Loan Guaranty: COVID-19 Veterans Assistance Partial Claim Payment Program, 28692-28710 [2021-11373]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 86, Number 102 (Friday, May 28, 2021)]
[Rules and Regulations]
[Pages 28692-28710]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11373]



[[Page 28692]]

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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: Final rule

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SUMMARY: The Department of Veterans Affairs (VA) is establishing 
through this final rule 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 forbearance for financial hardship 
due, directly or indirectly, to the COVID-19 national emergency.

DATES: This rule is effective July 27, 2021.

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: On December 9, 2020, VA published a proposed 
rule to establish a temporary program to assist veterans with VA-
guaranteed home loans who request forbearance under the Coronavirus 
Aid, Relief, and Economic Security (CARES) Act.\1\ The public comment 
period for the proposed rule closed on January 8, 2021.
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    \1\ See 85 FR 79142 (Dec. 9, 2020); Public Law 116-136 (Mar. 27, 
2020).
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    Comments and questions submitted by veterans, lenders, servicers, 
consumer groups, and trade associations were generally supportive of 
VA's initiative. However, commenters raised significant concerns about 
certain program features. Most notably, industry and consumer group 
commenters indicated that the COVID-VAPCP differed from the Federal 
Housing Administration's (FHA's) COVID-19 Standalone Partial Claim 
program. According to the commenters, these differences made the COVID-
VAPCP less helpful to veterans and less workable for servicers. We read 
the general theme of the commenters' recommendations to be that VA 
should finalize the rule with revisions that would make the COVID-VAPCP 
more similar to FHA's COVID-19 Standalone Partial Claim program.
    In response to these comments, VA has made several revisions to the 
COVID-VAPCP in this final rule. Those changes, along with VA's 
responses to the public comments (including VA's responses where VA 
determined changes were not necessary), are described below.

I. Summary of Key Changes to the Final Rule

    As discussed in the proposed rule, the COVID-VAPCP is a temporary 
program that establishes a partial claim option to aid veterans with 
VA-guaranteed loans who suffer financial hardship due to the COVID-19 
national emergency. In developing this program, VA modeled certain 
features after existing partial claim programs already available to 
borrowers with other federally backed mortgages; specifically, those 
insured or guaranteed by the U.S. Department of Housing and Urban 
Development's (HUD) FHA and the U.S. Department of Agriculture's (USDA) 
Rural Housing Service. VA's final rule aligns even more closely with 
both FHA's and USDA's partial claim programs.
    Significant changes to the final rule in response to public 
comments include the following: (1) The partial claim maximum limit 
suggested by the proposed rule is doubled from 15 percent of the unpaid 
principal balance of the guaranteed loan as of the date the veteran 
entered into a COVID-19 forbearance, to 30 percent of such balance; (2) 
the proposed requirement that the veteran repay the partial claim 
within 120 months is eliminated; (3) the proposed requirement that VA 
charge interest on the new loan is eliminated, meaning the COVID-VAPCP 
loan is a no-interest loan for the veteran; (4) the proposed 
requirement that servicers complete a financial evaluation of the 
veteran is eliminated; (5) the timeframe for servicers to submit a 
partial claim payment request to VA is increased from 90 to 120 days; 
and (6) the proposed requirement that the COVID-VAPCP be the option of 
last resort is eliminated, meaning that servicers can use the partial 
claim payment option, even if other home retention options are 
feasible, provided that the partial claim payment option is in the 
veteran's financial interest.
    As the COVID-19 national emergency and the CARES Act pass their 
one-year anniversaries, VA stakeholders continue to confront decisions 
that have far-reaching consequences. The COVID-19 pandemic is still 
causing severe illness, death, and disruption in the economy on a 
significant scale. These effects have resulted in continued financial 
difficulties for many veterans. Veterans who requested forbearances 
under the CARES Act in the first half of 2020 are facing the reality of 
exiting forbearance with significant forborne indebtedness while still 
dealing with the pandemic. Other veterans who have managed to continue 
paying their mortgages are now deciding whether to request forbearance 
for the first time as the COVID-19 national emergency enters its second 
year.
    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 are evaluating 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.
    The changes adopted by VA in this final rule are necessary to 
address the problems mentioned above. VA's COVID-VAPCP creates a ``soft 
landing'' for certain veterans, enabling them to return to their 
regularly scheduled monthly payments without suffering another 
financial shock. The program also provides a lifeline for certain 
servicers, thereby mitigating the risk that veterans will be left 
without the benefit of prudent loan servicing.

II. Discussion of Comments and Final Rule

    VA received eighteen comments in response to its proposed rule. Of 
those comments, twelve were from individuals and five were from 
lenders, servicers, trade organizations, or consumer groups. VA also 
received one comment co-signed by 27 national- and state-level trade 
and consumer organizations. Three commenters that joined the joint 
trade and consumer group comment also submitted their own comment, and 
VA has arranged those with the five other organizational comments. To 
the extent feasible, issues raised by commenters have been summarized 
and grouped together by similar topic.

A. General Comments

    VA received ten comments from individuals expressing generalized 
support for the proposed rule. Of those, four comments were from 
individuals interested in participating in the program once it is 
finalized. Additionally, VA received one comment expressing negative 
sentiments about

[[Page 28693]]

the proposed rule, though no specific complaints were provided.

B. Alignment With Other Federal Housing Agency Programs

    As discussed above, a common recommendation was that VA adopt 
changes in the final rule to align the COVID-VAPCP with other federal 
housing agencies' programs. Those include programs administered by FHA, 
USDA, and the Federal Housing Finance Agency (FHFA).\2\ Four 
commenters, including the joint trade and consumer group, expressed a 
preference that VA revise the COVID-VAPCP to be more similar to FHA's 
COVID-19 Standalone Partial Claim program. These commenters noted that 
aligning the COVID-VAPCP with similar programs offered by other 
agencies would be in the best interest of veterans, servicers, and VA. 
One commenter stated that the program, without such alignment, would 
likely cause ``substantial and unnecessary mortgage re-defaults and 
foreclosure.''
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    \2\ The FHFA serves as conservator for the Government Sponsored 
Enterprises (GSEs) Freddie Mac and Fannie Mae.
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    In recommending that VA align the COVID-VAPCP with other federal 
partial claim programs, commenters focused on three specific program 
features.
    1. Repayment Terms of the Partial Claim Payment (38 CFR 36.4805): 
One commenter noted that VA should not charge 1.00 percent interest on 
the partial claim loan, as the financial situation faced by veterans 
during the COVID-19 national emergency is not due to the individual's 
own fault. Another commenter questioned VA's characterization of the 
repayment terms, including the 1.00 percent interest rate proposed by 
VA, as being ``extremely favorable to veterans,'' given that FHA and 
USDA partial claim programs do not charge interest (or fees) on partial 
claims. That commenter also noted that VA did not explain why it was 
necessary to charge interest on the partial claim payment. Finally, the 
commenter questioned whether the repayment terms, including the 1.00 
percent interest rate proposed by VA, were even permissible in states 
with prohibitions against negative amortization loans.
    Regarding VA's proposed ten-year repayment term with a five-year 
payment deferral, two commenters asserted that this program feature 
would cause substantial increases in veterans' monthly mortgage 
payments when repayment to VA began in year six, and that such 
increases would likely lead to payment shock and redefault. Both 
commenters pointed out that VA's own example in the proposed rule 
resulted in a 20 percent monthly payment increase at year six. Citing 
lessons learned from the 2008 financial crisis, these commenters noted 
that the repayment structure utilized by FHA and USDA avoids payment 
shock.
    VA Response: VA agrees with comments opposing the proposed 1.00 
percent interest rate on the partial claim loan and the ten-year 
repayment term. VA believes that veterans who need assistance 
recovering from the economic effects of the COVID-19 pandemic should 
not be charged interest and should not face the risk of payment shock. 
As discussed in the section-by-section analysis below, VA is therefore 
adopting repayment terms similar to FHA and USDA, wherein the veteran 
will not be charged any fees or interest for the subordinate loan 
established under the COVID-VAPCP. Repayment in full is required 
immediately upon the veteran's transfer of title to the property or the 
refinancing or payment in full otherwise of the guaranteed loan with 
which the partial claim payment is associated.
    The veteran may make payments for the indebtedness, in whole or in 
part, without charge or penalty, a policy that carries over from VA's 
proposed rule and is consistent with FHA and USDA policies.
    2. Borrower Certifications and Residual Income Requirements (38 CFR 
36.4803): Five commenters, including the joint trade and consumer 
group, suggested that VA's proposal contained unnecessary documentation 
requirements, including an application form, borrower and servicer 
certifications, and financial documentation requirements. One commenter 
proposed that VA require no documentation if the veteran was either 
current or less than 30 days past due on March 1, 2020. Two commenters 
specifically questioned VA's proposed requirement that servicers 
certify as to a veteran's monthly residual income being adequate as 
described in 38 CFR 36.4340(e). Both commenters noted that if the 
purpose of the requirement is to assess the veteran's ability to afford 
the additional partial claim payments, a current assessment is unlikely 
to provide any benefit because the veteran's financial situation is 
likely to change over the next five years while payments on the 
subordinate loan are deferred.
    Similarly, three commenters pointed out that FHA, USDA, and the 
GSEs all have more streamlined documentation requirements that simplify 
access for borrowers and ensure relief is delivered timely. One 
commenter pointed out that VA's proposed rule creates ``at least six 
discrete steps for a veteran to successfully qualify for a partial 
claim'' which, in some cases, was more rigorous than existing VA loss-
mitigation options. The commenter noted that the cumulative effect of 
these steps could ``slow or suppress the partial claim enrollment 
process for veterans.'' Additionally, the commenter highlighted that at 
least three requirements (financial evaluation, new borrower 
disclosures due to the interest being charged, and an application form) 
are not included in any other federal housing agency's COVID-19 loss 
mitigation program.
    All three commenters noted that VA should follow the more 
streamlined options presented by the other federal agencies. One 
commenter also highlighted that loss mitigation offered at the outset 
of the Great Recession required large amounts of paperwork and 
``delayed relief and sometimes prevented borrowers from resolving their 
delinquencies.'' That same commenter noted that enrolling in 
forbearance required no documentation, and specifically recommended 
that the COVID-VAPCP take advantage of the relaxed regulatory 
requirements announced by the Consumer Financial Protection Bureau 
(CFPB) in a June 2020 interim final rule.\3\ The commenter asserted 
that VA should find a way to allow servicers to offer a partial claim 
option without completing an evaluation of all loss mitigation options 
available to the borrower based on a complete loss mitigation 
application (including financial information). The commenter stated 
that such flexibility is authorized by amendments made to CFPB's 
Regulation X.
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    \3\ VA believes the commenter was referencing the CFPB rule 
found at the following link: https://files.consumerfinance.gov/f/documents/cfpb_interim-final-rule_respa_covid-19-related-loss-mitigation-options.pdf (last accessed May 1, 2021).
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    VA Response: While VA cannot comment on the applicability of the 
CFPB's recent amendments to Regulation X, VA does agree with commenters 
that requirements in VA's proposed rule, namely, the certifications and 
residual income evaluation, are too stringent. VA notes that it did not 
intend to dissuade participation in the program, nor did it seek to 
create unnecessary paperwork for borrowers and servicers that could 
hinder relief. Rather, in requiring both veterans and servicers to 
certify as to the veteran's financial situation, VA was attempting to 
ensure that veterans would not be put in a position where they would be

