Loan Guaranty: COVID-19 Veterans Assistance Partial Claim Payment Program, 79142-79161 [2020-26964]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 85, Number 237 (Wednesday, December 9, 2020)]
[Proposed Rules]
[Pages 79142-79161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26964]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 85, No. 237 / Wednesday, December 9, 2020 / 
Proposed Rules

[[Page 79142]]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 36

RIN 2900-AR05


Loan Guaranty: COVID-19 Veterans Assistance Partial Claim Payment 
Program

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

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SUMMARY: The Department of Veterans Affairs (VA) proposes to establish 
the COVID-19 Veterans Assistance Partial Claim Payment program (COVID-
VAPCP), a temporary program to help veterans return to making normal 
loan payments on a VA-guaranteed loan (guaranteed loan) after exiting a 
Coronavirus Aid, Relief, and Economic Security Act (CARES Act) 
forbearance period. Under this proposed program, a servicer could 
consider a partial claim option after the servicer has evaluated all 
loss-mitigation options for feasibility. If the veteran qualifies and 
opts to move forward, VA would act as a mortgage investor of last 
resort by purchasing the amount of indebtedness necessary to bring the 
veteran's guaranteed loan current. The veteran would have up to 60 
months to defer repayment to VA and up 120 months to repay the loan in 
full, with the interest rate fixed at 1 percent per annum.

DATES: Comments must be received on or before January 8, 2021.

ADDRESSES: Comments may be submitted through www.Regulations.gov or 
mailed to Stephanie Li, Chief of Regulations, Loan Guaranty Service 
(26), Veterans Benefits Administration, Department of Veterans Affairs, 
810 Vermont Avenue NW, Washington, DC 20420. Please note that due to 
circumstances associated with the COVID-19 pandemic, VA discourages the 
submission of comments by mail. Comments should indicate that they are 
submitted in response to ``RIN 2900-AR05--Loan Guaranty: COVID-19 
Veterans Assistance Partial Claim Payment Program.'' Comments received 
will be available at regulations.gov for public viewing, inspection or 
copies.

FOR FURTHER INFORMATION CONTACT: Andrew Trevayne, Assistant Director, 
Loan Property and Management, Loan Guaranty Service (26), Veterans 
Benefits Administration, Department of Veterans Affairs, 810 Vermont 
Avenue NW, Washington, DC 20420, (202) 632-8862. (This is not a toll-
free telephone number.)

SUPPLEMENTARY INFORMATION:

I. Summary of the Proposed Rule

    One of the primary goals of VA's Home Loan Guaranty Service is to 
help veterans who use their guaranteed loan benefit retain their homes 
and avoid foreclosure. To that end, VA and loan servicers intervene 
dynamically when guaranteed loans are more than 60 days in default. 
Such actions to assist veterans in default not only help veterans 
retain their homes and minimize damage to their credit ratings, but 
also help produce cost savings to the Government.
    Given the unique needs of veterans and loan servicers during the 
novel coronavirus disease (COVID-19) national emergency, VA proposes to 
initiate a temporary program that would establish a partial claim 
option to aid veterans who suffer financial hardship due to COVID-19. 
VA's program would be modeled after existing partial claim programs 
already available to borrowers with other federally backed loans; that 
is, those guaranteed or insured by the U.S. Department of Housing and 
Urban Development's (HUD) Federal Housing Administration (FHA) and the 
U.S. Department of Agriculture's (USDA) Rural Housing Service.
    Under VA's proposed COVID-VAPCP, servicers would consider a veteran 
for the program only after evaluating the feasibility of loss-
mitigation options that are already available in VA's program. If a 
servicer determines that the veteran satisfies the COVID-VAPCP 
requirements and the veteran elects to participate, VA would purchase 
the veteran's forborne indebtedness, which is similar to VA's existing 
loan refund process. As a mortgage investor of last resort, VA would 
purchase the amount of indebtedness that is necessary to bring the 
veteran's guaranteed loan current. The veteran would repay VA for this 
amount, and the indebtedness would be secured as a lien against the 
veteran's home upon execution and recordation of the security 
instrument. The servicer would handle all aspects of the origination. 
With the veteran's guaranteed loan brought current, the veteran would 
resume making regularly scheduled monthly loan payments to the 
servicer. The veteran would also repay VA for the new loan, under the 
terms proposed below. The new loan would be serviced under VA's 
existing loan portfolio.
    While VA's proposed COVID-VAPCP would bear many similarities to the 
COVID-related partial claim programs offered by FHA and USDA,\1\ VA's 
program would not be identical to either. Similarities to such 
agencies' programs would include the following: (1) The guaranteed loan 
for which a partial claim payment is requested must have been, on March 
1, 2020, either current or less than 30 days past due; (2) a partial 
claim payment would only be payable to the servicer if the veteran 
missed at least one scheduled monthly payment under a CARES Act 
forbearance and at least one such payment remains unpaid; (3) VA would 
only pay one partial claim payment per veteran; (4) the veteran would 
need to occupy, as the veteran's residence, the property securing the 
guaranteed loan for which the partial claim is associated; and (5) the 
servicer would be required to determine whether the veteran satisfies 
the program requirements, to prepare the appropriate loan documents on 
VA's behalf, and to bring the veteran's guaranteed loan current, before 
submitting to VA a request for partial claim payment.
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    \1\ See 12 U.S.C. 1715u(b); 24 CFR 203.371; Mortgagee Letter 
2020-06, FHA's Loss Mitigation Options for Single Family Borrowers 
Affected by the Presidentially-Declared COVID-19 National Emergency 
in Accordance with the CARES Act (Apr. 1, 2020), https://www.hud.gov/sites/dfiles/OCHCO/documents/20-06hsngml.pdf; Mortgagee 
Letter 2020-22, FHA's COVID-19 Loss Mitigation Options (Jul. 8, 
2020), https://www.hud.gov/sites/dfiles/OCHCO/documents/20-22hsgml.pdf. See also 42 U.S.C. 1472(h)(14); 7 CFR 3555.304(d).
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    Distinguishing aspects of VA's program would include the following: 
(1) The partial claim payment could not exceed 15 percent of the unpaid 
principal balance of the guaranteed loan as of the date the veteran 
entered into a CARES Act forbearance; (2) the veteran would have up to 
120 months to repay the partial claim VA paid to the servicer on the 
veteran's behalf; (3)

[[Page 79143]]

repayment in full would be required immediately upon the veteran's 
transfer of title to the property, the refinancing of the guaranteed 
loan for which the partial claim payment is associated, or payment in 
full of such guaranteed loan; (4) VA would automatically defer a 
veteran's monthly payments for the first 60 months of the loan, meaning 
that a veteran would not have to make any payment to VA during the 
period of deferment; (5) a veteran would be allowed to pay during such 
deferment, without premium or fee, the entire indebtedness or any 
portion thereof, provided that such portion is not less than what would 
be due for one full monthly payment as specified in the loan documents; 
(6) VA would charge a fixed interest rate of 1.00 percent per annum on 
the loan; and (7) VA would require servicers to certify that the 
veteran's monthly residual income, as described in 38 CFR 36.4340(e), 
would be adequate to meet living expenses after estimated monthly 
shelter expenses (e.g., payments on the guaranteed loan) have been paid 
and other monthly obligations have been met.
    Another distinguishing aspect of VA's program is that VA would 
expect that servicers consider the partial claim payment option only as 
a last resort, after a servicer has evaluated the feasibility of 
providing loss-mitigation options that are already available in VA's 
program. Consistent with VA's existing regulations and policies, 
servicers would evaluate a veteran's financial situation and, if 
appropriate, offer the veteran options that are within the servicer's 
financial capabilities and business model.
    As initial CARES Act forbearance periods near their end, VA 
stakeholders confront numerous decisions that have far-reaching 
consequences. Many veterans, for example, must decide whether to 
request additional forbearance and watch their forborne indebtedness 
grow, or attempt to resume their regularly scheduled monthly payments, 
despite potential hardships and uncertainties caused by the national 
emergency. VA's partial claim assistance may well be the determining 
factor for certain veterans, affecting the extent to which they can 
recover financially from the crisis. Similarly, servicers must evaluate 
their liquidity positions and other factors to determine how to make 
the advances necessary for investor requirements. Some servicers may 
even be questioning whether they can stay afloat, which ultimately 
harms not just the servicer, but also the veterans whose guaranteed 
loans are being serviced.
    VA's proposed COVID-VAPCP would create a ``soft landing'' for 
certain veterans, enabling them to return to their regularly scheduled 
monthly payments without suffering another financial shock. The program 
would also provide a lifeline for certain servicers, thereby mitigating 
the risk that veterans would be left without the benefit of prudent 
loan servicing.

II. Background

A. VA's Existing Policies for Delinquent Loans

    VA's loan administration policies and oversight have resulted in 
one of the lowest foreclosure inventory rates in the industry over the 
past decade.\2\ Data reported in the most recent Veterans Benefits 
Administration Annual Benefits Report reflects that such policies and 
oversight saved approximately 100,000 veterans from foreclosure 
annually over the past four fiscal years.\3\
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    \2\ Mortgage Bankers Association, National Delinquency Survey 
Data, 2010 through 2020, https://www.mba.org/news-research-and-resources/research-and-economics/single-family-research/national-delinquency-survey.
    \3\ See VBA Annual Benefits Report: Home Loan Guaranty, Fiscal 
Year 2019, page 19, https://www.benefits.va.gov/REPORTS/abr/docs/2019-loan-guaranty.pdf.
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    VA requires holders of guaranteed loans to establish and maintain a 
loan servicing program consistent with industry standards.\4\ If a 
veteran misses one loan payment, the guaranteed loan becomes 
delinquent.\5\ Once a guaranteed loan reaches 61 days delinquent, 
servicers are required to report the delinquency to VA, to work with 
the veteran to consider loss-mitigation options or alternatives to 
foreclosure, and to report updates on the status of the guaranteed loan 
to VA.\6\ Upon notification to VA, a VA loan technician will review the 
case, monitor servicer activities, and intervene as needed during the 
delinquency to ensure that the servicer has provided adequate servicing 
and has presented all appropriate options to attempt to reinstate the 
guaranteed loan or avoid foreclosure.
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    \4\ 38 CFR 36.4350(a).
    \5\ VA Servicer Handbook, VA Manual 26-4, Chap. 4: Delinquent 
Loan Servicing, 4.01a. (Feb. 26, 2019), https://www.benefits.va.gov/WARMS/docs/admin26/m26_04/Ch4.docx.
    \6\ 38 CFR 36.4317(c)(7) (requiring an electronic default 
notification (EDN) when the guaranteed loan becomes at least 61 days 
delinquent).
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    Servicers are ultimately responsible for utilizing loss-mitigation 
options and alternatives to foreclosure to help veterans avoid 
foreclosure. VA regulations allow VA to pay an incentive to a servicer 
whenever the servicer completes one of five borrower-assistance actions 
(i.e., loss-mitigation options and alternatives to foreclosure).\7\ 
Additionally, while VA generally does not require servicers to pursue 
loss-mitigation options and alternatives to foreclosure in a particular 
order, VA has informed servicers of VA's preferred order of 
alternatives (i.e., a hierarchy for review), as follows: Repayment 
plan, special forbearance, loan modification, compromise sale, and 
deed-in-lieu of foreclosure.\8\
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    \7\ 38 CFR 36.4319.
    \8\ 38 CFR 36.4319(a).
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    Loss-mitigation options are pursued with the intent of bringing the 
delinquent guaranteed loan current and keeping the veteran in his or 
her home. As mentioned, these options include repayment plans, special 
forbearances, and loan modifications. Under a repayment plan, the 
borrower agrees to pay the normal monthly payment plus an agreed upon 
portion of the delinquency each month to the servicer.\9\ A special 
forbearance suspends or reduces a borrower's normal monthly payments 
for an agreed upon period of time.\10\ A loan modification permanently 
changes one or more terms of the guaranteed loan and may include re-
amortization of the balance due. While all loan modifications must meet 
the requirements set forth by 38 CFR 36.4315, VA generally classifies a 
loan modification as one of four types--traditional loan modification, 
streamline modification, VA affordable modification, and VA disaster 
modification--depending on a borrower's circumstances.\11\
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    \9\ A repayment plan is a ``written executed agreement by and 
between the borrower and the holder to reinstate a loan that is 61 
or more calendar days delinquent, by requiring the borrower to pay 
each month over a fixed period (minimum of three months duration) 
the normal monthly payments plus an agreed upon portion of the 
delinquency each month.'' 38 CFR 36.4301.
    \10\ A special forbearance is ``a written agreement executed by 
and between the holder and the borrower where the holder agrees to 
suspend all payments or accept reduced payments for one or more 
months, on a loan 61 or more calendar days delinquent, and the 
borrower agrees to pay the total delinquency at the end of the 
specified period or enter into a repayment plan.'' 38 CFR 36.4301.
    \11\ VA Servicer Handbook, VA Manual 26-4, Chap. 5: Loss 
Mitigation, 5.06 (Feb. 26, 2019), https://www.benefits.va.gov/WARMS/docs/admin26/m26_04/Ch5_Loss_Mitigation.docx.
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    Servicers generally pursue compromise sales and deeds-in-lieu of 
foreclosure when a traditional, private sale is not feasible and the 
borrower either has no desire to retain the property or when a loss-
mitigation option is not feasible given the borrower's current 
financial circumstances. Under a compromise

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sale (sometimes called a short sale), the servicer agrees to release 
the guaranteed loan obligation in exchange for the proceeds of a sale 
to a third party for an amount that is less than the borrower's total 
indebtedness on the guaranteed loan.\12\ Under this alternative, the 
servicer recovers some portion of the unpaid balance of the guaranteed 
loan through the sale. In cases where there is little or no likelihood 
of a private sale or compromise sale, servicers should consider a deed-
in-lieu of foreclosure. Under this alternative to foreclosure, the 
borrower voluntarily transfers title to the property to the servicer in 
exchange for a release of all obligations under the guaranteed 
loan.\13\ VA considers compromise sales and deeds-in-lieu of 
foreclosure to be successfully completed when the servicer files a 
claim under VA's guaranty.\14\
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    \12\ A compromise sale is a sale to a third party for an amount 
less than is sufficient to repay the unpaid balance on the 
guaranteed loan where the holder has agreed in advance to release 
the lien in exchange for the proceeds of such sale. 38 CFR 36.4301. 
VA requirements for a compromise sale are set forth by 38 CFR 
36.4322(e).
    \13\ VA requirements for a DIL of foreclosure are set forth by 
38 CFR 36.4322(f).
    \14\ 38 CFR 36.4319(c).
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    In cases where servicers are unable to complete a loss-mitigation 
option or an alternative to foreclosure, servicers must, before 
initiating a foreclosure, provide VA with the option of what is 
commonly called a ``loan refund.'' This process, authorized under 38 
U.S.C. 3732, is where VA takes assignment of the existing guaranteed 
loan indebtedness in exchange for VA's payment to the servicer of the 
unpaid principal balance, plus accrued interest.\15\ The loan is then 
placed into VA's portfolio, and the veteran makes loan payments to VA. 
VA's internal data from fiscal year 2015 to date indicates that VA has 
completed an average of 20 loan refunds per fiscal year.
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    \15\ See 38 U.S.C. 3732(a)(2); 38 CFR 36.4320.
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    VA has employed contractors since the late 1990s to perform loan 
boarding and servicing functions for VA's portfolio. VA's portfolio 
currently comprises approximately 4,500 loans totaling approximately 
$420 million. Notably, this amounts to about half the number of loans 
that VA has held in previous years. The portfolio includes refunded 
loans, as well as the loans where VA was, in contrast to its role in 
the refunding program, the direct lender (as in the Native American 
Direct Loan and vendee loan programs; neither of which would be 
affected under this rulemaking).

