amend the last sentence of 
paragraph (i)(2) of Sec.  36.4346, which concerns procedures for when a 
holder learns that the property securing a guaranteed loan may have 
been abandoned. Currently, this provision requires that, with respect 
to a loan more than 30 days delinquent, if the holder confirms that the 
property is abandoned, the holder must so notify VA within 15 days. VA 
is proposing to revise this provision to require the holder to report 
to VA within 5 business days of confirming that the property has been 
abandoned or subjected to extraordinary waste or hazard, and to 
immediately initiate action to protect the property and terminate the 
loan.
    Minor editorial and conforming amendments are also being made to 
this section.

Processing Release of Liability

    VA is also proposing to authorize all holders or their servicing 
agent who are authorized to process loans under the automatic 
processing authority to process releases of liability for loans 
originated prior to March 1, 1988. Authority has already been given to 
those certain holders or their servicing agents to process releases of 
liability for loans originating after March 1, 1988.

Paperwork Reduction Act of 1995

    Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521), a 
collection of information is set forth in the provisions of Sec. Sec.  
36.4314, 36.4315a, 36.4317, 36.4318, 36.4319, 36.4320, 36.4321, 
36.4323, 36.4324, and 36.4344a.
    OMB assigns control numbers to collections of information it 
approves. VA may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid OMB control number.
    Comments on the collections of information should be submitted to 
the Office of Management and Budget, Attention: Desk Officer for the 
Department of Veterans Affairs, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Director, Regulations 
Management (00REG1)), Department of Veterans Affairs, 810 Vermont 
Avenue, NW., Washington, DC 20420. Comments should indicate that they 
are submitted in response to ``RIN 2900-AL65.''
    Title: Loan Guaranty--Loan Servicing and Claims Procedures 
Modifications.
    Summary of Collection of Information: Under these proposed 
regulatory amendments, parties servicing VA guaranteed loans must 
comply with the following program changes (broken down by regulation):
     Section 36.4314 `` Under this section, VA proposes 
requirements that loan servicers must apply to process loan 
modifications. Current provisions are ambiguous as to when servicers 
are required to process documentation of loan modifications.
     Section 36.4315a `` Proposed changes to this section would 
increase the reporting burden for (a) current loans, (b) loss 
mitigation actions, and (c) foreclosure alternatives considered for 
delinquent loans and certain specific loan events (e.g., servicing 
transfer) as they may occur. While these proposed changes would most 
likely result in an increase in the number of defaults being reported, 
due to changes in reporting processes attributable to technological 
advances, the current reporting burden

[[Page 8482]]

for Sec.  36.4315a(d) with regard to default reporting would be reduced 
from 10 minutes per loan to about 1 second per loan. As a result, the 
overall burden imposed by this section would be significantly reduced.
     Section 36.4317--This section proposes to establish an 
incentive system to encourage servicers to perform certain loss 
mitigation and foreclosure avoidance actions instead of VA performing 
these actions. Elimination of the currently-required Notice of 
Intention to Foreclose would eliminate an annual reporting burden of 
15,075 hours.
     Section 36.4318--This proposed change provides for the 
possible temporary suspension of property acquisition and claim 
payments, at the discretion of the Secretary, for certain servicers who 
continually fail to provide the loan transfer legal documents to VA in 
a timely manner. VA expects to exercise its authority to refund a loan 
only infrequently because of proposed changes discussed elsewhere in 
this publication. Therefore, we estimate that there will be a 95% 
reduction in the number of refunding cases completed annually. Since 
the refunding request carries certain paperwork burdens, estimated at 5 
minutes per case, we estimate that there will be a net decrease in this 
burden by 197 hours.
     Section 36.4319--Proposed changes to this section would 
result in a significant reduction in the reporting and recordkeeping 
burden to the public. First, under existing requirements, loan 
servicers are required to provide a copy of all legal notices or 
filings to the Secretary in all legal proceedings, including bankruptcy 
and foreclosure. VA proposes to eliminate this requirement. In 
addition, this proposal would also eliminate the requirement that a 
servicer send VA a completed VA FL 26-567 in every potential loan 
termination. The net decrease in the public's reporting and 
recordkeeping burden is estimated at just over 26,000 hours.
     Section 36.4320--This section proposes a modification in 
the way in which servicers may file an election to convey a property to 
VA and reduces the amount of information VA currently obtains from a 
servicer when properties are conveyed to VA. As a result of this 
proposed change, the net reporting burden would be decreased by 2,500 
hours annually.
     Section 36.4321--This proposal would change the manner in 
which claims are filed from paper submission to electronic data 
transfer, would reduce the amount of data and documentation required 
for servicers to file claims, and would limit the amount of time a 
servicer has to file a claim under guaranty. This proposal would not 
require any additional data collection beyond what is currently being 
collected, but would change the transfer media from paper to 
electronic. VA estimates that this change would reduce the annual net 
reporting burden by 22,297 hours.
     Section 36.4323--The proposed amendment to this section 
would extend authority to servicers who are authorized to process loans 
under the automatic processing authority to process releases of 
liability for loans originated prior to March 1, 1988. The change also 
allows servicers to collect processing fees at the same rate as 
authorized for processing releases of liability for loans originating 
after March 1, 1988. Current processes require servicers to complete 
and submit a statement of account to VA on each case (VA FL 26-559). 
This OMB-approved form letter carries a respondent burden of 10 
minutes. Since this form letter will no longer be required, the 
existing respondent burden would be reduced. However, since servicers 
would have to process releases of liabilities under this proposal, 
there will be an increased number of occurrences. We estimate an annual 
increased respondent burden of 2,067 hours.
     Section 36.4324--Pursuant to the proposed change to this 
section, VA would delegate authority to servicers to process partial 
releases without prior VA approval if specific conditions are met. 
Currently, servicers must provide VA with paper copies of all documents 
required for VA to make the decision. Under the proposed process, the 
servicer will not be obtaining and forwarding those documents to VA 
since the servicer will be making the decision. In those cases in which 
the servicer would have to obtain an appraisal and review