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unable to afford the COVID-VAPCP loan. Upon reviewing the comments, and 
in consideration of VA's decision to eliminate interest charges and the 
ten-year repayment term, VA is finalizing the rule with requirements 
more aligned with FHA's COVID-19 Standalone Partial Claim program. As 
described below in the section-by-section analysis, VA is eliminating 
the financial certification requirement and will allow servicers to use 
the partial claim payment option, even in cases where other home 
retention options are feasible, provided the partial claim payment 
option is in the veteran's financial interest.
    As for the requirement that veterans certify their occupancy, VA 
notes that, much like FHA's COVID-19 Standalone Partial Claim program 
for FHA borrowers, one purpose of VA's COVID-VAPCP is to ensure that 
veterans remain safely housed during the pandemic. To help achieve this 
purpose, VA will still require that a veteran who participates in the 
COVID-VAPCP occupy, as the veteran's residence, the property securing 
the guaranteed loan for which the partial claim is requested. However, 
VA has determined that it is sufficient for the servicer to assess this 
requirement without collecting a certification from the veteran.
    Given VA's elimination of the certification requirements mentioned 
above, VA finds that the proposed application form is no longer 
necessary. With the exception of the certifications, most of the 
information collected and presented on the form will be captured on the 
note prepared by the servicer and presented to the veteran. VA has 
further determined that those data elements from the form that may not 
be included in the note, such as the date of the veteran's next monthly 
mortgage payment to the servicer, are not critical to the rule and will 
likely be communicated from the servicer to the veteran in other ways.
    3. Maximum Amount of Assistance (38 CFR 36.4805(b)): Two commenters 
expressed concern over VA's decision to limit assistance under the 
COVID-VAPCP to 15 percent of the unpaid principal balance (UPB) of the 
guaranteed loan at the time the veteran entered forbearance. Both 
commenters noted that FHA's and USDA's partial claim programs allow for 
assistance up to 30 percent of the UPB. One commenter further noted 
that, in calculating whether a 15 percent UPB cap would provide 
sufficient room for servicers to bring most guaranteed loans current, 
VA failed to consider the effect on older loans with smaller 
outstanding balances. Both commenters recommended that VA consider 
mirroring FHA's and USDA's 30 percent UPB caps; one commenter offered 
an alternative recommendation that VA consider eliminating the cap for 
low balance loans.
    VA Response: VA agrees with the commenters who recommended 
mirroring FHA's and USDA's 30 percent UPB caps. While an increase to a 
maximum UPB cap of 30 percent will not enable every loan currently 
under forbearance to meet the requirements for the COVID-VAPCP, this 
change in the final rule will allow approximately 9,000 additional 
loans to participate (assuming other requirements such as occupancy and 
ability to resume regular monthly mortgage payments are met), with 
minimal additional financial risk to the Government.
    The increase to the UPB cap does not affect the unique option that 
VA included in its proposed rule, which would allow for a veteran to 
make an optional payment or for a servicer to waive amounts that would 
otherwise prevent a veteran from participating. Even with VA adopting a 
higher UPB cap in the final rule, VA is maintaining this feature of the 
program, as it could help more veterans be able to receive the 
assistance, at no additional cost to the program.
    VA declines at this time to increase the maximum amount of 
assistance beyond the 30 percent UPB cap or to eliminate the cap for 
smaller balance loans. This rulemaking marks the first time that VA has 
administered a partial claim program. VA firmly believes a new partial 
claim program is necessary to help veterans, but it constitutes a 
fundamental shift for VA and all stakeholders--veterans, the lending 
and servicing industry, investors who provide liquidity to the 
industry, Congress, and other federal agencies. Now VA is, in this 
final rule notice and before the program is underway, already doubling 
the proposed UPB cap to put it on par with the 30 percent UPB cap in 
both FHA's and USDA's partial claim programs. VA notes, too, that those 
caps are statutory, and Congress has not adjusted them in response to 
the national emergency.\4\ Since VA has never administered a partial 
claim program and Congress has limited FHA's and USDA's partial claims 
to 30 percent UPB, VA does not have enough information at this time to 
accurately forecast the range of potential outcomes of pushing beyond 
the 30 percent cap. Furthermore, VA believes that if VA were to decide 
to push such a boundary, introduction of the concept would be better 
suited to an additional rulemaking where the public could provide 
additional input.
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    \4\ See 12 U.S.C. 1715u(b)(2)A); see also 42 U.S.C. 
1472(h)(14)(A).
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C. Expand Coverage to Loans That Became Delinquent Before March 1, 2020 
(38 CFR 36.4803(a))

    One commenter requested that VA consider eliminating the 
requirement proposed in 38 CFR 36.4803(a) that the guaranteed loan was, 
on March 1, 2020, either current or less than 30 days past due. The 
commenter noted that delinquency status was not a factor in section 
4022 of the CARES Act as to whether a borrower could request 
forbearance; therefore, ``the Moral and Ethical right thing to do is to 
allow (ALL) Veterans experiencing mortgage financial hardships to take 
advantage of [the COVID-VAPCP].''
    Another commenter referred to the delinquency issue in response to 
one of VA's specific questions: Whether information collected as part 
of a complete loss-mitigation evaluation would be adequate to evaluate 
a borrower's residual income under 38 CFR 36.4340(e).\5\ The commenter 
suggested that VA require minimal documentation from veterans with 
loans that were delinquent on March 1, 2020. The commenter defined 
``minimal documentation'' as proof of 30 days of income and an 
acceptable housing debt-to-income ratio. Regarding borrowers with loans 
that were, on March 1, 2020, current or less than 30 days past due, the 
commenter recommended VA require no documentation.
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    \5\ See question 2, 85 FR 79142, 79153 (Dec. 9, 2020).
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    VA Response: While VA is committed to ensuring that assistance 
under this temporary program is widely available to veterans, VA 
declines to expand coverage to include loans that were not current or 
less than 30 days past due on March 1, 2020. As discussed in the 
proposed rule, the COVID-VAPCP is designed to be a temporary assistance 
program that provides a ``soft landing'' for veterans who, but for the 
COVID-19 national emergency, would not be having difficulty paying 
their mortgage.\6\ To ensure that VA can target relief under the COVID-
VAPCP to those veterans, VA believes it is necessary to maintain the 
requirement that the status of the loan on March 1, 2020, the date the 
COVID-19 national emergency became effective, be current or less than 
30 days past due.
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    \6\ 85 FR 79142 (Dec. 9, 2020).
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    VA acknowledges that many veterans who were experiencing financial 
hardship pre-pandemic continued to

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experience hardship and that, in some cases, their hardship may have 
worsened as a result of the pandemic. VA has provided alternative 
approaches to assist such veterans in retaining their homes. These 
include relaxed regulatory requirements to help veterans whose loans 
were already delinquent take advantage of historically low interest 
rates and refinance their mortgage, often times with a lower, more 
affordable, monthly mortgage payment.\7\ VA also issued guidance 
authorizing servicers to consider other VA home retention options.\8\ 
Finally, VA temporarily waived regulatory requirements prohibiting 
balloon payments to enable servicers to offer deferment as another home 
retention option for veterans exiting forbearance.\9\
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    \7\ VA Circular 26-20-25. Impact of CARES Act Forbearance on VA 
Purchase and Refinance Transactions, (June 30, 2020), https://vbaw.vba.va.gov/HOMELOANS/docs/hot_topics/26-20-25.pdf.
    \8\ VA Circular 26-20-12. Extended Relief Under the CARES Act 
for those Affected by COVID-19, (Apr. 8, 2020), https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_20_12.pdf.
    \9\ 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.
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D. Partial Claim Payment as Last Resort (38 CFR 36.4804)