B. COVID-19 Emergency and CARES Act Forbearances

    By late March 2020, the COVID-19 national emergency was 
significantly affecting the economy. Between March 15 and May 15, 2020, 
over 35 million Americans filed initial jobless claims, and the 
unemployment rate climbed to over 14 percent in April--the highest 
monthly level since 1948, which is when the U.S. Bureau of Labor 
Statistics started tracking this data.\16\
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    \16\ U.S. Bureau of Labor Statistics, Labor Force Statistics 
from the Current Population Survey, https://www.bls.gov/ces.
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    On March 27, 2020, the President signed the CARES Act into law. 
Section 4022(b) of the Act, in relevant part, states that borrowers 
with a ``Federally backed mortgage loan'' (e.g., a VA-guaranteed loan) 
experiencing a financial hardship due, directly or indirectly, to the 
COVID-19 emergency may request forbearance on such loan, regardless of 
delinquency status, by submitting a request to the borrower's servicer 
and affirming that the borrower is experiencing a financial hardship 
during the COVID-19 emergency. Upon such a request, servicers must, 
with no additional documentation required other than the borrower's 
attestation to a financial hardship caused by the COVID-19 emergency, 
and with no fees, penalties, or interest (beyond the amounts scheduled 
or calculated as if the borrower made all contractual payments on time 
and in full under the terms of the housing loan contract) provide the 
forbearance for up to 180 days.\17\ The forbearance period can be 
extended for an additional period of up to 180 days at the request of 
the borrower, provided that the borrower's request for an extension is 
made during the covered period. Either the initial or extended period 
of forbearance may be shortened at the borrower's request.\18\ While 
borrowers can postpone loan payments under a CARES Act forbearance, 
borrowers are still obliged to repay the forborne indebtedness. In 
other words, forbearance is not forgiveness. However, many borrowers 
simply have no choice but to postpone payments to weather the economic 
storm. Given the broad protections afforded by CARES Act forbearances, 
servicers have utilized such forbearances as a primary tool in helping 
borrowers who are struggling to afford housing loan payments due to the 
COVID-19 emergency.
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    \17\ Public Law 116-136, section 4022(c)(1) (Mar. 27, 2020).
    \18\ Id.
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    The CARES Act does not specify how borrowers receiving CARES Act 
forbearances must repay the forborne payments. To ensure that servicers 
do not attempt to require immediate payment of forborne amounts upon 
the borrower's exit from a CARES Act forbearance (as can be required 
under a special forbearance), VA issued guidance notifying servicers 
that they should not require a veteran to make a lump sum payment equal 
to what would have been due if a forbearance was not in effect, after 
the forbearance period ends. VA is instead encouraging servicers to 
consider other loss-mitigation options, such as those described above.
    As of August 1, 2020, VA's internal data showed that approximately 
149,645 active guaranteed loans are in a CARES Act forbearance 
(approximately 4.3 percent of all active guaranteed loans). Of those 
loans, 61,795 were current as of March 1, 2020, and were also paid 
current through July 31, 2020. An additional 51,043 loans were current 
as of March 1, 2020, but were no longer current through July 31, 2020, 
meaning the veteran missed at least one loan payment between such 
dates.

C. COVID-19 Emergency: Post-Forbearance Options and Post-Delinquency 
Options

    VA and the servicing industry have significant experience applying 
VA's current loss-mitigation policies to assist veterans struggling 
financially due to major disasters, such as natural disasters like 
hurricanes and floods. Nevertheless, there are many key differences 
between discrete natural disasters and the widespread and long-lasting 
crisis caused by the COVID-19 pandemic.
    The current national emergency will likely have more far-reaching 
consequences of greater magnitudes for veterans than the consequences 
posed by a natural disaster, for example. Unlike a natural disaster, it 
is impossible to approximate when the imminent danger caused by a 
global pandemic will recede. Generally, at the outset of natural 
disasters like hurricanes and floods, public policy experts can 
reasonably predict the endpoint of imminent danger, after which an 
assessment of the damage and impact to the borrower may be completed. A 
comparable endpoint to the COVID-19 pandemic is much more difficult to 
predict because multiple factors change daily, including rates of 
infection and death. Rising and falling infection rates directly 
influence economic factors such as employment levels and expected 
borrower income. These factors are also affected by policy

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approaches that may vary at federal, state, and local levels.
    Further, unlike geographically and temporally bounded disasters, 
COVID-19 has spread across the globe over the course of months, 
affecting communities of all sizes and compositions. Borrowers will 
likely not have safety nets in place to mitigate the harrowing 
outcomes. Conversely, borrowers affected by major natural disasters 
like hurricanes and floods often are covered by hazard and other 
insurance policies, which can help to offset financial losses.
    The duration, scope, and impact of the COVID-19 pandemic, along 
with the lack of safety nets to help absorb the financial upheaval, has 
created enormous challenges for the housing finance market. When 
borrowers do not make their regularly scheduled monthly loan payments, 
loan servicers are often contractually obligated to step in and advance 
such missed amounts to the loan holder.\19\ The volume of CARES Act 
forbearances in a servicer's portfolio, coupled with the protracted 
length of such a forbearance (i.e., up to 360 days), has placed many 
servicers in a position where they may be required to cover up to 12 
months of loan payments for a significant segment of the loans they 
service. Federally backed mortgages, that is, those for which servicers 
must generally grant CARES Act forbearances upon a borrower's request, 
account for approximately 70 percent of all housing loans in the United 
States.\20\ Recent data reveals that approximately 7 percent of all 
housing loans in the United States, corresponding to 3.6 million 
homeowners, are currently in forbearance.\21\ This increased number of 
borrowers in forbearance means that servicers can be left without 
budgetary resources to offer certain loss-mitigation options to 
borrowers, including veterans with VA-guaranteed loans.
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    \19\ Deloitte, Mortgage Series on Management Estimates, pg. 7, 
https://www2.deloitte.com/content/dam/Deloitte/us/Documents/risk/us-aers-msme-perational-considerations-july2013r.pdf.
    \20\ Urban Institute, The Price Tag for Keeping 29 Million 
Families in Their Homes: $162 Billion, (Mar. 27, 2020), https://www.urban.org/urban-wire/price-tag-keeping-29-million-families-their-homes-162-billion; Mortgage Bankers Association (MBA), Share 
of Mortgage Loans in Forbearance Declines Slightly to 7.20%, (Aug. 
24, 2020), https://www.mba.org/2020-press-releases/august/share-of-mortgage-loans-in-forbearance-declines-slightly-to-720.
    \21\ Id.
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    VA notes that most VA-guaranteed loans are not held by the lenders 
that originate the loans. Rather, lenders that are issuers approved by 
the Government National Mortgage Association (Ginnie Mae) often 
originate VA-guaranteed loans, package them into loan pools, and issue 
mortgage-backed securities (MBS) backed by such pools. Ginnie Mae can 
then guarantee, to MBS investors, the timely payment of principal and 
interest on such securities. Because Ginnie Mae requires servicers to 
purchase such securitized loans out of the Ginnie Mae pools before 
completing a loan modification, servicers facing liquidity shortages 
due to, for example, covering an unprecedented amount of forborne loan 
payments, may not be financially able to purchase such loans out of the 
pools. This means that such servicers would not be able to offer 
crucial loan modifications to veterans.
    Servicers' decreased ability to offer loan modifications due to the 
repurchase requirement discussed above is especially significant given 
that veterans with large amounts of forborne indebtedness may not be 
able to return to normal loan repayment under other available loss-
mitigation options. For example, while a veteran who ceased making 
payments under a CARES Act forbearance for 360 days may be able to 
resume making regularly scheduled monthly loan payments, post-
forbearance, the veteran may be unable to repay a whole year's worth of 
missed payments under a repayment plan, in a relatively short timeframe 
established by a servicer that may be facing liquidity strains.
    Similarly, a special forbearance may also not be financially 
feasible from the perspective of both the veteran and the servicer. A 
central issue is the ability of the borrower to repay forborne 
indebtedness over a relatively short period. A special forbearance 
could be problematic in that the veteran would have even more forborne 
indebtedness to repay, and the servicer would need to advance 
additional payments without receiving any offsetting payments from the 
veteran.
    Given the issues described above, the unprecedented nature of the 
COVID-19 emergency, its impact on the economy, and the lengthy 
forbearance period authorized under the CARES Act (i.e., up to 360 
days), VA is continuously evaluating how best to help veterans with 
large amounts of forborne indebtedness avoid foreclosure. For example, 
VA recently issued guidance clarifying that servicers may offer what 
the servicing industry commonly calls loan ``deferment,'' as a novel 
home retention option.\22\ Under this option, the servicer would allow 
the veteran to defer repayment of forborne payments until the 
guaranteed loan matures, is refinanced, or otherwise paid in full, or 
when the borrower transfers the property, whichever occurs first. The 
deferred indebtedness would not accrue any additional interest, and the 
veteran would not incur any fees or costs associated with the deferment 
option. The option would not necessarily require the servicer to modify 
the existing guaranteed loan. Ordinarily, VA's regulation at 38 CFR 
36.4310(a) would prohibit a final installment payment on a guaranteed 
loan from exceeding two times the average of the preceding 
installments. In cases where veterans have deferred several months' 
worth of payments, the final installment (i.e., the total deferred 
indebtedness), will often exceed the limit. However, in order to 
provide veterans with a full gamut of options, VA temporarily waived 
\23\ this limit for certain cases where servicers can offer a loan 
deferment option that complies with VA's policy guidance.
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    \22\ VA Circular 26-20-33, Deferment as a COVID-19 Loss-
Mitigation Option for CARES Act Forbearance Cases, (Sept. 14, 2020), 
https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_20_33.pdf.
    \23\ See 38 CFR 36.4338(a) (authorizing VA, notwithstanding any 
requirement, condition, or limitation stated in or imposed by 
regulations governing guaranteed loans, to relieve undue prejudice 
to a debtor, holder, or other person, which might otherwise result, 
if VA finds that such action does not adversely affect the interests 
of the Government or impair the vested rights of any person affected 
thereby). See also Executive Order 13924, 85 FR 31353 (May 19, 2020) 
(stating that agencies should, to the extent possible, address the 
economic consequences of the COVID-19 emergency by rescinding, 
modifying, waiving, or providing exemptions from regulations and 
other requirements that may inhibit economic recovery); Executive 
Order 13945, 85 FR 49935 (Aug. 8, 2020) (stating that it is the 
policy of the United States to minimize, to the greatest extent 
possible, residential evictions and foreclosures during the ongoing 
COVID-19 national emergency).
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    While loan deferment may present the best option for certain 
borrowers, many servicers are facing a liquidity crunch and lack 
financial resources to float large amounts of forborne indebtedness for 
what can be, depending on the case, two to three decades. As a result, 
VA continues to consider innovative ways to assist veterans mitigate 
the effects of the COVID-19 emergency, including options that, until 
recently, were not considered or utilized in VA's home loan program.

D. The Partial Claim Loss-Mitigation Option

    As part of VA's effort to analyze all possible options that could 
help veterans, VA considered home retention options available to 
borrowers with other types of federally backed mortgages; that is, 
those available through single-family loan guarantee/insurance programs 
administered by

[[Page 79146]]

FHA and USDA. Notably, both agencies offer a ``partial claim'' as part 
of the suite of loss-mitigation options available to borrowers and 
servicers.\24\ More recently, FHA announced COVID-19 specific 
guidelines to maximize use of its partial claim option while providing 
streamlined loss-mitigation for borrowers and servicers.\25\ Under 
these programs, the partial claim option defers the repayment of 
housing loan principal through the creation of an interest-free 
subordinate loan (payable to the Government) that is generally not due 
until the primary loan is paid off. During the COVID-19 emergency, both 
FHA and USDA have authorized servicers to utilize the partial claim 
option to cover all housing loan payments borrowers do not make while 
under a CARES Act forbearance, up to 30 percent of the unpaid principal 
balance, subject to certain requirements.
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    \24\ See 12 U.S.C. 1715u(b); 24 CFR 203.371. See also 42 U.S.C. 
1472(h)(14); 7 CFR 3555.304(d) and 3555.307.
    \25\ Mortgagee Letter 2020-06, FHA's Loss Mitigation Options for 
Single Family Borrowers Affected by the Presidentially-Declared 
COVID-19 National Emergency in Accordance with the CARES Act, (Apr. 
1, 2020), https://www.hud.gov/sites/dfiles/OCHCO/documents/20-06hsngml.pdf; Mortgagee Letter 2020-22, FHA's COVID-19 Loss 
Mitigation Options, (Jul. 8, 2020), https://www.hud.gov/sites/dfiles/OCHCO/documents/20-22hsgml.pdf.
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III. Legal Authority

    Unlike FHA and USDA, VA has never had explicit authority to 
establish a partial claim option. To help veterans recover from the 
financial hardships posed by the COVID-19 national emergency, VA looked 
to its loan refund authority in 38 U.S.C. 3732 and the broad powers 
authorized under 38 U.S.C. 3720. When read together, the text of these 
two sections authorizes VA to establish the COVID-VAPCP as an emergency 
measure.
    Under 38 U.S.C. 3732(a), VA has the legal right to prevent a 
foreclosure by purchasing indebtedness that VA has already guaranteed. 
VA refers to such a purchase as a loan refund. If VA exercises the 
option, the holder must assign the loan to VA. VA then steps into the 
shoes of the holder and often allows for a loan modification, which 
makes the terms more affordable for the veteran.
    VA also has broad powers under 38 U.S.C. 3720, ``notwithstanding 
the provisions of any other law,'' to purchase assets and pay any 
claim, however acquired, relating to or arising from matters in the VA-
guaranteed loan program and to offer forbearances or indulgences to 
veterans who have suffered loss due to disasters.\26\ In applying the 
authorities as a consistent, coherent framework, VA would, by way of a 
loan to the veteran, purchase from the servicer the veteran's CARES Act 
indebtedness and establish repayment terms favorable to the veteran, 
while leaving intact the veteran's guaranteed loan.
---------------------------------------------------------------------------

    \26\ See 38 U.S.C. 3720(a), 3720(a)(3) through (5), and 3720(f).
---------------------------------------------------------------------------