    Five commenters, including the joint trade and consumer group, 
expressed confusion with VA's proposal that servicers treat the partial 
claim payment as a last resort and recommended changes in the final 
rule. Several commenters requested that VA clarify where the partial 
claim payment fell in a ``waterfall'' of home retention options. Two 
commenters noted that it was not clear from VA's proposed rule how 
servicers would know that the partial claim was being offered as a last 
resort. In this regard, the commenters pointed to language in the 
proposed rule that suggested a servicer may elect to utilize the 
partial claim even if the veteran qualifies for a loan modification. 
Three commenters, including the two just mentioned, felt that a partial 
claim payment should be evaluated on equal footing with other home 
retention options, consistent with current VA servicing policies, and 
be utilized when ``clearly in [the veteran's] best financial 
interest.''
    One commenter noted that it was not clear whether proposed language 
referencing ``all possible loss-mitigation options'' included the 
deferment loss-mitigation option referenced by VA Circular 26-20-
33.\10\ The commenter requested that VA clarify in the final rule 
whether deferment was to be considered before a partial claim payment. 
Another commenter was concerned that it was unclear from the proposed 
rule whether a servicer may refuse to offer a partial claim payment if 
a veteran specifically requested it and the servicer determined another 
loss mitigation option was available. Finally, one commenter 
recommended that VA follow FHA and offer a streamlined partial claim 
option as the first step in a waterfall of foreclosure alternatives.
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    \10\ VA Circular 26-20-33. Deferment as a COVID-19 Loss 
Mitigation Option for CARES Act Forbearance Cases, (Sept. 14, 2020), 
https://vbaw.vba.va.gov/HOMELOANS/docs/hot_topics/26_20_33.pdf.
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    VA Response: VA has determined that changes in the final rule are 
necessary to clarify how VA expects servicers to offer the COVID-VAPCP. 
VA also agrees that referencing the partial claim payment option as a 
last resort might lead to an unintended restriction on program 
participation.
    Generally, VA expects servicers to provide veterans with home 
retention options that are in the veteran's financial interest. To 
ensure that VA can assist as many veterans as possible in retaining 
their homes and recovering from the pandemic, VA is modifying the final 
rule such that the COVID-VAPCP will no longer be characterized as an 
option of last resort.
    Commenters correctly noted that VA has a longstanding history of 
not prescribing a required ``waterfall'' of home retention options. VA 
has instead advised of VA's preferred order of consideration for 
standard home retention options.\11\ As explained in the proposed rule, 
one reason supporting this policy is that, in VA's program, lenders, 
servicers, or other entities that own the loan (loan holders) often 
bear significantly more financial risk than the Government.\12\ Also, 
VA recognizes that individual circumstances may lead to ``out of the 
ordinary'' considerations.\13\
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    \11\ 38 CFR 36.4319(a).
    \12\ 85 FR 79142, 79147 (Dec. 9, 2020).
    \13\ 38 CFR 36.4319(a).
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    In keeping with this longstanding policy, VA declines to require 
servicers to offer a partial claim payment to veterans, particularly as 
part of a prescribed waterfall of home retention options. At this 
stage, VA does not have enough information to warrant the dismantling 
of a model that achieved one of the lowest foreclosure rates on the 
market for most of the past decade (even with most veterans not making 
a down payment). VA is also concerned that mandating the partial claim 
option could increase upfront costs for some servicers, which could in 
turn impede them from helping the veterans they would otherwise be able 
to serve. VA understands this approach may differ from both FHA's and 
USDA's partial claim programs, but VA also notes that those agencies 
and their servicers have been working with more prescriptive waterfalls 
for quite some time, as servicers have less ``skin-in-the-game'' in 
those agencies' programs than they do in VA's.
    VA is amending the final rule to clarify that a servicer may 
consider a partial claim option in the same way that a servicer may 
consider any of VA's other home retention options. VA is also adopting 
changes to the final rule to clarify that servicers may elect to offer 
the partial claim payment instead of other options. While VA's 
amendments promote a more streamlined application process, VA wants to 
ensure that servicers are still keeping veterans' financial interests 
in mind. Therefore, VA is also adopting changes to the final rule to 
remind servicers that the COVID-VAPCP should only be offered if the 
option is in the veteran's financial interest.
    Servicers that participate in VA's home loan program have 
significant experience determining what home retention option(s) to 
consider and offer when assisting veterans whose loans are in default. 
Through the changes in this final rule, VA is empowering servicers to 
continue making decisions that align with both veterans' interests and 
the capabilities of a servicer's business model. VA is dispensing with 
the last resort characterization and will not, for example, require 
servicers to keep a written record of the servicer's justification that 
the partial claim option was superior to each and every other home 
retention option. However, a servicer's decision to utilize the partial 
claim option will be subject to VA's oversight, audit, and review. 
Furthermore, and with consideration of commenters' reflections on home 
retention policies and the Great Recession, VA believes that it is 
crucial to allow servicers flexibility to use informed business 
judgment to determine whether a veteran is well suited for 
participation in the COVID-VAPCP, without the burdens of a formal 
evaluation or consideration process. As such, if a veteran exiting 
forbearance requests a partial claim payment, the servicer may be able 
to immediately proceed to executing the partial claim payment after 
determining that the veteran's case meets program requirements. 
Similarly, servicers will be able to evaluate their existing 
forbearance portfolios to determine

[[Page 28696]]

whether the COVID-VAPCP can assist borrowers in bringing their loans 
current when the forbearance periods end.
    To illustrate: A veteran is about to exit a 360-day COVID-19 
forbearance period. In working with the veteran, the servicer learns 
that, but for having to repay the COVID indebtedness, the veteran's 
income would allow the veteran to return to the normal monthly payment. 
Assuming there were no other prohibitive aspects of the case, the 
COVID-VAPCP would seem to be in the veteran's financial interest. VA 
would not expect the servicer to expend resources on evaluating all 
other home retention options, solely to determine that the COVID-VAPCP 
was the option of last resort. Similarly, because the COVID-VAPCP would 
be in the veteran's financial interest, offering a loan modification to 
``see how things go'' would likely not be the optimal outcome for the 
veteran because even if the modification succeeds, the COVID-19 
indebtedness would be capitalized into the loan modification, resulting 
in thousands of dollars of additional interest being charged to the 
veteran.
    If, however, the servicer learns at the outset that a veteran's 
income could no longer support a return to the monthly payment, even 
with the COVID-VAPCP assistance covering the COVID-19 indebtedness, it 
could be difficult to show how offering the COVID-VAPCP would be in the 
veteran's financial interest. This would be especially apparent if the 
veteran could retain the home through a modification to the interest 
rate and, for example, a principal reduction from the infusion of HAF 
\14\ funds.
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    \14\ HAF is the Homeowner Assistance Fund, which provides States 
with funding to provide relief to our country's most vulnerable 
homeowners. For more information, visit https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/homeowner-assistance-fund (last accessed May 1, 2021).
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    In other words, while VA has not prescribed a waterfall of home 
retention options, in cases where the servicer determines that the 
partial claim option is an optimal method, the servicer should pursue 
it, rather than another option. This will help shield the veteran from 
delaying the veteran's financial recovery and help prevent the 
expensive and labor-intensive burdens that could be posed by an 
unnecessary series of home retention strategies.
    In sum, VA's final rule clarifies that the COVID-VAPCP is available 
in cases where other home retention options are feasible, ensures a 
more streamlined application process, and provides flexibility such 
that servicers can implement home retention options that fit within 
their business capabilities. VA believes that such changes are 
consistent with VA's longstanding servicing regulations and policies 
and will enable more borrowers to utilize this temporary assistance 
program while mitigating burdens to veterans and servicers.
    (Note: VA continues to explore ways to help veterans as they exit 
their COVID-19 forbearances and as foreclosure/eviction moratoriums 
end. VA expects the upcoming weeks to provide critical information in 
evaluating the COVID-VAPCP and additional measures to help veterans. In 
fact, VA anticipates additional rulemaking will be urgently necessary 
to keep pace with the evolving financial needs of veterans.)

E. Expiration of the COVID-VAPCP (38 CFR 36.4809)

    Three commenters, including the joint trade and consumer group, did 
not agree with VA's proposed COVID-VAPCP expiration date of September 
9, 2021. All three commenters noted that current information suggests 
that many veterans will remain in forbearance beyond September 9, 2021. 
The commenters suggested that if VA does not extend the sunset date, 
such borrowers would not be able to receive assistance. Commenters 
recommended that VA consider changes to the final rule that would 
ensure all veterans who enter a COVID-19 forbearance can take advantage 
of the program. One commenter specifically requested that VA commit to 
accepting partial claim requests for at least 15 months beyond the date 
the COVID-19 national emergency ends. The commenter noted that this 
timeline would allow veterans to utilize up to 12 months of forbearance 
and provide an additional 90 days to complete the paperwork required 
for a partial claim. This commenter also requested that VA consider 
changing the permissive language in proposed Sec.  36.4809(b) from 
``the Secretary may still accept a request for a partial claim 
payment'' to ``the Secretary shall accept a request for a partial claim 
payment,'' thereby requiring the Secretary to accept a request within 
90 days of a veteran exiting a COVID-19 forbearance.
    VA Response: VA agrees in part. VA believes that the permissive 
element of proposed Sec.  36.4809(b) should instead be mandatory upon 
the Secretary. If the COVID-19 national emergency ends while a veteran 
is under a COVID-19 forbearance, the permissive language in the 
proposed rule could lead the veteran to question whether it is 
necessary to cut short the forbearance period in order to take 
advantage of the COVID-VAPCP. This is not an outcome VA intended. 
Accordingly, VA has revised this final rule to require the Secretary to 
accept a request for a partial claim payment if it is submitted timely.
    VA notes that acceptance of a request for a partial claim payment 
is not synonymous with approval of that request. Thus, this change only 
requires the Secretary to accept, but not necessarily approve, a 
request that is received before the requisite deadline. In other words, 
even though this final rule prohibits the Secretary from refusing to 
consider a request that is submitted before the deadline, timely 
submission is not tantamount to approval.
    VA also agrees with commenters that the September 9, 2021 sunset 
date should be extended, given the potential for COVID-19 forbearances 
extending beyond that date. VA is adjusting the sunset date in the 
final rule to align with the expectation that no veteran will be in a 
COVID-19 forbearance after June 30, 2022.
    On February 16, 2021, VA published guidance stating that VA expects 
servicers to approve initial COVID-19 forbearances if the request is 
made on or before June 30, 2021. VA's guidance also stated that certain 
COVID-19 forbearance periods may extend through June 30, 2022. 
Additionally, the guidance stated that VA expects that, if needed, a 
veteran may request, and the servicer will approve, up to two 
additional three-month forbearance periods, after twelve months of 
COVID-19 forbearance.\15\ VA also stated that neither of the two 
additional three-month forbearance periods may extend beyond December 
31, 2021. These timeframes align with both FHA's and USDA's COVID-19 
forbearance guidance.\16\
---------------------------------------------------------------------------