IV. COVID-19 Veterans Assistance Partial Claim Payment Program

    VA, therefore, proposes to establish a temporary program that would 
provide a partial claim option to certain veterans who are financially 
impacted by COVID-19. Under VA's proposed COVID-VAPCP, servicers would 
present the partial claim option to a veteran only after evaluating the 
feasibility of loss-mitigation options already available in VA's 
program (i.e., repayment plan, special forbearance, and loan 
modification). If the veteran qualifies and opts to move forward with a 
partial claim option, VA would purchase the veteran's forborne 
indebtedness, like when VA refunds a guaranteed loan. Acting as a 
mortgage investor of last resort, VA would purchase the amount of 
indebtedness that is necessary to bring the veteran's guaranteed loan 
current (instead of the whole amount of the guaranteed loan, as would 
be the case in a typical loan refund). The veteran would repay VA for 
this amount, and the indebtedness would be secured as a lien against 
the veteran's home upon execution and recordation of the security 
instrument. The servicer would handle all aspects of the origination of 
the new COVID-VAPCP loan. The new loan would be serviced under VA's 
existing loan portfolio.
    To ensure that veterans can benefit from a partial claim option in 
ways like FHA and USDA borrowers, VA proposes to mirror requirements 
from FHA's and USDA's COVID-19 partial claim programs, whenever 
feasible. Therefore, like FHA's and USDA's COVID-related partial claim 
programs, VA's proposed COVID-VAPCP would only be available for 
guaranteed loans that were, on March 1, 2020, either current or less 
than 30 days past due. Additionally, VA's partial claim payment would 
only be payable to a servicer on behalf of a veteran if there remains 
unpaid at least one scheduled monthly payment that the veteran missed 
while under a CARES Act forbearance. VA notes that some borrowers have 
continued to make their monthly loan payments despite being under a 
CARES Act forbearance. A partial claim payment option would be 
unnecessary for those individuals because there would be no forborne 
indebtedness to resolve upon exiting the forbearance. Consistent with 
FHA's COVID-19 National Emergency Standalone Partial Claim, VA would 
only pay one partial claim payment per veteran and require that the 
veteran occupy, as a residence, the property securing the guaranteed 
loan for which the partial claim is requested. Also consistent with FHA 
and USDA, VA's proposed COVID-VAPCP would require the servicer to 
determine whether the veteran satisfies the program requirements, 
prepare the appropriate loan documents on VA's behalf, and bring the 
veteran's guaranteed loan current, prior to submitting to VA a request 
for partial claim payment.
    While VA's proposed COVID-VAPCP would bear many similarities to FHA 
and USDA's COVID-related partial claim programs, it would not be 
identical to either program. VA notes that FHA and USDA provide 100 
percent and 90 percent backing on their guaranteed/insured loans,\27\ 
respectively, whereas VA's guaranty is typically no more than 25 
percent.\28\ VA's smaller guaranty is relevant for two reasons.
---------------------------------------------------------------------------

    \27\ See 12 U.S.C. 1709; 42 U.S.C. 1472(h)(2).
    \28\ See 38 U.S.C. 3703(a)(1). While VA notes that the guaranty 
may be higher on loans with lower balances, such as 50 percent for 
loans with balances less than or equal to $45,000, the average 
balance on guaranteed loans has exceeded $200,000 since 2008. See 
VBA Annual Benefits Reports, Fiscal Years 2008 to 2019, https://www.benefits.va.gov/REPORTS/abr/docs/2019-loan-guaranty.pdf (Fiscal 
Year 2019); https://www.benefits.va.gov/REPORTS/abr/archive.asp 
(Fiscal Years 2008 to 2018).
---------------------------------------------------------------------------

    First, compared to FHA- and USDA-backed loans with similar loan 
balances, VA-guaranteed loans generally expose the Government to less 
financial risk per loan. While VA's unique mission requires VA to 
promote favorable outcomes for veterans, which might increase costs, VA 
must also continue to be a responsible steward of taxpayer funds. VA 
has determined that any proposed amount of assistance via a partial 
claim option cannot cause VA to incur financial risk that would eclipse 
the guaranty.
    Therefore, while both the FHA and USDA partial claim programs 
provide payment to the servicer, on the borrower's behalf, up to 30 
percent of the unpaid principal balance at the time of initial 
default,\29\ VA's proposed program would provide for payment to the 
servicer, on the veteran's behalf, up to 15 percent of the unpaid 
principal balance of the guaranteed loan as of the date the veteran 
entered into a CARES

[[Page 79147]]

Act forbearance. VA notes that, based on an initial analysis of loans 
in forbearance, VA believes that a 15 percent cap would provide 
sufficient room for servicers to bring the guaranteed loans current, 
even if a veteran invokes the maximum period of forbearance; that is, 
360 days, under the CARES Act.
---------------------------------------------------------------------------

    \29\ 12 U.S.C. 1715u(b)(2)(A); 42 U.S.C. 1472(h)(14)(A).
---------------------------------------------------------------------------

    FHA and USDA do not charge borrowers interest on the subordinate 
indebtedness that results from a partial claim payment. Also, in such 
programs, no payment on the subordinate indebtedness is generally due 
until such time as the property securing the insured/guaranteed loan is 
transferred or sold or the insured/guaranteed loan is refinanced or 
otherwise paid-in-full. However, in both programs, the partial claim is 
essentially treated as an advance paid to the servicer, on behalf of 
the borrower, enabling the insured/guaranteed loan to return to 
current.\30\ This arrangement is to be expected given that FHA and USDA 
back all, or nearly all, of the insured/guaranteed loan. VA, on the 
other hand, views its partial claim payment option more like its loan 
refund program. As previously discussed, under the loan refund program, 
VA generally takes assignment of the guaranteed loan in exchange for 
VA's payment of the unpaid balance of the obligation, plus accrued 
interest. In the event VA takes the loan into its own portfolio for 
servicing, no guaranty claim is paid. The veteran continues to pay 
interest on the indebtedness and monthly payments as obligated, but to 
VA as noteholder, not to the former loan servicer.
---------------------------------------------------------------------------

    \30\ See 24 CFR 203.341, 203.371, and 203.401 (casting FHA's 
partial claim as an ``application for insurance benefits''). See 
also 7 CFR 3555.304(d)(8) (stating that a USDA loss claim will be 
adjusted by any amount of mortgage recovery advance reimbursed to 
the lender).
---------------------------------------------------------------------------

    Under this rulemaking, VA proposes to make COVID-VAPCP loans on 
terms extremely favorable to veterans; providing a lifeline to veterans 
as they recover financially. First, VA proposes to require repayment of 
the loan within 120 months of origination or upon the veteran's 
transfer of title to the property, the refinancing of the guaranteed 
loan with which the partial claim payment is associated, or payment in 
full otherwise of such guaranteed loan. VA would also automatically 
defer any monthly payments for the first 60 months of the loan. Based 
on the partial claim loan balances that VA anticipates, VA believes 
this time horizon would provide veterans with a reasonable path to 
repayment without additional undue financial hardship.
    VA also proposes to charge a nominal, fixed interest rate of 1.00 
percent per annum on any loan established under the COVID-VAPCP. VA 
notes that this is below what is generally charged for VA's portfolio 
loans (including refunded loans) and, in fact, represents no more than 
the approximate net present value of the money to be paid to servicers 
on behalf of veterans.\31\ In other words, the 1.00 percent interest 
rate established under the COVID-VAPCP represents roughly the 10-year 
cost of borrowing money from the U.S. Treasury that would be needed to 
reimburse servicers, on behalf of veterans, for partial claim payments.
---------------------------------------------------------------------------

    \31\ VA's analysis of the net present value of partial claim 
payments made in accordance with the COVID-VAPCP was based on a 
review of the 10-year Treasury Yield Rate from Jan. 1, 2020, through 
Aug. 28, 2020.
---------------------------------------------------------------------------

    The relatively small size of VA's guaranty is also relevant because 
the holder \32\ of a VA-guaranteed loan bears significantly more 
financial risk for a VA-guaranteed loan than for a loan insured or 
guaranteed by FHA or USDA. Due to VA's smaller guaranty percentage, the 
servicer has just as much, if not more, financial interest than the 
Government in seeing a delinquent VA-guaranteed loan brought current 
because, unlike in FHA and USDA's programs, VA will not pay more than 
25 percent of the loan. Given the holder's significant financial 
incentive to offer a veteran the loss-mitigation option that is most 
likely to help the veteran return to normal repayment, VA generally 
does not prescribe which loss-mitigation options servicers must first 
offer to a veteran before considering other options.
---------------------------------------------------------------------------

    \32\ 38 CFR 36.4301 defines holder as ``[t]he lender or any 
subsequent assignee or transferee of the guaranteed obligation or 
the authorized servicing agent (also referred to as ``the 
servicer'') of the lender or of the assignee or transferee.''
---------------------------------------------------------------------------

    Therefore, where FHA has mandated that servicers consider every 
owner-occupant borrower exiting a CARES Act forbearance who was current 
or less than 30 days past due as of March 1, 2020, for a COVID-19 
National Emergency Standalone Partial Claim, and USDA has authorized a 
Disaster Mortgage Recovery Advance for similarly situated borrowers, VA 
would not mandate that servicers consider veterans for a partial claim 
payment option. Rather, VA would expect servicers to consider the 
feasibility of loss-mitigation options before considering a partial 
claim payment. Consistent with VA's existing regulations and policies, 
servicers would evaluate a veteran's financial situation and, if 
appropriate, offer loss-mitigation options that are within the 
servicer's financial capabilities and business model.
    VA further notes that, because of the way the COVID-VAPCP is 
structured, the COVID-VAPCP is a standalone home retention option. In 
other words, the COVID-VAPCP cannot be combined with loss-mitigation 
options, such as a special forbearance or loan modification, to assist 
borrowers who are exiting CARES Act forbearances. For example, a 
servicer cannot tack on a special forbearance period to the end of a 
CARES Act forbearance and then use the COVID-VAPCP to bring the 
guaranteed loan current. When a servicer offers a special forbearance 
to assist the borrower in returning to normal repayment, it indicates 
that the servicer views the option as the most prudent choice based on 
the circumstances. Similarly, if a servicer brings a veteran's 
guaranteed loan current through a loan modification, but shortly 
thereafter the veteran cannot make payments on the modified loan, the 
servicer cannot then pursue a partial claim payment. A loan 
modification requires servicers to ensure that the guaranteed loan 
``will be reinstated to performing status by virtue of the loan 
modification.'' \33\ If the servicer reinstated the guaranteed loan to 
performing status by virtue of the loan modification, there would not 
be any remaining ``indebtedness that [would be] necessary to bring the 
guaranteed loan current,'' under VA's proposed rule text below.
---------------------------------------------------------------------------

    \33\ 38 CFR 36.4315(a)(6).
---------------------------------------------------------------------------

    By requiring servicers to consider loss-mitigation options before 
evaluating a veteran for COVID-VAPCP, VA's proposed policy would help 
ensure that veterans are afforded options that may be more advantageous 
to them than a partial claim, without imposing additional 
administrative requirements on servicers. For example, servicers that 
have adequate resources to offer deferment \34\ as a home retention 
option would be able to do so under VA's proposed program. Deferment 
can present a better option for certain veterans as compared to the 
COVID-VAPCP because, as explained above, the deferred amount does not 
accrue interest and may provide a veteran significantly more time 
before a payment would become due. Moreover, without a requirement that 
certain veterans be evaluated for COVID-VAPCP, servicers willing and 
able to

[[Page 79148]]

offer deferments would not have to alter their servicing process, train 
employees, and possibly upgrade technology to complete such 
evaluations.
---------------------------------------------------------------------------

    \34\ See VA Circular 26-20-33, Deferment as a COVID-19 Loss-
Mitigation Option for CARES Act Forbearance Cases, (Sept. 14, 2020), 
https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_20_33.pdf.
---------------------------------------------------------------------------

    Nevertheless, the option of COVID-VAPCP assistance may very well be 
necessary to ensure certain veterans can recover financially. In this 
regard, as servicers evaluate their liquidity positions and other 
factors, to determine how to make the advances necessary for investor 
requirements, some servicers may find themselves unable to offer 
certain loss-mitigation options, such as a loan modification. VA notes 
that, unlike a loan modification, a partial claim payment under VA's 
proposed COVID-VAPCP would not require the guaranteed loan to be 
purchased out of the Ginnie Mae pools. Thus, for these servicers, and 
the veterans whose guaranteed loans they service, the assistance VA is 
proposing would ensure veterans are afforded an option that enables 
them to retain their home, while simultaneously helping servicers avoid 
liquidity crunches, thereby affording veterans prudent and 
uninterrupted loan servicing.
    As mentioned above, VA's proposed COVID-VAPCP would be available to 
veterans whose guaranteed loan was current or less than 30 days past 
due as of March 1, 2020, and who certify that they can resume making 
scheduled monthly payments, on time and in full. VA, however, would 
also require servicers to ensure that the veteran's monthly residual 
income, as described in 38 CFR 36.4340(e), is adequate to meet living 
expenses after estimated monthly shelter expenses (e.g., payments on 
the guaranteed loan) have been paid and other monthly obligations have 
been met. Residual income has long been a critical component of VA 
underwriting.\35\ As the information collected from the veteran to 
conduct this analysis coincides with the information already requested 
to evaluate VA's existing loss-mitigation options, this residual income 
requirement would help ensure that servicers have considered all loss-
mitigation options for feasibility before pursuing a partial claim 
payment. Veterans would ultimately benefit from this additional 
financial assessment because servicers would be able to evaluate the 
financial impact of loss-mitigation options, such as loan modification, 
compared to a partial claim option. Take, for example, a veteran who 
enters a CARES Act forbearance with 300 monthly payments remaining and 
an unpaid principal balance of $239,450. Given a total monthly payment 
of $1,587.83, at the end of a 12-month forbearance period, the veteran 
would owe $19,054 in missed guaranteed loan payments.\36\ A loan 
modification at the same interest rate and a new 30-year term would 
result in a $26 decrease in monthly loan payments but $39,518 in 
additional interest over the life of the guaranteed loan. Conversely, a 
VA partial claim payment would result in a $341.58 per month payment to 
VA in years 6 through 10 but only $1,441 in additional interest over 
the life of the guaranteed loan.
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    \35\ See Public Law 99-576, section 402(b) (Oct. 28, 1986); 55 
FR 4829, 4869 (Feb. 12, 1990); 56 FR 9835, 9853 (Mar. 8, 1991).
    \36\ This example assumes a starting guaranteed loan balance of 
$245,000, fixed 3.75 percent interest rate, 360-month loan term, and 
monthly escrows of $453.20.
---------------------------------------------------------------------------

    In cases where the servicer could not offer a deferment but could 
perhaps offer a modification, the partial claim option might present an 
even more beneficial outcome for both the veteran and the servicer. As 
the partial claim option would require the servicer to determine that 
the veteran can meet residual income standards, the veteran would not 
necessarily need the short-term savings of reduced monthly loan 
payments under a loan modification. It could be more beneficial for 
such a veteran to realize an overall interest savings of $38,077 under 
a partial claim option.

V. Section-by-Section Analysis of the Proposed Regulatory Amendments

    As previously noted, VA is proposing the COVID-VAPCP as a temporary 
program to help veterans return to making normal loan payments on their 
guaranteed loans after exiting a CARES Act forbearance period. VA 
further noted that its existing loss-mitigation and other servicing 
regulations and policies remain in effect. Thus, to avoid confusion, VA 
is proposing to add a new subpart F to part 36 of the Code of Federal 
Regulations (CFR) to contain the regulations that would govern this 
temporary program. The following outlines VA's proposed regulations, 
with further explanation of each individual section, as necessary.

A. Section 36.4800 Applicability

    In proposed Sec.  36.4800, VA would note that this subpart applies 
to all loans guaranteed by VA, to the extent such loans are affected by 
the COVID-19 national emergency.

B. Section 36.4801 Definitions

    In proposed Sec.  36.4801, VA would set forth the definitions 
applicable to new subpart F.
    VA would define ``alternative to foreclosure'', ``CARES Act 
forbearance'', ``CARES Act indebtedness'', ``Guaranteed loan'', ``Loss-
mitigation option'', ``Secretary'', and ``Servicer'' as set out in the 
regulatory text below.