    \15\ VA Circular 26-21-04. Approving Forbearance Requests for 
Veterans Affected by COVID-19, (Feb. 16, 2021), https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_21_04.pdf.
    \16\ See HUD Mortgagee Letter 2021-05. Extensions of Single 
Family Foreclosure and Eviction Moratorium, Start Date of COVID-19 
Initial Forbearance, and HECM Extension Period; Expansion of COVID-
19 Loss Mitigation Options, (Feb. 16, 2021), https://www.hud.gov/sites/dfiles/OCHCO/documents/2021-05hsgml.pdf. See also USDA Extends 
Evictions and Foreclosure Moratorium to June 30, 2021 and Provides 
Additional Guidance for Servicing Loans Impacted by COVID-19, (Feb. 
16, 2021), https://www.usda.gov/media/press-releases/2021/02/16/biden-administration-announces-another-foreclosure-moratorium-and.
---------------------------------------------------------------------------

    Considering the factors mentioned above, and that VA is extending 
the timeframe during which a servicer can request a partial claim 
payment from 90

[[Page 28697]]

days to 120 days post-forbearance (as explained below), this final rule 
notice sets a new sunset date of October 28, 2022. In establishing this 
date, VA notes that June 30, 2022 is the last date on which VA expects 
a veteran to exit a COVID-19 forbearance. Given that a servicer will 
now have 120 days from the date a veteran exits a COVID-19 forbearance 
to request a partial claim, October 28, 2022 will be the deadline for 
servicers to request a partial claim. VA notes that if there are 
additional extensions of forbearance periods in VA's home loan 
programs, VA may consider a new rulemaking to adjust the sunset date.
    VA does not agree at this time to commit to accepting partial claim 
requests for at least 15 months beyond the date the COVID-19 national 
emergency ends. As the proposed rule explained, the COVID-VAPCP is 
intended as a temporary program.\17\ Thus, it is reasonable for VA to 
set a program sunset date that, at the time of this writing, aligns 
with federal guidance signaling that COVID-19 forbearances should end 
by June 30, 2022. Also under that guidance, servicers must assist 
veterans in bringing their loans current as they exit COVID-19 
forbearances. While VA, the servicer, and the veteran may undertake 
certain actions after the 120-day deadline, the servicer will need to 
make a decision about what home retention option is in the veteran's 
financial interest close to the time when the veteran's forbearance 
ends. Such actions will be necessary to assist veterans regardless of 
whether the COVID-19 national emergency is still in effect.
---------------------------------------------------------------------------

    \17\ 85 FR 79142 (Dec. 9, 2020).
---------------------------------------------------------------------------

F. 90-Day Timeline To Submit Partial Claim Payment Request (38 CFR 
36.4805(a))

    In the proposed rule, VA requested comments as to whether ``the 
servicer's 90-day deadline as proposed by Sec.  36.4805 to submit the 
request for partial claim payment [is] reasonable.'' \18\ VA also 
requested comments on whether there is a more reasonable timeframe.
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    \18\ 85 FR 79142, 79154 (Dec. 9, 2020).
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    Only three commenters specifically responded to VA's question. One 
commenter suggested that servicers should be given 12 months after the 
end of the COVID-19 national emergency within which to complete an 
evaluation of the veteran's post-forbearance options and submit a 
request for partial claim payment. The commenter noted that servicers 
will need ``unquantifiable additional time and resources'' to address 
the significant numbers of borrowers exiting forbearance in 2021 and 
that time would be needed to ``engage in thoughtful review of every 
individual's financial situation and identify the most suitable path to 
cure.''
    Another commenter indicated that a longer time period could be 
necessary due to unforeseen delays in communicating with the veteran or 
in trying other loss-mitigation options first, such as a trial loan 
modification. In consideration of these realities, the commenter 
suggested that VA require servicers to request a partial claim ``90 
days from the final loss mitigation option being fully evaluated prior 
to consideration of COVID-VAPCP.''
    The third commenter indicated that the 90-day timeframe was too 
short considering the burdens associated with the financial evaluation 
and additional paperwork and certifications. The commenter suggested 
that 180 days was more reasonable, especially if VA chose not to 
streamline the COVID-VAPCP to mirror FHA's less burdensome program.
    Additionally, other commenters communicated general concerns with 
the significant operational costs and delay associated with executing 
VA's proposed rule. As previously discussed, several commenters were 
concerned that participating in the COVID-VAPCP was, in most cases, 
more work for servicers than other traditional VA home retention 
options. Such comments did not specifically address or mention VA's 
proposed 90-day timeframe for servicers to execute and submit a request 
for partial claim payment. However, the commenters implied that VA's 
timeframe was not feasible given the increased burden associated with 
the COVID-VAPCP.
    VA Response: VA agrees in part and is adjusting the requirement 
that servicers execute and submit a request for partial claim payment. 
Rather than the requirement being not later than 90 days after the 
veteran exits the COVID-19 forbearance, VA is extending it to not later 
than 120 days after the veteran exits the COVID-19 forbearance. FHA 
recently increased from 90 days to 120 days the timeframe in which a 
servicer must complete a partial claim option for borrowers affected by 
COVID-19.\19\ Because VA has streamlined the process to align more 
squarely with FHA, VA believes that servicers should have a similar 
timeframe to request a partial claim payment from VA.
---------------------------------------------------------------------------

    \19\ See HUD Mortgagee Letter 2021-05. Extension of Single 
Family Foreclosure and Eviction Moratorium, Start Date of COVID-19 
Initial Forbearance, and HECM Extension Period; Expansion of COVID-
19 Loss Mitigation Options, (Feb. 16, 2021), https://www.hud.gov/sites/dfiles/OCHCO/documents/2021-05hsgml.pdf.
---------------------------------------------------------------------------

    As to the suggestion that VA should allow servicers to submit a 
request for up to 12 months after the national emergency ends, VA 
believes that the end of the veteran's forbearance period, as opposed 
to the end of the national emergency, is the more appropriate starting 
point. As mentioned above, VA believes the key is to act quickly for 
veterans who are exiting their COVID-19 forbearances. Moreover, VA 
acknowledges that servicers will be processing many cases where 
borrowers exit forbearance in the coming year. This upcoming influx of 
cases is one of the primary reasons that VA is streamlining the COVID-
VAPCP process. VA believes that streamlining the process will lessen 
servicers' workload in evaluating, executing, and requesting a partial 
claim payment.
    Regarding the comment that VA start the 90-day period from the date 
the servicer evaluates ``the final loss mitigation option . . . 
[before] consideration of [the] COVID-VAPCP,'' it appears that the 
commenter may have understood the proposed rulemaking's last resort 
characterization as a requirement that servicers should attempt several 
home retention options (and that all such options must fail) before 
servicers can resort to the COVID-VAPCP.\20\
---------------------------------------------------------------------------

    \20\ The commenter explained that, `` . . . some options could 
require a borrower to make trial payments for a 90-day period before 
finalizing a modification.'' If the servicer must wait out the trial 
period to ensure that the COVID-VAPCP is indeed the option of last 
resort, it places ``both the Veteran and the servicer in a difficult 
situation.''
---------------------------------------------------------------------------

    VA did not intend to imply that servicers should test other home 
retention options and only arrive at the COVID-VAPCP if such measures 
fail. Regardless, as explained in this final rule notice, VA is 
extending the submission timeframe (from 90 to 120 days) and is 
eliminating the last resort characterization, allowing instead for 
servicers to consider a partial claim option in the same way a servicer 
may consider any of VA's other home retention options. VA believes 
these changes have addressed the commenter's concerns.

G. Taxes and Insurance Premiums (38 CFR 36.4805)

    In the proposed rule, VA requested comments regarding VA's proposal 
to limit inclusion of taxes and/or insurance amounts due and paid by 
the servicer, on the veteran's behalf, in the case of a veteran who 
pays real estate taxes and/or insurance premiums directly to a tax 
authority or insurance

[[Page 28698]]

provider.\21\ VA expressed interest in determining whether the partial 
claim payment should include amounts corresponding to what will be due 
for such items, where the bills were not due and payable during the 
COVID-19 forbearance. VA also sought input regarding how best to 
calculate and disburse such amounts, as well as how to conduct 
oversight to ensure the monies were directed to the appropriate tax 
authority or insurance provider.
---------------------------------------------------------------------------

    \21\ See 85 FR 79142, 79154 (Dec. 9, 2020).
---------------------------------------------------------------------------