C. Section 36.4802 General Purpose of the COVID-19 Veterans Assistance 
Partial Claim Payment Program

    In Sec.  36.4802, VA would set forth the general purpose of the 
COVID-VAPCP. Intending to provide some introductory context for this 
novel option within VA's home loan program, VA would state that the 
COVID-VAPCP is a temporary program to help veterans who have suffered a 
COVID-19 financial hardship. Notwithstanding the requirements elsewhere 
in part 36 regarding payment of a guaranty claim or refunding a loan, 
this proposed section would allow VA to assist a veteran exiting a 
CARES Act forbearance by purchasing from the servicer the veteran's 
CARES Act indebtedness. Such a purchase would be called a partial claim 
payment. In exchange for VA's partial claim payment on behalf of the 
veteran, the veteran would have to agree to repay the Secretary, in the 
amount of such partial claim payment, upon loan terms established by 
the Secretary.

D. Section 36.4803 General Requirements of the COVID-19 Veterans 
Assistance Partial Claim Payment Program

    In Sec.  36.4803, VA would set forth the general requirements of 
the COVID-VAPCP. First, VA would require that the loan for which a 
partial claim payment is requested must be a guaranteed loan that was, 
on March 1, 2020, either current or less than 30 days past due. Second, 
VA would require that the veteran on whose behalf VA would pay a 
partial claim payment both received a CARES Act forbearance and missed 
at least one scheduled monthly payment. Third, VA would require that 
there remains unpaid at least one scheduled monthly payment that the 
veteran did not make while under a CARES Act forbearance. Fourth, VA 
would require the veteran to certify that the veteran can resume making 
scheduled monthly payments, on time and in full, and that the veteran 
occupies, as the veteran's residence, the property securing the 
guaranteed loan for which the partial claim is requested. Fifth, VA 
would require the servicer to determine and certify that the veteran's 
monthly residual income, as described in Sec.  36.4340(e), will be 
adequate to meet living expenses after estimated monthly shelter 
expenses have been paid and

[[Page 79149]]

other monthly obligations have been met. Lastly, VA would require the 
veteran to execute, in a timely manner, all loan documents necessary to 
establish an obligation to repay the Secretary for the partial claim 
payment.

E. Section 36.4804 Partial Claim Payment as Last Resort

    In Sec.  36.4804, VA would state that a partial claim payment would 
be an option of last resort. VA would reiterate that the COVID-VAPCP is 
designed to address the financial hardships due, directly or 
indirectly, to the COVID-19 national emergency. VA would state that 
servicers must consider all possible loss-mitigation options and that 
VA expects the partial claim payment option would be considered only as 
a last resort, after a servicer has evaluated loss-mitigation options 
for feasibility. VA would also state that the servicer would be able to 
immediately proceed to offering an alternative to foreclosure if the 
veteran notifies the servicer that the veteran does not want to retain 
ownership of the property securing the guaranteed loan.

F. Section 36.4805 Terms of the Partial Claim Payment

    In Sec.  36.4805, VA would set forth the terms of the partial claim 
payment. In paragraph (a), in order for a partial claim payment to be 
payable, the servicer would be required to submit to the Secretary, not 
later than 90 days after the date the veteran exits the CARES Act 
forbearance, a request for such payment, as prescribed in proposed 
Sec.  36.4807. This would require a servicer to evaluate the veteran 
for all loss-mitigation options, as well as a partial claim option, and 
prepare and execute the appropriate loan documents, all before 
submitting an application to VA. VA notes that 90 days is consistent 
with FHA's COVID-19 loss-mitigation policies.\37\ Nevertheless, in 
recognition of the fact that servicers will be faced with large numbers 
of borrowers exiting forbearance in the coming year, VA is specifically 
requesting comments on the proposed timeframe to complete these actions 
and submit an application for partial claim payment.
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    \37\ Mortgagee Letter 2020-22, FHA's COVID-19 Loss Mitigation 
Options, (Jul. 8, 2020), https://www.hud.gov/sites/dfiles/OCHCO/documents/20-22hsgml.pdf.
---------------------------------------------------------------------------

    Paragraph (b) of this section would state that the amount of the 
partial claim payment that VA would pay to the servicer, as calculated 
under proposed paragraph (e), shall not exceed 15 percent of the unpaid 
principal balance of the guaranteed loan. For the purposes of proposed 
paragraph (b), the unpaid principal balance of the guaranteed loan 
would mean such balance as of the date the veteran entered into a CARES 
Act forbearance. Paragraph (c) would state that VA would pay only one 
partial claim payment per guaranteed loan. Paragraph (d) would state 
that VA would pay only one partial claim payment per veteran.
    In proposed paragraph (e)(1), VA would state that because VA would 
pay only one partial claim payment per guaranteed loan, and only one 
partial claim payment per veteran, a servicer would be required, in 
calculating the amount of partial claim payment to be paid by VA to the 
servicer, to include the full amount of indebtedness that is necessary 
to bring the guaranteed loan current. In paragraph (e)(2), VA would 
state that to bring the guaranteed loan current, servicers must include 
in the partial claim payment the full CARES Act indebtedness, 
comprising (i) all scheduled but missed monthly payments of principal 
and interest; and (ii) as applicable, all scheduled but missed monthly 
escrow payments for real estate taxes and insurance premiums, or where 
the guaranteed loan documents do not provide for monthly escrowing, all 
payments the servicer made to real estate tax authorities and insurance 
providers, on the veteran's behalf, during the CARES Act forbearance.
    VA chose to require inclusion of payments of taxes and insurance 
because veterans are generally obligated, under the terms of the 
documents that establish a guaranteed loan, to keep current their taxes 
and insurance premiums. VA internal data shows that, in a little more 
than 99 percent of the time, servicers of guaranteed loans require 
borrowers to remit monthly, in addition to their principal and interest 
payments, the amounts necessary to ensure payment of the full year's 
tax and insurance obligations. When servicers require such monthly 
remittances, they hold the funds in escrow accounts until the sums are 
due. When the veteran's tax and insurance obligations become due, the 
servicer takes out of the escrow accounts the amounts necessary to keep 
the taxes up to date and the insurance coverage in place.
    If the guaranteed loan documents provide for monthly escrow 
obligations, the loan can be considered in default when such 
obligations are missed. The default, and the resultant consequences of 
default, are the same as if the veteran defaults on payments of 
principal and interest. Because an objective of the COVID-VAPCP is to 
help bring veterans' guaranteed loans current without additional 
financial hardship (e.g., having to find a way to replenish escrow 
accounts), VA determined the veteran's obligation could not be fully 
met unless VA also included in the partial claim calculation the 
amounts to cover missed escrow payments.
    Also, VA is proposing under Sec.  36.4805(e)(3) that, in cases 
where veterans make monthly escrow payments for taxes or insurance 
premiums, or both, servicers would be required to include not just the 
forborne amounts of taxes and insurance escrows, but also those amounts 
that are due within 31 days of the date the veteran executes the COVID-
VAPCP note and security instrument. This is to help ensure a smooth 
handoff of the full obligation, rather than to learn, perhaps months 
after the fact, that an escrow payment was missed during the transfer 
of paperwork.
    VA recognizes that there are cases where a veteran does not make 
escrow payments to the servicer for taxes or insurance premiums. In 
such cases, corresponding to less than 1 percent of guaranteed loans, 
the veterans make their payments directly to tax authorities and 
insurance providers. In such cases, while servicers are not taking 
funds from escrow accounts to make these payments, servicers still 
monitor whether the veteran satisfies the veteran's tax and insurance 
obligations.
    Notably, VA requires servicers to obtain and retain a lien of 
proper dignity; that is, a primary lien, for all guaranteed loans. In 
that regard, VA can adjust its guaranty and take other actions against 
servicers that allow, for example, tax authorities to jeopardize the 
primacy of the guaranteed loan lien. Similarly, VA requires servicers 
to ensure that the property is adequately insured. In instances where a 
veteran does not pay taxes or insurance premiums timely, the servicer 
will advance payments, from its own funds, to avoid a lapse in payment, 
and to ensure that future guaranty payments, if any, are not 
jeopardized.
    In cases where servicers were forced to advance payment on a 
veteran's behalf to tax authorities or insurance providers because the 
veteran (who normally makes payments directly to such entities) did not 
meet such obligations during a CARES Act forbearance, the veteran would 
need to repay the servicer to bring the guaranteed loan current. That 
is why VA proposes to require these obligations

[[Page 79150]]

in the partial claim payment.\38\ VA would not, however, authorize 
inclusion of any such amounts to cover payments that were not due on 
the date the veteran executes the COVID-VAPCP note and security 
instrument.
---------------------------------------------------------------------------

    \38\ See 38 U.S.C. 3732(a)(2)(A) (stating that VA's refund 
authority includes ability to ``pay the holder of the obligation the 
unpaid balance of the obligation plus accrued interest'').
---------------------------------------------------------------------------

    For example, consider a veteran who pays property taxes directly to 
their local tax office on a semi-annual basis (i.e., on the first of 
January and of July) and elects a seven-month CARES Act forbearance 
beginning May 1, 2020. Assuming the veteran does not pay the property 
tax bill on July 1, 2020, the servicer would advance payment from its 
own funds. The veteran then exits the CARES Act forbearance on November 
1, 2020 and executes the note and security instrument, consistent with 
proposed Sec.  36.4806, on December 1, 2020. The partial claim payment 
amount calculated under paragraph (e) would include the amount of taxes 
paid by the servicer on behalf of the veteran in July. The veteran, 
however, would be responsible for paying the property tax bill due on 
January 1, 2021, and no dollar amount would be included in the partial 
claim payment to account for the fact that the veteran was in 
forbearance five out of the six months leading up to the next property 
tax bill.
    The previous example contrasts with a veteran whose monthly loan 
payment to the servicer includes an amount that is set aside in an 
escrow account to be used for payment of property taxes. Using the same 
dates as above, the servicer would still advance payment from its own 
funds to cover the July property tax bill. However, the partial claim 
payment amount calculated under paragraph (e) will include the monthly 
scheduled amounts for taxes that should have been paid as part of the 
monthly loan payments missed for May through December 2020. The 
servicer would be reimbursed from this amount for the advance payment 
made in July; the remaining amount would be deposited into the 
veteran's escrow account and would be available for use when the 
January 1, 2021, property tax bill is due.
    While VA does not intend to create differences between veterans who 
escrow and who do not escrow, VA notes the complexities associated with 
determining and disbursing funds to the servicer to cover tax and/or 
insurance bills that are not yet due and payable. In this regard, 
allowing for inclusion of such amounts in a partial claim payment might 
assume that veterans who opt to pay taxes or insurance premiums 
directly to taxing authorities or insurance providers set aside funds 
each month to save up for tax and insurance bills that come due 
throughout the year. It would also put servicers in a situation where 
they would be required either to remit the amount paid as part of the 
partial claim directly to the veteran or make another payment on behalf 
of the veteran. Both scenarios could create unnecessary confusion. 
There would also be need for oversight by VA to ensure that any amounts 
to cover future payments not collected as part of a scheduled monthly 
loan payment are calculated correctly and ultimately used for their 
intended purpose (i.e., taxes or insurance, or both).
    Given VA's estimate that less than 1 percent of veterans pay their 
taxes and/or insurance directly to the appropriate authority/provider, 
rather than through monthly escrow payments to their servicer, VA 
proposes that, for partial claim payments associated with these 
veterans' guaranteed loans, a servicer can include only amounts the 
servicer actually paid on behalf of the veteran during the CARES Act 
forbearance period. Nevertheless, VA invites public comment on whether 
VA should cover prorated amounts associated with missed guaranteed loan 
payments for these veterans and, if so, how VA might best accomplish 
this for veterans and servicers.
    In proposed paragraph (e)(3), VA would also require servicers to 
include all scheduled monthly payments (comprising principal, interest, 
and escrow payments for real estate taxes and insurance premiums) that 
are due within 31 days of the date the veteran executes the note and 
security instrument described in proposed Sec.  36.4806. VA notes that 
any such payment due within 31 days of such date may be considered part 
of the veteran's obligation to bring the guaranteed loan current. As 
such, VA would require servicers to include this amount in the partial 
claim payment. From a practical standpoint, this means that a veteran 
who executes, on January 15, 2021, a COVID-VAPCP note and security 
instrument described in Sec.  36.4806, would not have a guaranteed loan 
payment due to the servicer until March 1, 2021, as the February 1, 
2021 payment would be due within 31 days and would need to be included 
in the partial claim amount. (Note: As explained below, the veteran 
would not have to begin repaying VA under the COVID-VAPCP loan until 
2026.)
    Additionally, as discussed below, VA proposes to allow servicers to 
include, if applicable, all scheduled monthly payments (comprising 
principal, interest, and escrow payments for real estate taxes and 
insurance premiums) that were missed after March 1, 2020, but before 
the veteran was granted a CARES Act forbearance, provided the 
guaranteed loan was, as of March 1, 2020, current or less than 30 days 
past due. However, in order to include these payments, the servicer 
must waive any late charges and fees associated with these missed 
payments.
    VA recognizes that some borrowers may not have been immediately 
aware of the availability of forbearance under the CARES Act, but 
nevertheless missed their guaranteed loan payment(s) due to 
circumstances related to the COVID-19 national emergency before 
requesting forbearance. The effect of the above requirements would be 
to enable veterans, whose loans meet the criteria, to bring their 
guaranteed loans current via the COVID-VAPCP. In that circumstance, the 
servicer would include, if applicable, certain payments not paid 
between March 1, 2020, and the date the veteran entered the CARES Act 
forbearance in the amount of the partial claim payment. Additionally, 
under proposed paragraph (e)(3)(iii), VA would require servicers to 
include the actual amount of recording fees, recording taxes, or other 
charges levied by the recording authority, that must be paid in order 
to record the security instrument described in proposed Sec.  36.4806.
    In proposed paragraph (e)(4), VA would clarify that servicers shall 
not include any amounts in the partial claim total that are not listed 
by paragraph (e)(2) or (3). This means servicers could not include any 
amounts, for example, for fees, penalties, or interest, beyond the 
amounts scheduled or calculated as if the borrower made all contractual 
payments on time and in full under the terms of the guaranteed loan, or 
any late charges and fees that the veteran incurred between March 1, 
2020, and the date the veteran entered the CARES Act forbearance.\39\
---------------------------------------------------------------------------

    \39\ See Public Law 116-136, section 4022(b)(3) (Mar. 27, 2020) 
(expressly prohibiting a servicer from charging any ``fees, 
penalties, or interest beyond the amounts scheduled or calculated as 
if the borrower made all contractual payments on time and in full 
under the terms of the mortgage contract'').
---------------------------------------------------------------------------

    In proposed paragraph (e)(5), VA would state that nothing in 
proposed Sec.  36.4805 shall preclude a veteran from making an optional 
payment or a servicer from waiving a veteran's indebtedness, such that 
the amount of partial claim payment would not exceed

[[Page 79151]]

the 15 percent cap described in proposed paragraph (b).
    As explained above, VA's initial analysis of guaranteed loans in 
forbearance suggests that a 15 percent cap (based on the unpaid 
principal balance as of the date the veteran entered into a CARES Act 
forbearance) would provide enough room for servicers to bring the 
guaranteed loans current, even if a veteran invokes the maximum period 
of forbearance; that is, 360 days, under the CARES Act. In the event 
that the amount needed to bring an eligible veteran's guaranteed loan 
current exceeds 15 percent of the unpaid principal balance, VA would 
allow a veteran to make an optional payment or a servicer to waive the 
veteran's indebtedness, such that the partial claim payment would not 
exceed the 15 percent cap.
    In proposed paragraph (e)(6), VA would explain that if the servicer 
miscalculates the partial claim amount, resulting in an overpayment to 
the servicer, the amount of such overpayment shall constitute a 
liability of the servicer to the United States. The servicer would be 
required to remit the overpaid amount immediately to VA. In paragraph 
(e)(7), VA would state that if the servicer miscalculates the partial 
claim amount, resulting in underpayment (i.e., an amount insufficient 
to bring the guaranteed loan current), the servicer would be required 
to waive the difference.
    Finally, proposed paragraph (e)(8) would prohibit servicers from 
including any amounts for a monthly payment that is scheduled to be 
paid on a date that is more than 31 days after the veteran executes the 
note and security instrument described in Sec.  36.4806.
    Under proposed paragraph (f), the servicer would be required to 
prepare a note and security instrument in favor of ``the Secretary of 
Veterans Affairs, an Officer of the United States''. Using the 
``Department of Veterans Affairs'' or the ``United States'' is legally 
incorrect. Furthermore, certain states have their own Departments of 
Veterans Affairs, and without the explicit distinction made here, 
confusion could result. Therefore, it is critical that the note and 
security instrument read in favor of ``the Secretary of Veterans 
Affairs, an Officer of the United States''.
    VA would require that the note be consistent with the terms 
described in proposed Sec.  36.4806 and include all borrowers who are 
obligated on the guaranteed loan. The security instrument would also be 
required to include all persons (borrowers, as well as non-borrowers) 
who hold a title interest in the property securing the guaranteed loan. 
In proposed paragraph (g), subject to the requirement that the servicer 
submit the application for a partial claim payment to VA not later than 
90 days after the date the veteran exits the CARES Act forbearance, VA 
would require all loan documents to be fully executed not later than 90 
days after the veteran exits the CARES Act forbearance. Proposed 
paragraph (h) would require the servicer to record the security 
instrument timely, as prescribed in Sec.  36.4807. Finally, in 
paragraph (i), the servicer would be prevented from charging, or 
allowing to be charged, to the veteran any fee in connection with the 
COVID-VAPCP.

G. Section 36.4806 Terms of the Assistance to the Veteran

    If a veteran chooses to accept VA's assistance (i.e., a partial 
claim payment to the servicer, on the veteran's behalf), the veteran, 
and all co-borrowers on the guaranteed loan, would be required to 
execute a note and security instrument in favor of ``the Secretary of 
Veterans Affairs, an Officer of the United States''. In addition, all 
non-borrowers holding a title interest in the property would be 
required to sign the security instrument. VA would establish the terms 
of the note and security instrument. Specifically, VA would require the 
note and security instrument to include the amount to be repaid to the 
Secretary, by the veteran, to be the amount calculated under Sec.  
36.4805(e). The interest rate on the loan created by the note and 
security instrument would be required to be fixed at 1.00 percent per 
annum. VA would automatically defer monthly payments for the first 60 
months of the loan, meaning that there would be no payment due to the 
Secretary during the period of deferment. Interest would accrue on the 
loan during such deferment and a borrower could, without premium or 
fee, make payments during such deferment for the entire indebtedness, 
or any portion thereof, provided that such portion is not less than 
what would be due for one monthly payment as calculated based on a 60-
month term. VA would require the term of the loan to be 120 months. The 
loan would be amortized fully within the term of the loan in accordance 
with any generally recognized plan of amortization requiring 
approximately equal monthly payments. VA would require repayment in 
full immediately upon the veteran's transfer of title to the property, 
the refinancing, or payment in full otherwise, of the guaranteed loan 
with which the partial claim payment is associated.

H. Section 36.4807 Application for Partial Claim Payment

    In proposed Sec.  36.4807, VA would require the veteran and the 
servicer to complete an application form prescribed by the Secretary.
    Along with a complete application form, the original note (required 
by proposed Sec.  36.4805) must be included when the servicer submits a 
request for a partial claim. Not later than 180 days following the date 
the security instrument (as required by Sec.  36.4805) is fully 
executed, the servicer would be required to provide VA with the 
original security instrument and evidence that the servicer recorded 
such instrument. If the recording authority causes a delay, the 
servicer could request an extension of time, in writing, from VA.
    Servicers would utilize VA's existing loan servicing platform, the 
VA Loan Electronic Reporting Interface (VALERI) system, to report the 
partial claim payment event. Servicers would need to report the event 
within seven days of the borrower's execution of the note required by 
Sec.  36.4805. Below, VA has identified the specific data elements that 
servicers must input into VALERI when reporting the partial claim 
event.

                                            Data Element Definitions
----------------------------------------------------------------------------------------------------------------
          Event name                    Data elements                 Business definition of data element
----------------------------------------------------------------------------------------------------------------
Partial claim.................  Principal amount.............  Total dollar amount of all scheduled but missed
                                                                monthly payments of principal, as described in
                                                                Sec.   36.4805(e)(2)(i) and (e)(3)(ii), and all
                                                                scheduled monthly payments of principal due
                                                                within 31 days of the date the veteran executes
                                                                the note and security instrument described in
                                                                Sec.   36.4806.
Partial claim.................  Interest amount..............  Total dollar amount of all scheduled but missed
                                                                monthly payments of interest, as described in
                                                                Sec.   36.4805(e)(2)(i) and (e)(3)(ii), and all
                                                                scheduled monthly payments of interest due
                                                                within 31 days of the date the veteran executes
                                                                the note and security instrument described in
                                                                Sec.   36.4806.

[[Page 79152]]

 
Partial claim.................  Tax payments missed amount...  Total dollar amount of all scheduled but missed
                                                                monthly escrow payments for real estate taxes,
                                                                as described in Sec.   36.4805(e)(2)(ii) and
                                                                (e)(3)(ii), and all scheduled monthly escrow
                                                                payments for real estate taxes due within 31
                                                                days of the date the veteran executes the note
                                                                and security instrument described in Sec.
                                                                36.4806.
Partial claim.................  Insurance payments missed      Total dollar amount of all scheduled but missed
                                 amount.                        monthly escrow payments for insurance premiums,
                                                                as described in Sec.   36.4805(e)(2)(ii) and
                                                                (e)(3)(ii), and all scheduled monthly escrow
                                                                payments for insurance premiums due within 31
                                                                days of the date the veteran executes the note
                                                                and security instrument described in Sec.
                                                                36.4806.
Partial claim.................  Tax advance amount...........  Total dollar amount of all payments the servicer
                                                                made to real estate tax authorities on the
                                                                veteran's behalf, as described in Sec.
                                                                36.4805(e)(2)(ii).
Partial claim.................  Tax advance date.............  The date on which the servicer made the tax
                                                                advance on the veteran's behalf, as described in
                                                                Sec.   36.4805(e)(2)(ii).
Partial claim.................  Insurance advance amount.....  Total dollar amount of all payments the servicer
                                                                made to insurance providers on the veteran's
                                                                behalf, as described in Sec.
                                                                36.4805(e)(2)(ii).
Partial claim.................  Insurance advance date.......  The date on which the servicer made the insurance
                                                                advance on veteran's behalf, as described in
                                                                Sec.   36.4805(e)(2)(ii).
Partial claim.................  Recording fees...............  Total dollar amount of recording fees, recording
                                                                taxes, or other charges levied by the recording
                                                                authority, that must be paid in order to record
                                                                the security instrument, as described in Sec.
                                                                36.4805(e)(3)(iii).
Partial claim.................  Partial claim origination      The date the borrower executes the note required
                                 date.                          by Sec.   36.4805.
Partial claim.................  Partial claim first payment    The date on which the first payment on the
                                 due date.                      partial claim loan is due to the Secretary.
Partial claim.................  Partial claim maturity date..  The date on which the final payment on the
                                                                partial claim loan is due to the Secretary.
Partial claim.................  Partial claim P&I payment      The monthly payment corresponding to principal
                                 amount.                        and interest on the partial claim loan.
Partial claim.................  Partial claim legal            The legal description of the property.
                                 description.
Partial claim.................  Partial claim lien position..  The lien position of the partial claim loan.
Partial claim.................  Second borrower birth date...  The birth dates of all co-borrowers.
----------------------------------------------------------------------------------------------------------------

    VA has proposed VA Standard Form 26-10213, Application for a COVID-
19 Veterans Assistance Partial Claim Payment (COVID-VAPCP), to collect 
basic information necessary to identify the borrower(s), the servicer, 
and the VA loan number for the guaranteed loan for which partial claim 
payment is being requested. This form would also collect information 
regarding the date the veteran entered into a CARES Act forbearance, 
along with the unpaid principal balance on that date, the latter of 
which is necessary to determine the maximum amount of the partial claim 
payment under proposed Sec.  36.4805. VA proposes that the servicer 
must indicate, on the proposed form, the date on which the borrower 
will resume monthly guaranteed loan payments to the servicer, along 
with the amount of those monthly payments. The servicer would then 
provide the amount of partial claim payment being requested, along with 
the date the note and security instrument were executed, as required 
under proposed Sec.  36.4805. Finally, both the borrower and servicer 
would sign statements certifying to the elements required under 
proposed Sec.  36.4803.
    Further documentation would only be reviewed under VA's existing 
auditing and oversight processes.

I. Section 36.4808 No Effect on the Servicing of the Guaranteed Loan

    In Sec.  36.4808, VA would require servicers to continue to service 
the guaranteed loan in accordance with subpart B of part 36. The 
liability of the United States for any guaranteed loan would decrease 
or increase pro rata with any decrease or increase of the amount of the 
unpaid portion of the guaranteed loan. A partial claim payment would 
not affect the guaranty percentage established at the time the 
guaranteed loan was made. Receipt of a partial claim payment would not 
eliminate a servicer's option under 38 U.S.C. 3732, to convey to the 
Secretary the security for the guaranteed loan in the event such loan 
is foreclosed or if the veteran executes a deed-in-lieu of foreclosure.

J. Section 36.4809 Expiration of the COVID-19 Veterans Assistance 
Partial Claim Payment Program

    In proposed Sec.  36.4809, VA would note that the Secretary will 
not accept a request for a partial claim payment after the date that is 
180 days after the date the COVID-19 national emergency ends (as 
provided under the National Emergencies Act), unless a veteran's CARES 
Act forbearance does not end until after such date. In cases where a 
veteran's CARES Act forbearance ends after the subject date, the 
Secretary could still accept a request for a partial claim payment, 
provided that such request is submitted to the Secretary not later than 
90 days after the date the veteran exits the CARES Act forbearance. 
However, in no event would the Secretary accept a request for a partial 
claim payment after September 9, 2021.
    In proposing September 9, 2021, as the last date on which VA could 
accept a request for a partial claim payment, VA notes that this date 
is 180 days from the one-year anniversary of the President's March 13, 
2020 COVID-19 national emergency declaration. Under the National 
Emergencies Act, any ``national emergency declared by the President . . 
. not otherwise previously terminated, shall terminate on the 
anniversary of the declaration of that emergency if, within the ninety-
day period prior to each anniversary date, the President does not 
publish in the Federal Register and transmit to the Congress a notice 
stating that such emergency is to continue . . .'' \40\ Without clear 
indication of whether the national emergency will be extended beyond 
its one-year anniversary, and the future state of the economy and 
lending

[[Page 79153]]

industry, VA finds it prudent to publish a termination date that is 
tied to the one-year anniversary and also provides sufficient notice 
for VA and servicers to close out any actions related to the program. 
It also provides sufficient time for VA to extend the sunset date via 
rulemaking, depending on VA's continued monitoring of the national 
emergency and its impact on veterans.
---------------------------------------------------------------------------

    \40\ 50 U.S.C. 1622(d).
---------------------------------------------------------------------------

K. Section 36.4810 Oversight of the COVID-19 Veterans Assistance 
Partial Claim Payment Program

    In proposed Sec.  36.4810, VA would set forth the parameters for 
oversight of the COVID-VAPCP. It is an almost verbatim restatement of 
38 U.S.C. 3704(d). Specifically, subject to notice and opportunity for 
a hearing, whenever the Secretary finds with respect to a partial claim 
payment that any servicer has failed to maintain adequate loan 
accounting records, or to demonstrate proper ability to service loans 
adequately or to exercise proper credit judgment or has willfully or 
negligently engaged in practices otherwise detrimental to the interest 
of veterans or of the Government, the Secretary could refuse either 
temporarily or permanently to guarantee or insure any loans made by 
such servicer and may bar such servicer from servicing or acquiring 
guaranteed loans.\41\ Notwithstanding the above, but subject to Sec.  
36.4328, the Secretary would not refuse to pay a guaranty or insurance 
claim on guaranteed loans theretofore entered into in good faith 
between a veteran and such servicer.\42\ The Secretary could also 
refuse either temporarily or permanently to guarantee or insure any 
loans made by a lender or holder refused the benefits of participation 
under the National Housing Act pursuant to a determination of the 
Secretary of Housing and Urban Development.\43\
---------------------------------------------------------------------------

    \41\ 38 U.S.C. 3704(d).
    \42\ Id.
    \43\ Id.
---------------------------------------------------------------------------

    As noted above, VA would utilize its existing loan refund process 
to handle applications for partial claim payments via the VA Loan 
Electronic Report Interface (VALERI). Upon receipt of an application, 
VA would conduct a two-tier review and approval of the partial claim 
payment, utilizing information already in its VALERI systems to verify 
that the servicer has brought the veteran's guaranteed loan current, 
that the amount requested is consistent with other proposed 
requirements, and that VA has received all necessary documentation. 
Partial claim payments would also be subject to VA's oversight and 
audit activities as part of VA's regular monitoring related to adequacy 
of loan servicing. If VA determines, during an audit, that a servicer 
did not follow VA's requirements when participating in the COVID-VAPCP, 
proposed Sec.  36.4810 would expressly authorize appropriate 
enforcement actions.