    VA received three comments related to the issue of real estate tax 
and insurance payments. One commenter supported VA's proposal to 
include in the partial claim amount certain scheduled but missed 
monthly escrow payments for real estate taxes and insurance premiums, 
noting that such a policy was also consistent with FHA's COVID-19 
Standalone Partial Claim. The commenter did not specifically address 
whether VA should include scheduled but missed real estate taxes and 
insurance premiums in cases where the guaranteed loan documents do not 
provide for monthly escrowing.
    Another commenter suggested that, if the veteran has remitted 
timely payments of real estate taxes and/or property insurance premiums 
directly to the tax authority and insurance provider, the partial claim 
payment should only include principal and interest. However, the 
commenter recommended that, if the veteran fell behind on such payments 
or such payments were not due during the forbearance period, the 
partial claim payment should include such real estate taxes and 
insurance premiums, or a pro rata portion of such amounts. The 
commenter further recommended that VA create an escrow account for 
holding and disbursing these funds on behalf of the veteran ``in a 
manner that complies with the provisions of RESPA's implementing 
Regulation X.''
    A third commenter, acknowledged that ``only a small percentage of 
Veteran homeowners directly pay taxes and insurance.'' However, to 
account for these cases, the commenter recommended that prorated 
amounts for missed taxes and insurance premiums should be included in 
the partial claim payment regardless of whether the servicer remitted 
payment on the veteran's behalf during the COVID-19 forbearance. The 
commenter also opined that requiring the servicer to manage a temporary 
escrow account for such unpaid items would be too complex. The 
commenter suggested that the funds should instead be sent directly to 
veterans, provided that the veterans sign a document acknowledging that 
the funds are to be used to satisfy the delinquent taxes and insurance 
premiums.
    VA Response: The varied responses to VA's question demonstrate the 
complexities associated with assisting veterans who do not utilize an 
escrow account to pay real estate taxes and/or insurance premiums. 
After considering the comments received, and given that less than one 
percent of guaranteed loans do not provide for escrowing, VA declines 
to change how the partial claim payment will be calculated in the final 
rule. VA believes that implementing a requirement for temporary escrow 
accounts would be overly burdensome when measured against the nominal 
improvement such a provision would bring to the COVID-VAPCP. VA is 
concerned that the burden associated with establishing, maintaining, 
adjusting, and closing temporary escrow accounts, would discourage 
servicers from participating in the program. VA believes that such a 
requirement is not necessary to help veterans whose loan documents do 
not provide for escrowing because the final rule still requires 
servicers to include amounts the servicer advanced on the veteran's 
behalf. VA is also concerned that requiring veterans to receive and 
then redirect such funds to tax authorities and insurance providers 
would place an undue burden on veterans who may already be facing 
challenges on several fronts due to the pandemic. Such a policy would 
also raise a significant risk of delay, confusion, and error.
    As mentioned, the final rule retains the requirement that, where 
the guaranteed loan documents do not provide for monthly escrowing, 
servicers must include all payments the servicer made to real estate 
tax authorities and insurance providers, on the veteran's behalf during 
the COVID-19 forbearance. Additionally, in cases of veterans who do pay 
taxes and insurance premiums through an escrow account, servicers must 
still include all scheduled but missed monthly escrow payments in the 
partial claim.

H. Inclusion of Payments Due Within 31 Days (38 CFR 36.4805(e))

    One commenter recommended that VA remove the requirement in 
proposed 38 CFR 36.4805(e) whereby servicers must include scheduled 
monthly payments that are due within 31 days of the date the veteran 
executes the note and security instrument. The commenter noted that 31 
days was insufficient based on experience in FHA's partial claim 
program. The commenter noted that servicers have limited control over 
when the veteran executes the note and security instrument, as well as 
when the veteran returns such items to the servicer.
    VA Response: VA acknowledges the commenter's concern but is 
uncertain how eliminating the 31-day timeframe would assist borrowers 
and servicers. In proposing to require such amounts be included in the 
partial claim payment, VA sought to avoid cases where veterans are 
asked to make a mortgage payment only days after executing the note and 
security instrument.
    Nevertheless, VA does understand that servicers face difficulty in 
preparing and delivering a note that contains the correct partial claim 
amount, when the servicer has no control over when the veteran executes 
the note. If the veteran was unable to sign the note before a certain 
number of days passed, under VA's proposed rule, the servicer could be 
required to waive, for example, the first mortgage payment that would 
have been due when the veteran returns to normal repayment.
    To address this concern, VA is adopting changes in the final rule 
to require servicers to include 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 
servicer provides to the veteran the note and security instrument 
described in Sec.  36.4806. This will ensure that the servicer can 
include the correct partial claim payment amount on the note and 
security instrument.
    Similarly, VA is amending the requirement at 38 CFR 36.4807(c) that 
servicers 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. Since the servicer may not know the exact date 
the note is executed, VA will instead require the servicer to report 
the partial claim event to VA within seven days of the date the veteran 
returns the executed note to the servicer, but not later than 90 days 
after the date the veteran exits the COVID-19 forbearance.

I. Servicer Incentives

    Two commenters requested that VA consider including a servicer 
incentive for executing a partial claim payment. One commenter noted 
that servicers will lose servicing fee revenue as a result of the 
partial claim payment, while undertaking additional servicing 
responsibilities in the form of additional certifications and financial 
evaluations in advance of completing the partial claim payment. Another 
commenter wrote that executing the partial claim

[[Page 28699]]

payment will likely be more work for servicers than the other five 
servicer actions for which VA already pays incentives pursuant to 38 
CFR 36.4319. That commenter also recommended that VA pay an incentive 
equivalent to a loan modification under Sec.  36.4319 as the work 
required to execute a partial claim payment corresponded closely to the 
work required to execute a loan modification.
    VA Response: VA does not agree with the commenters that a servicer 
incentive is needed for the COVID-VAPCP. As discussed above, this final 
rule makes several improvements and streamlines the partial claim 
process. More salient, the partial claim payment itself should 
constitute a significant infusion of liquid cash to the servicers that 
participate. This immediate cash infusion can be used to help 
participating servicers cover their short-term obligations. It also 
affords these servicers the opportunity to take advantage of the time 
value of money; without the partial claim payment, certain servicers 
may need to wait years, or perhaps decades, to receive repayment of 
forborne amounts. Given the scope of the pandemic, some servicers might 
never be repaid the forborne amounts without the COVID-VAPCP, and 
indeed, a servicer's refusal to participate in the COVID-VAPCP could 
cause the servicer a foreclosure loss that could have easily been 
avoided by taking advantage of the COVID-VAPCP option. VA believes that 
this significant financial support already poses enough incentive to 
servicers. VA also believes that FHA's COVID-19 Standalone Partial 
Claim option, which does not provide for incentives, further evidences 
that an incentive is not necessary to promote servicers' use of the 
COVID-VAPCP.

J. Combined Deferral and Partial Claim Program

    One commenter recommended that VA consider offering a combined 
deferral and partial claim program. The commenter noted that offering a 
deferment consistent with VA Circular 26-20-33 \22\ presents, in many 
cases, the best option for both veteran and servicer, but, according to 
the commenter, the one limiting factor is whether a servicer has the 
financial capacity to defer the forborne payments for such an extended 
period. The commenter stated that this issue could be solved if 
servicers were able to receive a partial claim payment when a COVID-19 
forbearance period ends.
---------------------------------------------------------------------------

    \22\ VA Circular 26-20-33. Deferment as a COVID-19 Loss 
Mitigation Option for CARES Act Forbearance Cases, (Sept. 14, 2020), 
https://vbaw.vba.va.gov/HOMELOANS/docs/hot_topics/26_20_33.pdf.
---------------------------------------------------------------------------

    VA Response: VA declines to modify the proposed rulemaking in this 
way. The COVID-VAPCP is a fundamental shift for all stakeholders in 
VA's home loan program. Moreover, as VA explained in the proposed rule, 
the authorization of loan deferment is a ``novel home retention 
option,'' one that, ``[o]rdinarily, VA's regulation at 38 CFR 
36.4310(a) would prohibit.'' \23\ VA is being asked to change the 
position VA took in the proposed rulemaking when the proposed rule and 
VA's temporary loan deferment policy already constitute significant 
changes within VA's home loan program. Assuming VA were to do so, VA 
would likely need to insert new guardrails, which would require even 
further departure from what was proposed.
---------------------------------------------------------------------------

    \23\ 85 FR 79142, 79145 (Dec. 9, 2020).
---------------------------------------------------------------------------

    As mentioned above, VA is continuing to explore ways to help 
veterans as they exit their COVID-19 forbearances and as foreclosure/
eviction moratoriums end. VA expects the upcoming weeks to provide 
critical information in evaluating the COVID-VAPCP and additional 
measures to help veterans. In fact, VA anticipates additional 
rulemaking could be necessary. Given the potential for another 
rulemaking in upcoming weeks, the concerns about departing too far from 
the proposed rule, and the immediate need to publish this final rule 
notice, VA is not making any changes to the rule based on this comment.

K. Effect on Secondary Markets

    One commenter requested that VA address whether loans bought out of 
a Government National Mortgage Association (Ginnie Mae) security will 
be eligible for re-pooling once a veteran has resumed making payments 
and the servicer has otherwise complied with Ginnie Mae requirements. 
The commenter noted that the proposed rule states that a partial claim 
payment does not affect the guaranty percentage established at the time 
the guaranteed loan was made; thus, it was the commenter's 
understanding that such loans will be eligible for re-pooling.
    VA Response: VA notes that it does not set eligibility requirements 
for Ginnie Mae securities. Therefore, VA cannot state whether such 
loans will be eligible for re-pooling under the circumstances described 
by the commenter. However, VA reiterates \24\ that a partial claim does 
not affect the guaranty percentage on the guaranteed loan. In other 
words, VA will not deduct the amount of any partial claim payment from 
any future guaranty claim. VA will continue to honor the requisite 
guaranty percentage established by existing law.\25\
---------------------------------------------------------------------------

    \24\ See 85 FR 79142, 79152 (Dec. 9, 2020).
    \25\ See, for example, 38 U.S.C. 3703 and 3732.
---------------------------------------------------------------------------

L. Other Comments

    One commenter posed several questions regarding refinance loans and 
future loan modifications. First, the commenter requested that VA 
clarify whether the security interest on the new loan can be 
subordinated to a VA-guaranteed Interest Rate Reduction Refinancing 
Loan (IRRRL). The commenter also asked that VA clarify whether the new 
loan can be paid off through an IRRRL. Finally, the commenter requested 
that VA advise whether the new loan can be paid off through a 
subsequent loan modification of the VA-guaranteed loan.
    VA Response: VA notes that under both the proposed and final rules, 
repayment in full will be required immediately upon the refinancing or 
payment in full otherwise of the guaranteed loan with which the partial 
claim payment is associated. As such, there is no instance in which the 
new loan created under the COVID-VAPCP would continue to exist after 
the veteran refinances through an IRRRL. A veteran seeking to refinance 
with an IRRRL will be required to repay the new COVID-VAPCP loan in 
full, meaning the lien subordination issue raised by the commenter 
should not arise in such cases. However, VA reminds servicers that the 
guaranteed loan must remain in first lien position.\26\ Similarly, 
under the plain text of 38 U.S.C. 3710(e)(1)(C), a COVID-VAPCP loan 
would be excluded from the balance that could be refinanced as an 
IRRRL.\27\ Finally, the new COVID-VAPCP loan cannot be paid off through 
a loan modification of the guaranteed loan. Nevertheless, since a loan 
modification is neither a refinance nor payment-in-full of the 
guaranteed loan, the new COVID-VAPCP loan would continue in effect, 
after modification of the guaranteed loan.
---------------------------------------------------------------------------

    \26\ See 38 U.S.C. 3703(d)(3)(A).
    \27\ See 38 U.S.C. 3710(e)(1)(C) (prescribing that the amount of 
an IRRRL may not exceed an amount equal to the sum of the balance of 
the loan being refinanced, closing costs, and, if applicable, energy 
efficient improvements).
---------------------------------------------------------------------------

    Another commenter encouraged VA to expedite use of the COVID-VAPCP 
outside of finalizing the proposed rule. The commenter suggested VA 
utilize its Circular process to offer this home retention option.