L. Conforming Technical Amendments

    VA proposes to add new section 38 CFR 36.4336 that would reiterate 
VA's parameters for oversight of loan servicing. This technical 
amendment is necessary to ensure that servicers adhere to the 
parameters outlined in Sec.  36.4804, wherein the servicer must 
consider the partial claim payment option after evaluating loss-
mitigation options in subpart B for feasibility. As with proposed Sec.  
36.4810, it would include an almost verbatim restatement of 38 U.S.C. 
3704(d). Under this new section, subject to notice and opportunity for 
a hearing, whenever the Secretary finds that any servicer has failed to 
maintain adequate loan accounting records, or to demonstrate proper 
ability to service loans adequately or to exercise proper credit 
judgment or has willfully or negligently engaged in practices otherwise 
detrimental to the interest of veterans or of the Government, the 
Secretary may refuse either temporarily or permanently to guarantee or 
insure any loans made by such servicer and may bar such servicer from 
servicing or acquiring guaranteed loans.\44\ Notwithstanding the above, 
but subject to Sec.  36.4328, the Secretary would not refuse to pay a 
guaranty or insurance claim on guaranteed loans theretofore entered 
into in good faith between a veteran and such servicer.\45\ The 
Secretary may also refuse either temporarily or permanently to 
guarantee or insure any loans made by a lender or holder refused the 
benefits of participation under the National Housing Act pursuant to a 
determination of the Secretary of Housing and Urban Development.\46\ VA 
also proposes to amend 38 CFR 36.4333(a)(2) to ensure that records 
referenced in proposed Sec. Sec.  36.4336 and 36.4810 are included in 
VA's maintenance of record requirements. Currently, holders are 
required to ``maintain records supporting their decision to approve any 
loss-mitigation option for which an incentive is paid in accordance 
with Sec.  36.4319(a).'' \47\ VA proposes to delete the phrase ``for 
which an incentive is paid in accordance with Sec.  36.4319(a).'' To 
ensure that VA's partial claim payment option is covered, VA would add 
a sentence noting that the holder would be required to maintain records 
supporting their decision to pursue a partial claim payment under the 
COVID-19 Veterans Assistance Partial Claim Payment program as 
established by proposed subpart F. Regarding the length of the 
recordkeeping requirement, VA proposes to retain an element of the 
status quo, namely that such records shall be retained a minimum of 
three years from the date of any incentive paid in accordance with 
Sec.  36.4319(a) or the date the veteran's guaranteed loan is made 
current via the COVID-VAPCP, whichever is later. Finally, VA proposes 
to amend the specific authority for Sec.  36.4333 to include 38 U.S.C. 
3704(d), as this section requires the maintenance of adequate loan 
accounting records.
---------------------------------------------------------------------------

    \44\ 38 U.S.C. 3704(d).
    \45\ Id.
    \46\ Id.
    \47\ 38 CFR 36.4333(a)(2).
---------------------------------------------------------------------------

VI. Specific Questions for Comment

    While VA welcomes comments on all aspects of this proposed rule, VA 
specifically requests comments on the following:
    1. Is the servicer's 90-day deadline as proposed by Sec.  36.4805 
to submit the request for partial claim payment reasonable? If not, 
what would be a reasonable timeframe, recognizing VA's goal of ensuring 
that veterans exiting a CARES Act forbearance are evaluated and 
processed for home retention actions in a timely manner?
    2. Is information collected as part of a complete loss-mitigation 
evaluation adequate to determine a borrower(s) monthly residual income 
as described by 38 CFR 36.4340(e)? If not, what additional information 
would be needed from the borrower(s)?
    3. Understanding that many veterans and servicers are in need of 
VA's assistance, but also that veterans, servicers, and other 
stakeholders would need time to understand and implement VA's proposed 
regulatory requirements, VA seeks public comment as to how a final rule 
that is not effective for 30 or 60 days following publication might 
negatively impact veterans, servicers, and other stakeholders. VA also 
requests input as to whether there would be enough time for industry 
implementation of the partial claim payment program if VA were to 
publish a final rule that is effective 7 days after publication. Please 
be specific in communicating any concerns, including any additional 
costs associated with accelerated timetables for training, technology 
upgrades, etc.

[[Page 79154]]

    4. In the case of a veteran who pays real estate taxes and/or 
insurance premiums directly to a tax authority or insurance provider, 
should VA allow the partial claim payment to include amounts 
corresponding to what will be due on tax and/or insurance bills, where 
the bills were not due and payable during the veteran's CARES Act 
forbearance? If so, should such amounts be prorated to correspond only 
to the months during which the veteran was under forbearance? How 
should servicers handle monies in cases where such future tax and 
insurance premium payments are not due and payable at the time of the 
partial claim payment, resulting in an excess of funds being paid to 
the servicer? Should servicers remit such amounts directly to the 
veteran? Or should servicers be required to hold such amounts in escrow 
until the bills become due and payable? How should VA conduct oversight 
of these activities?

VII. Explanation of Comment Period

    VA is issuing this proposed rule with a 30-day public comment 
period. The Administrative Procedure Act (APA) does not specify the 
length of the comment period, requiring only that an agency give the 
public an ``opportunity to participate.'' \48\ Agencies commonly allow 
30 to 60 days for comment on a proposed rule. VA is shortening the 
comment period to 30 days because this rule is proposed in response to 
heightened concerns surrounding the COVID-19 national emergency and 
outcomes for veterans as they exit CARES Act forbearance periods.
---------------------------------------------------------------------------

    \48\ 5 U.S.C. 553(c).
---------------------------------------------------------------------------

    Under section 4022 of the CARES Act, enacted on March 27, 2020, 
borrowers may obtain up to 180 days of forbearance on their Federally 
backed loans.\49\ VA-guaranteed loans are considered Federally backed. 
Section 4022 also provides borrowers the option of extending the 
forbearance for an additional 180 days.\50\ Section 4022 allows 
borrowers to shorten their periods of forbearance. This means that some 
borrowers may have already exited CARES Act forbearances and more 
borrowers could do so at any time.
---------------------------------------------------------------------------

    \49\ Public Law 116-136, section 4022(b)(2) (Mar. 27, 2020).
    \50\ Id.
---------------------------------------------------------------------------

    As initial CARES Act forbearance periods near their end, VA 
stakeholders confront numerous decisions that have far-reaching 
consequences. Many veterans, for example, must decide whether to 
request additional forbearance and watch their forborne indebtedness 
grow, or attempt to resume their regularly scheduled monthly payments, 
despite potential hardships and uncertainties caused by the national 
emergency. VA's partial claim assistance may well be the determining 
factor for certain veterans, affecting the extent to which they can 
recover financially from the crisis. Similarly, servicers must evaluate 
their liquidity positions and other factors to determine how to make 
the advances necessary for investor requirements. Some servicers may 
even be questioning whether they can stay afloat, which ultimately 
harms not just the servicer, but also the veterans whose guaranteed 
loans are being serviced. Many of these servicers will find that the 
assistance VA is proposing for veterans may simultaneously be the 
servicer's lifeline, thereby affording veterans prudent and 
uninterrupted loan servicing.
    Despite the urgency noted above, VA strongly believes that the 
novelty of this program, including the differences between VA's 
proposed partial claim payment program and other federal agencies' 
partial claim programs, necessitates an opportunity for public input 
before finalization and implementation. VA did consider implementing 
this program via an interim final rule but decided stakeholder feedback 
was needed in advance of implementation in a number of specific areas, 
as addressed in section VI above. Further, VA recognizes that allowing 
for servicers to communicate potential concerns with VA's rule ahead of 
implementation would ensure veterans are better served when the final 
rule goes into effect. Balancing the need for a final regulation 
against the need for public input on this new partial claim option, VA 
believes that a 30-day public comment period is appropriate to ensure 
VA can gather input from interested parties while accelerating the 
process toward a final rule to assist veterans.

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess the 
costs and benefits of available regulatory alternatives and, when 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, and other advantages; distributive impacts; 
and equity). Executive Order 13563 (Improving Regulation and Regulatory 
Review) emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
The Office of Information and Regulatory Affairs has determined that 
this rule is an economically significant regulatory action under 
Executive Order 12866.
    VA's impact analysis can be found as a supporting document at 
https://www.regulations.gov, usually within 48 hours after the 
rulemaking document is published. Additionally, a copy of the 
rulemaking and its Regulatory Impact Analysis (RIA) are available on 
VA's website at https://www.va.gov/orpm/, by following the link for ``VA 
Regulations Published From FY 2004 Through Fiscal Year to Date.''

Regulatory Flexibility Act

    The Secretary hereby certifies that this proposed 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). To assess whether the proposed rule can be expected to 
have a ``significant economic impact'' on small entities, VA considers 
the annual cost of the rule for small entities compared to their annual 
revenue. VA was able to determine the size of 89 out of 108 companies 
that service VA-guaranteed loans in CARES Act forbearances, where the 
borrowers could likely qualify for assistance via a partial claim. VA 
made this determination using the size standards from the Small 
Business Administration (SBA).51 52 VA used data from 
InfoUSA and Factiva (two business data providers) along with data from 
the Federal Deposit Insurance Corporation (FDIC) and the National 
Credit Union Administration (NCUA). Out of the 89 servicers for which 
VA has sufficient data to determine their size, 26 (or 29.21 percent) 
are considered small by SBA standards. The average annual revenue of 
those 26 small servicers is $11.98 million.\53\
---------------------------------------------------------------------------

    \51\ VA uses data from InfoUSA and Factiva to determine the 
industry (as identified by the primary NAICS code) for the active 
VA-guaranteed loan servicers. For industries where size standards 
are determined by the average annual revenue, VA compares the 
revenue of each servicer in these industries, as reported in InfoUSA 
and Factiva, to the SBA annual revenue threshold for small 
businesses. For industries where size standards are determined by 
assets, VA compares the relevant SBA threshold for small businesses 
to asset data from the FDIC for servicers with primary NAICS codes 
522110 (Commercial Banking) and 522120 (Savings Institutions), and 
asset data from the NCUA for lenders with a primary NAICS code of 
522130 (Credit Unions).
    \52\ U.S. Small Business Administration, SBA Table of Size 
Standards, (2019), https://www.sba.gov/sites/default/files/2019-08/SBA%20Table%20of%20Size%20Standards_Effective%20Aug%2019%2C%202019_Rev.pdf.
    \53\ VA averages the sales volumes from Factiva for all 
servicers considered small, including those primarily considered 
commercial banks, savings institutions, and credit unions.

---------------------------------------------------------------------------

[[Page 79155]]

    To determine the economic burden of the proposed rule on small 
entities, VA compares the average annual costs of the rule that fall on 
small servicers to the average annual revenue of the small servicers. 
The costs of the rule come from rule familiarization and the Paperwork 
Reduction Act (PRA) costs, which include the costs for servicers to 
complete the VA form 26-10213 and prepare and execute the original note 
and security instrument. The cost of rule familiarization is $99.90 for 
each guaranteed loan servicer, including the small servicers. The PRA 
cost estimates vary across servicers depending on how many CARES Act 
forbearance loans they service that either meet or could potentially 
meet COVID-VAPCP requirements.
    As described in the impact analysis, the lower and upper bound 
estimates for the number of borrowers who will likely qualify for 
assistance via a partial claim are 33,644 and 60,512, respectively. VA 
estimates that 28.538 percent of those loans are serviced by small 
entities, or between 9,601 and 17,269 loans. Given the total PRA cost 
for servicers of $54.96 per loan, the total PRA cost per average small 
servicer is $20,295.04 at the lower bound and $36,504.01 at the upper 
bound.
    The total cost of this rule per average small VA-guaranteed loan 
servicer ranges from $20,395 ($99.90 + $20,295.04) to $36,604 ($99.90 + 
$36,504.01), while the average annual revenue to small servicers is 
$11.98 million. VA considers a rule to have a ``significant economic 
impact'' when the total annual cost associated with the rule for a 
small entity is equal to or exceeds 1 percent of annual revenue. The 
total upper bound cost to small servicers is 0.30 percent of the 
average annual revenue to small servicers. This ratio is calculated 
using the total costs on small servicers, rather than the total annual 
costs. In subsequent years, absent the rule familiarization costs and 
with the dispersion of the PRA costs, the average annual cost to small 
servicers is even below that level. Thus, the rule is not expected to 
have a significant economic impact on the small servicers.
    To assess whether the rule can be expected to affect a 
``substantial number of small entities,'' VA considers a ratio that 
captures the incidence of small VA servicers in the potential universe 
of servicers. Specifically, VA uses the ratio of small VA servicers 
with guaranteed loans in CARES Act forbearance that are likely to 
participate in the partial claim program to the total number of VA 
servicers with guaranteed loans in CARES Act forbearance that are 
likely to participate in the partial claim program. As described above, 
26 VA servicers out of the 89 servicers with sufficient data available 
are small (29.21 percent). Therefore, the proposed rule is expected to 
affect a substantial number of small entities.
    While the proposed rule is expected to affect a substantial number 
of small entities, the impact will not be economically significant. On 
this basis, the Secretary certifies that the adoption of this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities as they are defined in the Regulatory 
Flexibility Act. Therefore, pursuant to 5 U.S.C. 605(b), the initial 
and final regulatory flexibility analysis requirements of 5 U.S.C. 603 
and 604 do not apply.

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year. This proposed rule would have no such 
effect on State, local, and tribal governments, or on the private 
sector.

Paperwork Reduction Act

    This proposed rule includes provisions constituting both revised 
and new collections of information under the Paperwork Reduction Act of 
1995 (44 U.S.C. 3501-3521) that require approval by the Office of 
Management and Budget (OMB). Accordingly, under 44 U.S.C. 3507(d), VA 
has submitted a copy of this rulemaking action to OMB for review.
    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. Proposed Sec. Sec.  36.4333, 
36.4336, 36.4803, 36.4805, 36.4806, 36.4807, and 36.4810 contain 
collections of information under the Paperwork Reduction Act of 1995. 
If OMB does not approve the collections of information as requested, VA 
will immediately remove the provisions containing a collection of 
information or take such other action as is directed by OMB.
    Comments on the collections of information contained in this 
proposed rule 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 or 
submitted through www.Regulations.gov. Comments should indicate that 
they are submitted in response to ``RIN 2900-AR05.''
    OMB is required to make a decision concerning the collections of 
information contained in this proposed rule between 30 and 60 days 
after publication of this document in the Federal Register. Therefore, 
a comment to OMB is best assured of having its full effect if OMB 
receives it within 30 days of publication.
    The Department considers comments by the public on proposed 
collections of information in--
     Evaluating whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
Department, including whether the information will have practical 
utility;
     Evaluating the accuracy of the Department's estimate of 
the burden of the proposed collections of information, including the 
validity of the methodology and assumptions used;
     Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
     Minimizing the burden of the collections of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, such as permitting 
electronic submission of responses.
    The collections of information contained in 38 CFR 36.4333, 
36.4336, and 36.4810 are described immediately following this 
paragraph, under its respective title.
    Title: Maintenance of Records.
    OMB Control No.: 2900-0515.
    CFR Provisions: 38 CFR 36.4333, 36.4336, and 36.4810.
    Summary of collection of information: These requirements are 
covered under OMB control number 2900-0515. VA proposes to revise this 
information collection to include the proposed revisions to Sec.  
36.4333 and new proposed Sec. Sec.  36.4336 and 36.4810. Under current 
38 CFR 36.4333, VA requires holders to maintain and lenders to retain 
all records pertaining to loans guaranteed by VA. Under this same 
authority, VA has a right to inspect, examine, or audit, at a 
reasonable time and place, such records to ensure program participants 
are in compliance with applicable laws, regulations, policies, 
procedures, and contract provisions. The revised collection of 
information in proposed 38 CFR

[[Page 79156]]

36.4333 would require holders to maintain records supporting their 
decision to approve any home retention option exercised by the servicer 
and borrower. The holder would also be required to maintain records 
supporting their decision to pursue a partial claim payment under the 
COVID-19 Veterans Assistance Partial Claim Payment program. VA would 
require those records to be retained a minimum of 3 years from the date 
of any incentive paid in accordance with Sec.  36.4319(a) or, in the 
case of a partial claim payment under the COVID-19 Veterans Assistance 
Partial Claim Payment program, the date the veteran's guaranteed loan 
is made current under such program, whichever is later, and shall 
include, but not be limited to, credit reports, verifications of 
income, employment, assets, liabilities, and other factors affecting 
the obligor's credit worthiness, worksheets, and other documents 
supporting the holder's decision. In Sec.  36.4336, VA would be 
authorized to take action if it found that a servicer failed to 
maintain adequate loan accounting records, to demonstrate proper 
ability to service loans adequately, to exercise proper credit 
judgment, or has willfully or negligently engaged in practices 
otherwise detrimental to the interest of veterans or of the Government. 
In Sec.  36.4810, VA would extend that authority to a partial claim 
payment.
    Description of need for information and proposed use of 
information: The information collected as a result of revisions 
associated with this rulemaking will be used by VA to conduct servicer 
oversight, including the COVID-19 Veteran Assistance Partial Claim 
Payment program.
    Description of likely respondents: The respondent population under 
the current information collection is comprised of holders and lenders, 
particularly, the individuals with oversight roles in the company, such 
as a compliance officer. There is no change to this section as a result 
of this rulemaking.
    Estimated number of respondents: Under the current information 
collection, VA estimates an ongoing hour burden associated with holders 
and lenders submitting files to VA in association with normal audit 
activities. VA also estimates an hour burden associated with lenders 
who may voluntarily submit loan records to VA in a computable data 
format as it begins to pilot that technology. VA does not anticipate 
additional submissions as a result of the proposed revisions to 
Sec. Sec.  36.4333, 36.4336, and 36.4810.
    Estimated frequency of responses: Under the current information 
collection, VA estimates a one-time response to an audit request or 
voluntary electronic submission. VA does not anticipate an increase in 
the frequency of responses.
    Estimated average burden per response: The revisions proposed in 
this rule would neither increase nor decrease the average burden per 
response, which in this case would be the time a servicer spends 
uploading records requested by VA in conjunction with servicer audit 
and oversight activities. Similarly, VA notes that recordkeeping 
requirements related to servicing and loss-mitigation activities are 
consistent with customary and usual business practices for loan holders 
(servicers); VA therefore assigns no additional time burden to 
servicers in maintaining such records, including those contemplated by 
the revisions proposed in this rule.
    Estimated total annual reporting and recordkeeping burden: VA does 
not, with this proposed rulemaking, anticipate any change in the total 
annual reporting and recordkeeping burden. In that regard, VA's 
proposed revisions to this existing information collection merely 
expand the documentation/information that servicers must keep in their 
records in regard to existing VA-guaranteed loans and loss-mitigation 
activities associated with those loans, the cost of which falls within 
customary and usual business practices. Moreover, VA would request such 
records for the purpose of conducting oversight of VA's proposed COVID-
VAPCP under existing audit and oversight programs with no anticipated 
impact in the number of loans for which servicers will have to provide 
VA with additional information.
    Estimated cost to respondents per year: VA anticipates no 
additional costs to respondents based on proposed revisions associated 
with this rulemaking.
    The collections of information contained in 38 CFR 36.4803, 
36.4805, 36.4806, and 36.4807 are described immediately following this 
paragraph, under its respective title.
    Title: Application for a COVID-19 Veterans Assistance Partial Claim 
Payment (COVID-VAPCP).
    OMB Control No.: 2900-XXXX (NEW).
    CFR Provisions: 38 CFR 36.4803, 36.4805, 36.4806, and 36.4807.
    Summary of collection of information: The new collection of 
information in proposed 38 CFR 36.4803 would require the veteran to 
certify that the veteran can resume making scheduled monthly payments, 
on time and in full, and that the veteran occupies, as the veteran's 
residence, the property securing the guaranteed loan for which the 
partial claim is requested. In Sec.  36.4803, the servicer would be 
required to certify that the veteran's monthly residual income, as 
described in Sec.  36.4340(e), will be adequate to meet living expenses 
after estimated monthly shelter expenses have been paid and other 
monthly obligations have been met. In Sec.  36.4805, the servicer would 
be required to prepare a note and security instrument in favor of ``the 
Secretary of Veterans Affairs, an Officer of the United States''. VA 
would require that the note be consistent with the terms described in 
Sec.  36.4806 and include all borrowers who are obligated on the 
guaranteed loan. The security instrument would be required to include 
all persons (borrowers, as well as non-borrowers) who have a title 
interest in the property securing the guaranteed loan. The servicer 
would be required to record the security instrument timely, as 
prescribed in Sec.  36.4807.
    In Sec.  36.4806, VA would require the veteran, and all co-
borrowers on the guaranteed loan, to execute a note and security 
instrument in favor of ``the Secretary of Veterans Affairs, an Officer 
of the United States''. VA would require specific terms in the note and 
security instrument. Specifically, VA would require the note and 
security instrument to include the amount to be repaid to the 
Secretary, by the veteran, to be the amount calculated under Sec.  
36.4805(e). The interest rate on the loan created by the note and 
security instrument would be required to be fixed at 1.00 percent per 
annum. VA would automatically defer monthly payments for the first 60 
months of the loan, meaning that there would be no payment due to the 
Secretary during the period of deferment. A borrower could, without 
premium or fee, make payments during such deferment for the entire 
indebtedness, or any portion thereof, provided that such portion is not 
less than what would be due for one monthly payment as calculated based 
on a 60-month term. VA would require the term of the loan to be 120 
months. The loan would be amortized fully within the term of the loan 
in accordance with any generally recognized plan of amortization 
requiring approximately equal monthly payments. VA would require 
repayment in full immediately upon the veteran's transfer of title to 
the property, the refinancing, or payment in full

[[Page 79157]]

otherwise, of the guaranteed loan with which the partial claim payment 
is associated.
    In Sec.  36.4807, VA would require the veteran and the servicer to 
complete an application form prescribed by the Secretary. VA would also 
state that along with the completed form, the servicer must provide VA 
with the original note required by Sec.  36.4805. Not later than 180 
days following the date the security instrument, required by Sec.  
36.4805, is fully executed, the servicer would be required to provide 
VA with the original security instrument and evidence that the servicer 
recorded such instrument. If the recording authority causes a delay, VA 
would allow the servicer to request an extension of time, in writing, 
from VA. The servicer would also be required to report information 
related to the partial claim application to VA electronically.
    VA proposes to collect information for the partial claim payment 
application, including the certifications outlined in 36.4803, through 
use of a new standardized form. Proposed VA form 26-10213, Application 
for a COVID-19 Veterans Assistance Partial Claim Payment (COVID-VAPCP), 
would collect basic information necessary to identify the borrower(s), 
the servicer, and the VA loan number for the guaranteed loan for which 
partial claim payment is being requested. This form would also collect 
information regarding the date the veteran entered into a CARES Act 
forbearance, along with the unpaid principal balance on that date, the 
latter of which is necessary to determine the maximum amount of the 
partial claim payment under Sec.  36.4805. VA proposes on this form 
that the servicer must indicate, on the proposed form, the date on 
which the borrower will resume monthly guaranteed loan payments to the 
servicer, along with the amount of those monthly payments. The servicer 
would then provide the amount of partial claim payment being requested, 
along with the date the note and security instrument were executed, as 
required under Sec.  36.4805. Finally, both the borrower and servicer 
would sign statements certifying to those elements required under Sec.  
36.4803.
    Description of need for information and proposed use of 
information: The information will be used by VA to determine if the 
veteran qualifies for a partial claim payment and, if qualified, to 
administer the payment.
    Description of likely respondents: Veterans and servicers pursuing 
a partial claim payment.
    Estimated number of respondents: VA notes that due to the 
unprecedented nature of the current national emergency and the novelty 
of VA's partial claim payment program, there is some uncertainty as to 
how many respondents would be impacted by this proposed rulemaking. As 
discussed in VA's regulatory impact analysis, VA has estimated a lower/
upper bound of estimated partial claim payments associated with this 
temporary program that corresponds directly to those who would be 
subject to the paperwork requirements associated with this rulemaking. 
VA has further estimated a distribution of these partial claim payments 
(or respondents) over fiscal years 2021 and 2022. Given that this 
proposed temporary program is limited to help veterans recover 
financially from the COVID-19 national emergency, VA does not 
anticipate any partial claim payments (or applications) will be 
received in FY 2023 and beyond. To ensure that VA's paperwork burden 
estimate coincides with its regulatory impact analysis, VA has 
presented a range of paperwork burden estimates. However, for purposes 
of calculating annual reporting and recordkeeping costs, VA will 
utilize the average of these estimates, annualized over two years (FY 
2021 and 2022).
    Using the lower/upper bound from VA's regulatory impact analysis, 
VA estimates the total number of respondents would fall between 33,644 
and 60,512. Over the two-year period of this information collection, 
the annual number of respondents is therefore estimated to fall between 
16,822 and 30,256, with an average annual number of respondents equal 
to 23,539.
    Estimated frequency of responses: One time per application for 
partial claim payment.
    Estimated average burden per response: 60 minutes for veterans 
(includes 15 minutes to complete VA form 26-10213, 15 minutes to gather 
and submit any additional financial information needed to enable the 
servicer to make an assessment under 38 CFR 36.4340(e), and 30 minutes 
to understand and execute the original note and security instrument). 
90 minutes for servicers (includes 15 minutes to complete VA form 26-
10213, 15 minutes to review additional financial information provided 
by the veteran to assess residual income under 38 CFR 36.4340(e), and 1 
hour to prepare and execute the original note and security instrument).
    Estimated total annual reporting and recordkeeping burden: VA 
estimates the total annual reporting and recordkeeping burden falls 
between 42,055 and 75,640 burden hours. Using VA's average annual 
number of respondents (23,539), VA estimates a total annual reporting 
and recordkeeping burden of 58,847 hours (23,539 hours for veterans; 
35,308 hours for servicers).
    Estimated cost to respondents per year: VA estimates the annual 
cost to respondents falls between $1,357,198 and $2,441,053. Using VA's 
average annual number of respondents, VA estimates the total cost to 
all respondents to be $1,899,108 per year.\54\ (23,539 burden hours for 
veterans x $25.72 per hour) + (35,308 burden for servicers x $36.64 per 
hour).
---------------------------------------------------------------------------

    \54\ To estimate costs associated with servicer respondent 
burden, VA used the Bureau of Labor Statistics (BLS) median hourly 
wage for loan officers (occupation code 13-2072) of $36.64 per hour. 
To estimate costs associated with veteran respondent burden, VA used 
the median hourly wage for all occupations of $25.72 per hour. This 
information is available at https://www.bls.gov/oes/current/oes_nat.htm#13-0000.
---------------------------------------------------------------------------

    Title: VA Loan Electronic Reporting Interface (VALERI) System.
    OMB Control No.: 2900-0021.
    CFR provisions: 38 CFR part 36, subpart B, and 38 CFR 36.4807.
    Summary of collection of information: The information collection 
requirements under 38 CFR part 36, subpart B, which include reporting 
requirements for servicers, are currently assigned OMB control number 
2900-0021 and set to expire on November 30, 2020. In proposed Sec.  
36.4807, VA would require servicers to report a partial claim event to 
VA through its existing electronic loan servicing system. This new 
reporting requirement therefore requires revisions to the existing 
information collection under control number 2900-0021. VA therefore 
seeks to renew and revise this information collection, to include 
proposed revisions to Sec.  36.4807.
    The servicer is already required to report information associated 
with reinstating the loan as current, as outlined at 38 CFR 
36.4317(c)(15), and covered by the existing information collection. VA 
proposes to revise its information collection to collect new data 
elements specific to the servicer executing a partial claim. This new 
information would be transmitted through a VALERI Events Bulk Upload 
template.
    Description of need for information and proposed use of 
information: Regarding the information requested under proposed 38 CFR 
36.4807, the information will be used by VA to determine if the veteran 
qualifies for a partial claim option and, if qualified, to administer 
the payment to the servicer on behalf of the veteran. It will also 
serve as a way for VA to track the occurrence of the partial claim home 
retention event.

[[Page 79158]]

    Description of likely respondents: The renewal encompasses all 
servicers reporting servicing activity on loans to VA. The revisions 
encompass a subset of this group; specifically, servicers requesting a 
partial claim payment on behalf of a veteran.
    Estimated number of respondents: VA does not anticipate any change 
in the estimated number of respondents based on VA's renewal request or 
proposed revisions to this information collection requirement. The 
current estimated number of respondents reflects the estimated number 
of VA servicers required to submit loan servicing information to VA 
annually. As such, the servicers who will submit information in 
conjunction with the partial claim payment option are contemplated in 
the current estimated respondent population.
    Estimated frequency of responses: VA does not anticipate any change 
in the estimated frequency of responses based on VA's renewal request 
or proposed revisions to this information collection as servicers are 
required to report activity on every VA-guaranteed loan in their 
servicing portfolio, regardless of the home retention options pursued.
    Estimated average burden per response: VA does not anticipate any 
change in the average burden per response based on VA's renewal request 
or proposed revisions to this information collection. Under the 
existing information collection, VA estimates a one-minute respondent 
burden as the information reported through VALERI is automated.
    Estimated total annual reporting and recordkeeping burden: VA does 
not anticipate any change in the total annual reporting and 
recordkeeping burden currently associated with this information 
collection. VA's proposed revisions to this existing information 
collection merely expand the list of possible home retention events to 
be reported by servicers to include the partial claim option.
    Estimated cost to respondents per year: There are no new or 
increased costs to respondents based on this renewal request or 
proposed revisions to this information collection. As noted above, 
there is no change in the estimated average number of respondents and 
average burden per response for reporting activities associated with 
this information collection. VA acknowledges that servicers will be 
required to incorporate new information into the VALERI Events Bulk 
Upload template within their current servicing platforms. However, VA 
estimates a de minimis cost for servicers because servicers already 
utilize VALERI and the Events Bulk Upload template format to report all 
servicing activity to VA.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number and title for the 
program affected by this document is 64.114, Veterans Housing--
Guaranteed and Insured Loans.

List of Subjects in 38 CFR Part 36

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

Signing Authority

    The Secretary of Veterans Affairs, or designee, approved this 
document and authorized the undersigned to sign and submit the document 
to the Office of the Federal Register for publication electronically as 
an official document of the Department of Veterans Affairs. Brooks D. 
Tucker, Assistant Secretary for Congressional and Legislative Affairs, 
Performing the Delegable Duties of the Chief of Staff, Department of 
Veterans Affairs, approved this document on October 15, 2020, for 
publication.

Jeffrey M. Martin,
Assistant Director, Office of Regulation Policy & Management, Office of 
the Secretary, Department of Veterans Affairs.

    For the reasons stated in the preamble, the Department of Veterans 
Affairs proposes to amend 38 CFR part 36 as set forth below:

PART 36--LOAN GUARANTY

0
1. The authority citation for part 36 continues to read as follows:

    Authority: 38 U.S.C. 501 and 3720.

0
2. Amend Sec.  36.4333 by revising paragraph (a)(2) and the two 
parenthetical sentences at the end of the section to read as follows:


Sec.  36.4333  Maintenance of records.

    (a) * * *
    (2) The holder shall maintain records supporting their decision to 
approve any loss mitigation option. The holder shall maintain records 
supporting their decision to pursue a partial claim payment under the 
COVID-19 Veterans Assistance Partial Claim Payment program established 
under subpart F of this part. Such records shall be retained a minimum 
of 3 years from the date of any incentive paid in accordance with Sec.  
36.4319(a) or, in the case of a partial claim payment under the COVID-
19 Veterans Assistance Partial Claim Payment program, the date the 
veteran's guaranteed loan is made current under such program, whichever 
is later, and shall include, but not be limited to, credit reports, 
verifications of income, employment, assets, liabilities, and other 
factors affecting the obligor's credit worthiness, work sheets, and 
other documents supporting the holder's decision.
* * * * *
(The Office of Management and Budget has approved the information 
collection requirements in this section under control number XXXX-
XXXX)

(Authority: 38 U.S.C. 3703(c)(1), 3704(d))


0
3. Add Sec.  36.4336 to read as follows:


Sec.  36.4336  Oversight of servicing.