[[Page 28700]]

    VA Response: VA agrees with the commenter that swift implementation 
of the COVID-VAPCP is necessary. However, VA believes that 
consideration of public comments is crucial to ensure that the program 
is tailored to meet veterans' needs. VA has worked to finalize this 
rule as quickly as possible and, as discussed further below, is setting 
an effective date in consideration of the fact that veterans now have 
increased opportunities to receive COVID-19 forbearances and that 
servicers will require some lead time to prepare for implementation.
    Finally, VA received two comments regarding existing home retention 
and loan servicing policies. One of these comments was that VA should 
clarify whether the VA option to purchase a guaranteed loan upon a 
borrower's default (a process VA commonly refers to as a loan refund 
\28\) occurs before a short sale or deed in lieu of foreclosure, or 
before a servicer initiates a foreclosure. Another commenter suggested 
that VA revise a monthly payment reduction requirement associated with 
VA's Streamline Modification option.
---------------------------------------------------------------------------

    \28\ 38 CFR 36.4320.
---------------------------------------------------------------------------

    VA Response: VA declines to respond to these comments as they are 
beyond the scope of this rule.

III. Clarifying Amendments to the Final Rule Based on Comments

    In addition to the changes discussed above, VA is adopting the 
following revisions to address technical issues that arose when 
considering comments.

A. Definitions (38 CFR 36.4801)

    In the proposed rule, VA proposed a definition of ``CARES Act 
forbearance'' to mean 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). At that time, 
VA only referenced forbearance periods granted to a veteran under 
section 4022 of the CARES Act.
    The purpose of the COVID-VAPCP was not to limit assistance to the 
protections afforded under the CARES Act, but instead to establish a 
temporary program to help veterans who are experiencing financial 
hardship due, directly or indirectly, to the COVID-19 national 
emergency.\29\ As noted above, the COVID-19 national emergency has now 
entered its second year. In consideration of the fact that the pandemic 
has imposed a prolonged financial hardship for many individuals, VA has 
been part of the coordinated federal response that extends protections 
for borrowers with federally backed mortgages.\30\ For example, certain 
veterans can now receive COVID-19 forbearances that can remain in 
effect until as late as June 30, 2022. Additionally, certain veterans 
who may have already reached the end of their initial periods of 
forbearance can now receive up to two additional three-month COVID-19 
forbearance periods, which can remain in effect until as late as 
December 31, 2021. To ensure it is clear that veterans who receive 
COVID-19 forbearances can take advantage of the COVID-VAPCP, VA is 
replacing the term ``CARES Act forbearance'' with ``COVID-19 
forbearance'' and adding a sentence clarifying that this term can 
``include any forbearance of scheduled monthly guaranteed loan 
payments, granted to a veteran for a financial hardship due, directly 
or indirectly, to the COVID-19 national emergency.'' For consistency, 
VA is also changing the term ``CARES Act indebtedness'' to ``COVID-19 
indebtedness'' in the final rule. The definition remains unchanged but 
for replacing ``CARES Act forbearance'' with ``COVID-19 forbearance''.
---------------------------------------------------------------------------

    \29\ ``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.'' 85 FR 79142 (Dec. 9, 2020).
    \30\ See Fact Sheet: Biden Administration Announces Extension of 
COVID-19 Forbearance and Foreclosure Protections for Homeowners, 
(Feb. 16, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/16/fact-sheet-biden-administration-announces-extension-of-covid-19-forbearance-and-foreclosure-protections-for-homeowners/. See also VA Circular 26-21-04. 
Approving Forbearance Requests for Veterans Affected by COVID-19, 
(Feb. 16, 2021), https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_21_04.pdf.
---------------------------------------------------------------------------

B. Guaranteed Loans Made On or After March 1, 2020 (38 CFR 36.4803(a))

    In the proposed rule, Sec.  36.4803(a) stated that ``[t]he 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.'' The implication could be that VA meant for the rule to exclude 
from the COVID-VAPCP veterans who obtained new guaranteed loans on or 
after March 1, 2020. This is not what VA intended. Therefore, to ensure 
that the text of the final rule leaves no doubt that such veterans can 
receive assistance under the COVID-VAPCP, VA is implementing a 
technical change to Sec.  36.4803(a). The revised text now expressly 
allows veterans whose guaranteed loans were made on or after March 1, 
2020 to receive COVID-VAPCP assistance, provided all other requirements 
are met.

C. Additional Technical Edits (38 CFR 36.4805(e)(3)(ii) and (e)(4))

    In the proposed rule, Sec.  36.4805(e)(3)(ii) stated that the 
servicer must 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 the CARES Act forbearance''.\31\ The 
purpose of this paragraph was to allow individuals who may have been 
late in requesting forbearance under the CARES Act, but nevertheless 
missed their guaranteed loan payment(s) due to circumstances related to 
the COVID-19 national emergency, to include such amounts in the partial 
claim, provided the guaranteed loan was current or less than 30 days 
past due on March 1, 2020.\32\
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    \31\ 85 FR 79142, 79160 (Dec. 9, 2020).
    \32\ See 85 FR 79142, 79150 (Dec. 9. 2020).
---------------------------------------------------------------------------

    VA is amending this section in the final rule to add ``on or'' 
before the phrase ``after March 1, 2020''. VA believes this technical 
change is necessary because most mortgage payments are due on the first 
of each month, meaning the original text might have inadvertently 
excluded a payment that a veteran missed on March 1, 2020. This 
revision will also promote consistency with the final version of Sec.  
36.4803(a)(1), which limits the program, in relevant part, to cases 
where the guaranteed loan was current or less than 30 days past due on 
March 1, 2020. Moreover, VA believes that because the COVID-VAPCP is 
designed to mitigate the effects of the COVID-19 national emergency, 
which is effective as of March 1, 2020, it is prudent to allow for the 
possibility that a payment missed on that date could be included in the 
partial claim amount.
    The need for this technical amendment is even clearer when 
considering that the CARES Act was signed into law by the President on 
March 27, 2020. It is highly likely that some veterans had already been 
affected by the pandemic on March 1, 2020, and thus could not make 
their mortgage payment. Such veterans may not have called their 
servicer to request a COVID-19 forbearance until, for example, April 1, 
2020, that is, the date the April payment was due. In such cases, the 
guaranteed loans would have been less than 30 days past due on March 1, 
2020. However, the text of the proposed rule would have prohibited 
servicers from including such a payment because it was missed on

[[Page 28701]]

March 1, 2020 not ``after March 1, 2020.'' \33\
---------------------------------------------------------------------------

    \33\ See 85 FR 79142, 79160 (Dec. 9, 2020) (emphasis added).
---------------------------------------------------------------------------

    In Sec.  36.4805(e)(4), VA is replacing the term ``borrower'' with 
the term ``veteran'' to remain consistent with other sections in 
Subpart F. With the exception of references that include co-borrowers 
or non-borrowers who may hold title to the property, VA's intention is 
to use the term ``veteran'' throughout.

IV. Section-by-Section Analysis of the Final Regulatory Amendments

    As discussed in the proposed rule, the COVID-VAPCP is a temporary 
program to help veterans return to making normal loan payments on their 
guaranteed loans after exiting a COVID-19 forbearance period.\34\ The 
proposed rule further noted that VA's existing home retention, loss-
mitigation, alternatives to foreclosure, and other servicing 
regulations and policies remain in effect.\35\ Thus, to avoid 
confusion, VA is adding a new subpart F to part 36 of the Code of 
Federal Regulations (CFR) to contain the regulations that govern this 
temporary program.\36\
---------------------------------------------------------------------------

    \34\ See 85 FR 79142 (Dec. 9, 2020).
    \35\ 85 FR 79142, 79148 (Dec. 9, 2020).
    \36\ 85 FR 79142 (Dec. 9, 2020).
---------------------------------------------------------------------------

    The following outlines the new subpart F, as prescribed under this 
final rule, with further explanation of each individual section, as 
appropriate.

A. Sec.  36.4800 Applicability

    In Sec.  36.4800, VA notes that this subpart applies to all loans 
guaranteed by VA, to the extent such loans are affected by the COVID-19 
national emergency.
    There is no change from the proposed rule to this section.

B. Sec.  36.4801 Definitions

    In Sec.  36.4801, VA sets forth the definitions applicable to new 
subpart F.
    VA defines ``alternative to foreclosure'', ``COVID-19 
forbearance'', ``COVID-19 indebtedness'', ``Guaranteed loan'', ``Loss-
mitigation option'', ``Secretary'', and ``Servicer'' as set out in the 
regulatory text below.
    Changes in this section replace certain references to the CARES Act 
with COVID-19. These changes align the scope of the COVID-VAPCP with 
the coordinated federal response to veterans' prolonged financial 
hardship, as discussed in section III.A. above.

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

    In Sec.  36.4802, VA sets 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 states 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 
section allows VA to assist a veteran exiting a COVID-19 forbearance by 
purchasing from the servicer the veteran's COVID-19 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.
    The only changes to this section from the proposed rule include 
conforming amendments associated with the definitional changes in Sec.  
36.4801. See section IV.B. above.