    (a) Subject to notice and opportunity for a hearing, whenever the 
Secretary finds that any servicer has failed to maintain adequate loan 
accounting records, or to demonstrate proper ability to service loans 
adequately or to exercise proper credit judgment or has willfully or 
negligently engaged in practices otherwise detrimental to the interest 
of veterans or of the Government, the Secretary may refuse either 
temporarily or permanently to guarantee or insure any loans made by 
such servicer and may bar such servicer from servicing or acquiring 
guaranteed loans.
    (b) Notwithstanding paragraph (a) of this section, but subject to 
Sec.  36.4328, the Secretary will not refuse to pay a guaranty or 
insurance claim on guaranteed loans theretofore entered into in good 
faith between a veteran and such servicer.
    (c) The Secretary may also refuse either temporarily or permanently 
to guarantee or insure any loans made by a lender or holder refused the 
benefits of participation under the National Housing Act pursuant to a 
determination of the Secretary of Housing and Urban Development.

(The Office of Management and Budget has approved the information 
collection requirements in this section under control number 2900-
0515)

(Authority: 38 U.S.C. 3703, 3704(d), 3720)


0
4. Add subpart F to read as follows:

Subpart F--COVID-19 Recovery Measures

Sec.
36.4800 Applicability.
36.4801 Definitions.
36.4802 General purpose of the COVID-19 Veterans Assistance Partial 
Claim Payment program.

[[Page 79159]]

36.4803 General requirements of the COVID-19 Veterans Assistance 
Partial Claim Payment program.
36.4804 Partial claim payment as last resort.
36.4805 Terms of the partial claim payment.
36.4806 Terms of the assistance to the veteran.
36.4807 Application for partial claim payment.
36.4808 No effect on the servicing of the guaranteed loan.
36.4809 Expiration of the COVID-19 Veterans Assistance Partial Claim 
Payment program.
36.4810 Oversight of the COVID-19 Veterans Assistance Partial Claim 
Payment program.


Sec.  36.4800  Applicability.

    This subpart applies to all loans guaranteed by VA, to the extent 
such loans are affected by the COVID-19 national emergency.

(Authority: 38 U.S.C. 3703(c), 3720, 3732)

Sec.  36.4801  Definitions.

    The following definitions of terms apply to this subpart:
    Alternative to foreclosure means an alternative to foreclosure for 
which the Secretary may pay an incentive under Sec.  36.4319. These 
alternatives include compromise sale (sometimes called a short sale) 
and deed-in-lieu of foreclosure.
    CARES Act forbearance means forbearance of scheduled monthly 
guaranteed loan payments, as granted to a veteran under section 4022 of 
the Coronavirus Aid, Relief, and Economic Security Act (Pub. L. 116-
136).
    CARES Act indebtedness means the dollar amount the veteran is 
obligated to pay under the guaranteed loan terms, but that is not 
collected during a CARES Act forbearance.
    Guaranteed loan means a loan guaranteed under chapter 37 of title 
38, United States Code.
    Loss-mitigation option means a loss-mitigation option for which the 
Secretary may pay an incentive under Sec.  36.4319. These options 
include a repayment plan, special forbearance, and loan modification.
    Secretary means the Secretary of Veterans Affairs, or any employee 
of the Department of Veterans Affairs (VA) authorized to act in the 
Secretary's stead.
    Servicer means, for the purposes of this subpart, the holder, 
servicer, or servicing agent, as defined in Sec.  36.4301. The terms 
can apply jointly or severally, or jointly and severally.

(Authority: 38 U.S.C. 3703(c), 3720, 3732)


Sec.  36.4802  General purpose of the COVID-19 Veterans Assistance 
Partial Claim Payment program.

    The COVID-19 Veterans Assistance Partial Claim Payment program is a 
temporary program to help veterans who have suffered a COVID-19 
financial hardship. Notwithstanding the requirements elsewhere in this 
part regarding payment of a guaranty claim or refunding a loan, VA may 
assist a veteran exiting a CARES Act forbearance by purchasing from the 
servicer the veteran's CARES Act indebtedness. Such a purchase is 
called a partial claim payment. In exchange for VA's partial claim 
payment on behalf of the veteran, the veteran must agree to repay the 
Secretary, in the amount of such partial claim payment, upon loan terms 
established by the Secretary.

(Authority: 38 U.S.C. 3703(c), 3720, 3732)


Sec.  36.4803  General requirements of the COVID-19 Veterans Assistance 
Partial Claim Payment program.

    The following general requirements must be met before the Secretary 
will allow for participation in the COVID-19 Veterans Assistance 
Partial Claim Payment program:
    (a) The loan for which a partial claim payment is requested must be 
a guaranteed loan that was, on March 1, 2020, either current or less 
than 30 days past due;
    (b) The veteran on whose behalf VA will pay a partial claim payment 
both received a CARES Act forbearance and missed at least one scheduled 
monthly payment;
    (c) There remains unpaid at least one scheduled monthly payment 
that the veteran did not make while under a CARES Act forbearance;
    (d) The veteran certifies that the veteran can resume making 
scheduled monthly payments, on time and in full, and that the veteran 
occupies, as the veteran's residence, the property securing the 
guaranteed loan for which the partial claim payment is requested;
    (e) The servicer determines and certifies that the veteran's 
monthly residual income, as described in Sec.  36.4340(e), will be 
adequate to meet living expenses after estimated monthly shelter 
expenses have been paid and other monthly obligations have been met; 
and
    (f) The veteran executes, in a timely manner, all loan documents 
necessary to establish an obligation to repay the Secretary for the 
partial claim payment.

(The Office of Management and Budget has approved the information 
collection requirements in this section under control number XXXX-
XXXX)

(Authority: 38 U.S.C. 3703(c), 3720, 3732)


Sec.  36.4804  Partial claim payment as last resort.

    (a) The Veterans Assistance Partial Claim Payment program is 
designed to address the financial hardships due, directly or 
indirectly, to the COVID-19 national emergency. Servicers must consider 
all possible loss-mitigation options. VA expects that the partial claim 
payment option will be considered only as a last resort, after a 
servicer has evaluated loss-mitigation options for feasibility.
    (b) If the veteran notifies the servicer that the veteran does not 
want to retain ownership of the property securing the guaranteed loan, 
the servicer may immediately proceed to offering an alternative to 
foreclosure.

(Authority: 38 U.S.C. 3703(c), 3720, 3732)


Sec.  36.4805  Terms of the partial claim payment.

    (a) In order for a partial claim payment to be payable, the 
servicer must submit to the Secretary, not later than 90 days after the 
date the veteran exits the CARES Act forbearance, a request for such 
payment, as prescribed in Sec.  36.4807.
    (b) The amount of the partial claim payment that VA will pay to the 
servicer, as calculated under paragraph (e) of this section, shall not 
exceed 15 percent of the unpaid principal balance of the guaranteed 
loan. For the purposes of this paragraph (b), the unpaid principal 
balance of the guaranteed loan means such balance as of the date the 
veteran entered into a CARES Act forbearance.
    (c) VA will pay only one partial claim payment per guaranteed loan.
    (d) VA will pay only one partial claim payment per veteran.
    (e)(1) Because VA will pay only one partial claim payment per 
guaranteed loan, and only one partial claim payment per veteran, a 
servicer must, when calculating the amount of partial claim payment to 
be paid by VA to the servicer, include the full amount of indebtedness 
that is necessary to bring the guaranteed loan current.
    (2) To bring the guaranteed loan current, servicers must include 
the full CARES Act indebtedness, comprising--
    (i) All scheduled but missed monthly payments of principal and 
interest; and
    (ii) As applicable, all scheduled but missed monthly escrow 
payments for real estate taxes and insurance premiums, or where the 
guaranteed loan documents do not provide for monthly escrowing, all 
payments the servicer made to real estate tax authorities and insurance 
providers, on the veteran's behalf, during the CARES Act forbearance.

[[Page 79160]]

    (3) Also in bringing the guaranteed loan current, servicers must 
include--
    (i) All scheduled monthly payments (comprising principal, interest, 
and escrow payments for real estate taxes and insurance premiums) due 
within 31 days of the date the veteran executes the note and security 
instrument described in Sec.  36.4806;
    (ii) If applicable, all scheduled monthly payments (comprising 
principal, interest, and escrow payments for real estate taxes and 
insurance premiums) that were missed after March 1, 2020, but before 
the veteran was granted the CARES Act forbearance; and
    (iii) The actual amount of recording fees, recording taxes, or 
other charges levied by the recording authority, that must be paid in 
order to record the security instrument described in Sec.  36.4806.
    (4) Except for amounts identified in paragraphs (e)(2) and (3) of 
this section, servicers shall not include any amounts (e.g., fees, 
penalties, or interest) beyond the amounts scheduled or calculated as 
if the borrower made all contractual payments on time and in full under 
the terms of the guaranteed loan.
    (5) Nothing in this section shall preclude a veteran from making an 
optional payment or a servicer from waiving a veteran's indebtedness, 
such that the amount of partial claim payment would not exceed the 15 
percent cap described in paragraph (b) of this section.
    (6) If the servicer miscalculates the partial claim amount, 
resulting in an overpayment to the servicer, the amount of such 
overpayment shall constitute a liability of the servicer to the United 
States. The servicer must remit the overpaid amount immediately to VA.
    (7) If the servicer miscalculates the partial claim amount, 
resulting in underpayment (i.e., an amount insufficient to bring the 
guaranteed loan current), the servicer must waive the difference.
    (8) Servicers shall not include any amounts for a monthly payment 
that is scheduled to be paid on a date that is more than 31 days after 
the veteran executes the note and security instrument described in 
Sec.  36.4806.
    (f) The servicer must prepare a note and security instrument in 
favor of ``the Secretary of Veterans Affairs, an Officer of the United 
States''.
    (1) The note must be consistent with the terms described in Sec.  
36.4806 and include all borrowers who are obligated on the guaranteed 
loan; and
    (2) The security instrument must include all persons (borrowers, as 
well as non-borrowers) who hold a title interest in the property 
securing the guaranteed loan.
    (g) Subject to paragraph (a) of this section, all loan documents 
must be fully executed not later than 90 days after the veteran exits 
the CARES Act forbearance.
    (h) The servicer must record the security instrument timely, as 
prescribed in Sec.  36.4807.
    (i) The servicer must not charge, or allow to be charged, to the 
veteran any fee in connection with the COVID-19 Veterans Assistance 
Partial Claim Payment program.

(The Office of Management and Budget has approved the information 
collection requirements in this section under control number XXXX-
XXXX)

(Authority: 38 U.S.C. 3703(c), 3720, 3732)


Sec.  36.4806  Terms of the assistance to the veteran.

    (a) If a veteran chooses to accept VA's assistance (i.e., a partial 
claim payment to the servicer, on the veteran's behalf), the veteran, 
and all co-borrowers on the guaranteed loan, must execute a note and 
security instrument in favor of ``the Secretary of Veterans Affairs, an 
Officer of the United States''.
    (b) Specific terms of the note and security instrument shall 
include the following:
    (1) The amount to be repaid to the Secretary, by the veteran, is 
the amount calculated under Sec.  36.4805(e);
    (2) The interest rate on the loan created by the note and security 
instrument must be fixed at 1.00 percent per annum;
    (3)(i) Monthly payments are automatically deferred for the first 60 
months of the loan, meaning that there is no payment due to the 
Secretary during the period of deferment;
    (ii) Interest will accrue on the loan during such deferment; and
    (iii) A borrower may, without premium or fee, make payments during 
such deferment for the entire indebtedness, or any portion thereof 
provided that such portion is not less than what would be due for one 
monthly payment as calculated based on a 60-month term;
    (4) The term of the loan must be 120 months;
    (5) The loan shall be amortized fully within the term of the loan 
in accordance with any generally recognized plan of amortization 
requiring approximately equal monthly payments; and
    (6) Repayment in full is required immediately upon--
    (i) The veteran's transfer of title to the property; or
    (ii) The refinancing, or payment in full otherwise, of the 
guaranteed loan with which the partial claim payment is associated.

(The Office of Management and Budget has approved the information 
collection requirements in this section under control number XXXX-
XXXX)

(Authority: 38 U.S.C. 3703(c), 3720, 3732)


Sec.  36.4807  Application for partial claim payment.

    (a) The veteran and the servicer must complete an application form 
prescribed by the Secretary.
    (b) Along with a complete application form, the servicer must 
provide VA with the original note required by Sec.  36.4805. Not later 
than 180 days following the date the security instrument, required by 
Sec.  36.4805, is fully executed, the servicer must provide VA with the 
original security instrument and evidence that the servicer recorded 
such instrument. If the recording authority causes a delay, the 
servicer may request an extension of time, in writing, from VA.
    (c) Servicers must report a partial claim event to VA through VA's 
existing electronic loan servicing system within seven days of the 
borrower's execution of the note required by Sec.  36.4805.

(The Office of Management and Budget has approved the information 
collection requirements in this section under control numbers XXXX-
XXXX and XXXX-XXXX)

(Authority: 38 U.S.C. 3703(c), 3720, 3732)


Sec.  36.4808  No effect on the servicing of the guaranteed loan.

    (a) Servicers must continue to service the guaranteed loan in 
accordance with subpart B of this part.
    (b) The liability of the United States for any guaranteed loan 
shall decrease or increase pro rata with any decrease or increase of 
the amount of the unpaid portion of the guaranteed loan. A partial 
claim payment does not affect the guaranty percentage established at 
the time the guaranteed loan was made.
    (c) Receipt of a partial claim payment shall not eliminate a 
servicer's option under 38 U.S.C. 3732 to convey to the Secretary the 
security for the guaranteed loan.

(Authority: 38 U.S.C. 3703(c), 3720, 3732)


Sec.  36.4809  Expiration of the COVID-19 Veterans Assistance Partial 
Claim Payment program.

    (a) Subject to paragraph (b) of this section, the Secretary will 
not accept a request for a partial claim payment after the date that is 
180 days after the date the COVID-19 national emergency ends (as 
provided under the National Emergencies Act).

[[Page 79161]]

    (b) If a veteran's CARES Act forbearance does not end until after 
the date described in paragraph (a) of this section, the Secretary may 
still accept a request for a partial claim payment, provided that such 
request is submitted to the Secretary not later than 90 days after the 
date the veteran exits the CARES Act forbearance.
    (c) Notwithstanding paragraphs (a) and (b) of this section, the 
Secretary will not accept a request for a partial claim payment after 
September 9, 2021.

(Authority: 38 U.S.C. 3703(c), 3720, 3732)


Sec.  36.4810  Oversight of the COVID-19 Veterans Assistance Partial 
Claim Payment program.

    (a) Subject to notice and opportunity for a hearing, whenever the 
Secretary finds with respect to a partial claim payment that any 
servicer has failed to maintain adequate loan accounting records, or to 
demonstrate proper ability to service loans adequately or to exercise 
proper credit judgment or has willfully or negligently engaged in 
practices otherwise detrimental to the interest of veterans or of the 
Government, the Secretary may refuse either temporarily or permanently 
to guarantee or insure any loans made by such servicer and may bar such 
servicer from servicing or acquiring guaranteed loans.
    (b) Notwithstanding paragraph (a) of this section, but subject to 
Sec.  36.4328, the Secretary will not refuse to pay a guaranty or 
insurance claim on guaranteed loans theretofore entered into in good 
faith between a veteran and such servicer.
    (c) The Secretary may also refuse either temporarily or permanently 
to guarantee or insure any loans made by a lender or holder refused the 
benefits of participation under the National Housing Act pursuant to a 
determination of the Secretary of Housing and Urban Development.

(The Office of Management and Budget has approved the information 
collection requirements in this section under control number XXXX-
XXXX)

(Authority: 38 U.S.C. 3703, 3704(d), 3720)

[FR Doc. 2020-26964 Filed 12-8-20; 8:45 am]
BILLING CODE 8320-01-P