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

    In Sec.  36.4803, VA sets forth the general requirements of the 
COVID-VAPCP. First, VA requires that the loan for which a partial claim 
payment is requested must be a guaranteed loan that was either current 
or less than 30 days past due on March 1, 2020, or was made on or after 
March 1, 2020. Second, VA requires that the veteran on whose behalf VA 
will pay a partial claim payment both received a COVID-19 forbearance 
and missed at least one scheduled monthly payment. Third, VA requires 
that there remains unpaid at least one scheduled monthly payment that 
the veteran did not make while under a COVID-19 forbearance. Fourth, VA 
requires the veteran to indicate 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. Lastly, VA 
requires 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.
    This section incorporates changes VA is making in response to 
commenter concerns about the COVID-VAPCP evaluation and application 
process. As discussed in section II of this final rule, veterans must 
only indicate, not certify, as to their ability to resume making 
scheduled monthly payments and their occupancy of the property securing 
the guaranteed loan. Similarly, servicers are not required to certify 
as to the adequacy of the veteran's monthly residual income based on a 
financial evaluation. Also, in response to comments discussed above, VA 
is clarifying that the final rule expressly allows veterans whose loans 
were made on or after March 1, 2020 to receive assistance, provided all 
other requirements are met. See section III.B. above. VA is also making 
conforming amendments associated with the definitional changes in Sec.  
36.4801. See section IV.B. above.

E. Sec.  36.4804 Partial Claim Payment as a Home Retention Option

    In Sec.  36.4804, VA reiterates that the COVID-VAPCP is designed to 
address the financial hardships due, directly or indirectly, to the 
COVID-19 national emergency. This section states that a servicer may 
therefore use the partial claim payment option, even in cases where 
other home retention options are feasible, provided the partial claim 
payment option is in the veteran's financial interest. This section 
also allows the servicer 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.
    Changes in this section, including changes to the section heading, 
are in response to commenter concerns as discussed in section II.D. 
above.

F. Sec.  36.4805 Terms of the Partial Claim Payment

    In Sec.  36.4805, VA sets forth the terms of the partial claim 
payment. In paragraph (a), in order for a partial claim payment to be 
payable, the servicer must submit to the Secretary, not later than 120 
days after the date the veteran exits the COVID-19 forbearance, a 
request for such payment, as prescribed in Sec.  36.4807. Paragraph (b) 
of this section states that the amount of the partial claim payment 
that VA will pay to the servicer, as calculated under paragraph (e), 
shall not exceed 30 percent of the unpaid principal balance of the 
guaranteed loan. For the purposes of paragraph (b), the unpaid 
principal balance of the guaranteed loan means such balance as of the 
date the veteran entered into a COVID-19 forbearance. Paragraph (c) 
states that VA will pay only one partial claim payment per guaranteed 
loan. Paragraph (d) states

[[Page 28702]]

that VA will pay only one partial claim payment per veteran.
    In paragraph (e)(1), VA states that 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. In paragraph (e)(2), VA states that to bring the 
guaranteed loan current, servicers must include the full COVID-19 
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 COVID-19 forbearance.
    In paragraph (e)(3)(i), VA requires servicers to include 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 servicer provides to the veteran the note and 
security instrument described in 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 
is requiring servicers to include this amount in the partial claim 
payment.
    In paragraph (e)(3)(ii), VA requires 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 on or after March 1, 2020, but before the 
veteran was granted a COVID-19 forbearance. As discussed in the notice 
of proposed rulemaking, VA included this feature to allow veterans who 
may have missed a payment before requesting forbearance, but who would 
otherwise meet the COVID-VAPCP requirements, to participate in the 
program.\37\ In such cases, however, the servicer must waive any late 
charges and fees associated with these missed payments. Additionally, 
under paragraph (e)(3)(iii), VA requires 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 Sec.  36.4806.
---------------------------------------------------------------------------

    \37\ 85 FR 79142, 79150 (Dec. 9, 2020).
---------------------------------------------------------------------------

    In paragraph (e)(4), VA clarifies that servicers shall not include 
any amounts in the partial claim that are not listed by paragraph 
(e)(2) or (3). This means servicers cannot include any amounts (for 
example, 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 COVID-19 forbearance.
    In paragraph (e)(5), VA states that nothing in 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 the 30 percent cap described in paragraph (b).
    In paragraph (e)(6), VA explains 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 will be required to remit 
the overpaid amount immediately to VA. In paragraph (e)(7), VA states 
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 must waive the difference.
    Finally, paragraph (e)(8) prohibits 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 servicer provides to the veteran 
the note and security instrument described in Sec.  36.4806.
    Under paragraph (f), the servicer is 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 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''. In 
cases where state law requires naming a real person, this final rule 
notice allows servicers to include the name of the incumbent Secretary. 
These provisions are consistent with VA's property conveyance rule 
found at 38 CFR 36.4323(d)(8).
    VA requires 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 is also required to include 
all persons (borrowers, as well as non-borrowers) who hold a title 
interest in the property securing the guaranteed loan. In 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 COVID-19 forbearance, VA requires 
all loan documents to be fully executed not later than 90 days after 
the veteran exits the COVID-19 forbearance. Paragraph (h) requires the 
servicer to record the security instrument timely, as prescribed in 
Sec.  36.4807. Finally, in paragraph (i), the servicer is prevented 
from charging, or allowing to be charged, to the veteran any fee in 
connection with the COVID-VAPCP.
    VA is making several changes to the final rule text in Sec.  
36.4805. First, there are technical conforming amendments in paragraphs 
(a), (b), (e)(2), (e)(2)(ii), (e)(3)(ii), and (g), related to 
definitional changes in Sec.  36.4801. See section IV.B. above. VA is 
also incorporating a technical edit to paragraph (e)(4) that replaces 
``borrower'' with ``veteran'' to remain consistent across Subpart F. 
See section III.C. above. In paragraph (e)(3)(ii), VA is revising the 
text to clarify VA's intent that payments missed on March 1, 2020 can 
be included in the partial claim amount. See section III.C. above.
    Also in response to comments discussed above, VA is amending 
paragraph (a) to reflect the adjustment to the timeframe in which 
servicers must request a partial claim payment from 90 days to 120 
days, as discussed in section II.F. above. VA is also amending 
paragraphs (b) and (e)(5) to reflect the change in the maximum amount 
of available assistance, that is, from 15 percent of the UPB to 30 
percent of the UPB. This change is discussed in more detail in section 
II.B.3. above.
    Finally, VA is revising paragraph (e)(3)(i) such that the payments 
servicers must include in the partial claim amount will now be tied to 
the date the servicer provides the loan documents to the veteran, 
instead of the date the veteran executes such documents. As discussed 
in section III.H. above, this revision addresses industry concerns that 
servicers do not control when a veteran executes the note and security 
instrument, which increases the risk that servicers will miscalculate 
the partial claim payment amount. For example, under this final rule, a 
servicer

[[Page 28703]]

that provides a COVID-VAPCP note and security instrument to a veteran 
on June 15, 2021, must include the July 1, 2021 guaranteed loan payment 
in the partial claim payment amount, and the veteran will not need to 
make a guaranteed loan payment until August 1, 2021.
    VA is also making a conforming amendment to paragraph (e)(8) to 
account for the revisions to paragraph (e)(3)(i). VA is also making 
technical drafting edits to paragraph (f) to clarify that ``Secretary 
of Veterans Affairs, an Officer of the United States'' should appear on 
the note and security instrument and that the name of the incumbent 
Secretary should not be included unless State law requires naming a 
real person.

G. Sec.  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, must 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 are required to sign the security 
instrument. In paragraph (b), VA establishes specific terms of the note 
and security instrument. Specifically, VA requires 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). VA also requires repayment in full immediately upon the 
veteran's transfer of title to the property, or the refinancing or 
payment in full otherwise, of the guaranteed loan with which the 
partial claim payment is associated. Finally, VA states that a veteran 
may make payments for the subordinate loan, in whole or in part, 
without charge or penalty. If the veteran makes a partial prepayment, 
there will be no changes in the due date unless VA agrees in writing to 
those changes.
    As discussed in section II above, VA is revising Sec.  36.4806 to 
remove provisions that were in proposed paragraphs (b)(2) through 
(b)(5), which would have required repayment of the COVID-VAPCP loan 
within ten years and would have applied a 1.00 percent interest rate to 
the loan. VA is also redesignating proposed paragraph (b)(6) as 
paragraph (b)(2). VA is also adding new paragraph (b)(3) to expressly 
state that a veteran may make partial prepayments of the new COVID-
VAPCP loan. This conforming amendment is necessary to preserve an 
element of the proposed rule which would have prohibited VA from 
charging veterans any fees for any prepayments made during the 60-month 
deferment term.\38\ As this final rule does not provide for a repayment 
term, and thus no deferment term, VA is preserving this crucial 
protection for veterans by expressly stating in new paragraph (b)(3) 
that veterans can make prepayments on the COVID-VAPCP loan, in whole or 
in part, without charge or penalty. VA is also making technical 
drafting edits to paragraph (a) to clarify that the ``Secretary of 
Veterans Affairs, an Officer of the United States'' should appear on 
the note and security instrument and the name of the incumbent 
Secretary should not be included unless State law requires naming a 
real person. VA is also making technical drafting edits to paragraph 
(b)(2), as redesignated, to remove unnecessary commas that appeared 
after ``refinancing'' and ``otherwise'' in the proposed rule.\39\
---------------------------------------------------------------------------

    \38\ 85 FR 79142, 79160 (Dec. 9, 2020).
    \39\ 85 FR 79142, 79160 (Dec. 9, 2020).
---------------------------------------------------------------------------

H. Sec.  36.4807 Application for Partial Claim Payment

    In Sec.  36.4807, VA requires the servicer to provide VA with the 
original note required by Sec.  36.4805. Also, 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.
    Servicers will utilize VA's existing loan servicing platform, the 
VA Loan Electronic Reporting Interface (VALERI) system, to report the 
partial claim payment event. Servicers must report the partial claim 
event within seven days of the date the veteran returns to the servicer 
the executed note required by Sec.  36.4805, but not later than 120 
days after the date the veteran exits the COVID-19 forbearance. Below, 
VA has identified the specific data elements that servicers must input 
into VALERI when reporting the partial claim event.

                        Data Element Definitions
------------------------------------------------------------------------
                                                  Business definition of
         Event name             Data elements          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 servicer
                                                  provides to the
                                                  veteran 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 servicer
                                                  provides to the
                                                  veteran the note and
                                                  security instrument
                                                  described in Sec.
                                                  36.4806.
Partial claim..............  Tax payments        Total dollar amount of
                              missed amount.      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 servicer
                                                  provides to the
                                                  veteran the note and
                                                  security instrument
                                                  described in Sec.
                                                  36.4806.
Partial claim..............  Insurance payments  Total dollar amount of
                              missed amount.      all scheduled but
                                                  missed 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 servicer
                                                  provides to the
                                                  veteran 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   Total dollar amount of
                              amount.             all payments the
                                                  servicer made to
                                                  insurance providers on
                                                  the veteran's behalf,
                                                  as described in Sec.
                                                  36.4805(e)(2)(ii).

[[Page 28704]]

 
Partial claim..............  Insurance advance   The date on which the
                              date.               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       The date the borrower
                              origination date.   executes the note
                                                  required by Sec.
                                                  36.4805.
Partial claim..............  Partial claim       The legal description
                              legal description.  of the property.
Partial claim..............  Partial claim lien  The lien position of
                              position.           the partial claim
                                                  loan.
Partial claim..............  Second borrower     The birth dates of all
                              birth date.         co-borrowers.
------------------------------------------------------------------------

    To address stakeholder comments discussed in section II above, VA 
is adopting changes to Sec.  36.4807 to eliminate the requirement that 
veterans and servicers complete and submit an application form. Thus, 
VA deleted proposed paragraph (a) and redesignated proposed paragraphs 
(b) and (c) as paragraphs (a) and (b). In newly redesignated paragraph 
(a), VA deleted the introductory phrase ``Along with a complete 
application form,''. In newly redesignated paragraph (b), VA amended 
the deadline for which servicers must report a partial claim event 
through VA's electronic loan servicing system (VALERI). The revised 
deadline will now be measured from the date the borrower returns the 
executed note to the servicer, rather than the date the borrower 
executes the note. VA made this revision to address commenters' 
concerns about servicers being unable to dictate the date on which a 
veteran executes the note. See section II above. VA also amended newly 
redesignated paragraph (b) to include a conforming technical edit that 
is related to VA's decision to increase the timeframe in which 
servicers must request a partial claim payment from 90 days to 120 days 
post-forbearance. See section II.F. above.
    Regarding the VALERI data elements outlined above, VA is deleting 
the following data elements as they are no longer necessary given the 
elimination of the ten-year repayment term: Partial claim first payment 
due date; partial claim maturity date; and partial claim P&I payment 
amount. VA is also updating the following data element definitions to 
align with changes to Sec.  36.4805(e)(3)(i): Principal amount; 
Interest amount; Tax payments missed amount; and Insurance payments 
missed amount.

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

    In Sec.  36.4808, VA requires 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 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. 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.
    There is no change from the proposed rule to this section.

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

    In Sec.  36.4809, VA notes 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 under the National 
Emergencies Act, unless a veteran's COVID-19 forbearance does not end 
until after such date. In cases where a veteran's COVID-19 forbearance 
ends after the subject date, the Secretary shall accept a request for a 
partial claim payment, provided that such request is submitted to the 
Secretary not later than 120 days after the date the veteran exits the 
COVID-19 forbearance. However, in no event will the Secretary accept a 
request for a partial claim payment after October 28, 2022.
    VA is making several changes to the final rule text in Sec.  
36.4809 for reasons outlined in section II.E. above. First, there are 
technical conforming amendments in paragraph (b) related to 
definitional changes in Sec.  36.4801. See section IV.B. above. VA is 
also adopting a change in paragraph (b) to replace ``may still'' with 
``shall'' in response to public comments. Also, VA is amending 
paragraph (b) to include a conforming technical edit that is related to 
VA's decision to increase the timeframe in which servicers must request 
a partial claim payment from 90 days to 120 days post-forbearance. See 
section II.F. above. Additionally, in response to public comments, VA 
is replacing the date ``September 9, 2021'' with ``October 28, 2022'' 
in paragraph (c).

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

    In Sec.  36.4810, VA sets 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 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. Notwithstanding 
the above, but subject to Sec.  36.4328, the Secretary will not refuse 
to pay a guaranty or insurance claim on a guaranteed loan theretofore 
entered into in good faith between a veteran and such servicer. The 
Secretary may also refuse either temporarily or permanently to 
guarantee or insure any loans made by a lender or holder suspended, 
debarred, denied, or otherwise restricted from participation in FHA's 
insurance programs pursuant

[[Page 28705]]

to a determination of the Secretary of Housing and Urban Development.
    As noted in both the proposed and final rule notices, VA will 
utilize its existing loan refund process to handle applications for 
partial claim payments via VALERI. Upon receipt of an application, VA 
will 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 requirements, and 
that VA has received all necessary documentation. Partial claim 
payments will 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, Sec.  36.4810 
expressly authorizes appropriate enforcement actions.
    There is no substantive change from the proposed rule to this 
section. Rather, VA has included revisions to clarify the different 
forms of restrictions on participation in FHA programs encompassed by 
this section.

L. Conforming Technical Amendments

    VA is adding new section 38 CFR 36.4336 that reiterates 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 ensure that the partial claim 
option is in the veteran's financial interest. As with proposed Sec.  
36.4810, it includes 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. Notwithstanding the above, but 
subject to Sec.  36.4328, the Secretary will not refuse to pay a 
guaranty or insurance claim on a guaranteed loan theretofore entered 
into in good faith between a veteran and such servicer. The Secretary 
may also refuse either temporarily or permanently to guarantee or 
insure any loans made by a lender or holder suspended, debarred, 
denied, or otherwise restricted from participation in FHA's insurance 
programs pursuant to a determination of the Secretary of Housing and 
Urban Development.
    VA is also amending 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).'' \40\ VA is deleting 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 is adding a sentence 
noting that the holder is 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 is 
retaining 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 is amending 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.
---------------------------------------------------------------------------

    \40\ 38 CFR 36.4333(a)(2).
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    There is no substantive change from the proposed rule to this 
section. Rather, VA has included revisions to clarify the different 
forms of restrictions on participation in FHA programs encompassed by 
this section.

V. Effective Date of Final Rule

    In the notice of proposed rulemaking, VA repeated its commitment to 
bringing financial relief to veterans with VA-guaranteed home loans 
affected by the COVID-19 national emergency. VA also noted that it 
considered whether ``good cause'' existed to dispense with notice-and-
comment rulemaking under the Administrative Procedure Act (APA).\41\ 
However, despite the need for certainty that VA's partial claim program 
would be available to veterans as they exit forbearance, VA believed 
the novel legal policies warranted an opportunity for public input.
---------------------------------------------------------------------------

    \41\ See 5 U.S.C. 553(b)(B).
---------------------------------------------------------------------------

    As evident from this final rule notice, public input was valuable 
to ensuring that VA implements a partial claim payment program that 
delivers on its commitment. VA is now faced with determining whether it 
should accelerate the effective date of this program beyond statutory 
timeframes outlined in the Congressional Review Act.\42\ Specifically, 
absent a showing of ``good cause,'' this final rule (which is a ``major 
rule'' under the CRA, see infra) will become effective the later of the 
date occurring 60 days after the date on which Congress receives the 
report, or the date the rule is published in the Federal Register.\43\ 
For reasons discussed below, VA does not believe acceleration of the 
effective date is necessary.
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    \42\ See 5 U.S.C. 801(a)(3)(A).
    \43\ 5 U.S.C. 801(a)(3)(A); see also 5 U.S.C. 808.
---------------------------------------------------------------------------

    In the proposed rule, VA requested specific input from VA 
stakeholders as to the amount of time needed to implement VA's final 
rule. Anticipating that industry participants would require some amount 
of time to review, understand, and implement the COVID-VAPCP, VA sought 
additional information as to whether increased burdens or costs would 
accompany any accelerated timetables. VA also requested input as how a 
30- or 60-day delay in the effective date might negatively impact 
veterans, servicers, and other stakeholders.
    VA received four comments responding to its request. Three of the 
four commenters indicated that the seven-day timeframe suggested by VA 
in its request for comments would be insufficient for servicers to 
operationalize the proposed rule. One commenter noted that even a 60-
day timeframe was unlikely to be enough. Another commenter suggested 
that VA consider a 90-day timeframe to allow servicers to upgrade 
technology systems, develop operational procedures, and train staff. 
The third commenter echoed those sentiments, indicating that several 
months would likely be needed if VA were to finalize the rule as 
proposed. However, the third commenter also suggested that a shorter 
implementation timeframe would be needed if VA were to adopt changes to 
the final rule to align the COVID-VAPCP with FHA's partial claim 
program, thereby allowing servicers familiar with that program to adapt 
quickly and to utilize existing documents. Finally, as previously 
discussed, one commenter recommended that VA implement the COVID-VAPCP 
via Circular, indicating that the rulemaking process was too slow to 
bring needed relief to veterans.

[[Page 28706]]

    VA understands the concerns of its stakeholders on this issue. VA 
also remains committed to ensuring veterans' timely access to a partial 
claim payment home retention option. In consideration of the comments 
received, VA believes the 60-day statutory timeframe under the 
Congressional Review Act provides time for servicers to implement the 
final rule without significant impact to veterans. For reasons 
discussed immediately below, VA also believes the 60-day timeframe will 
not cause undue harm to veterans.
    An internal assessment indicates that approximately half of VA-
guaranteed loans in forbearance will reach 360 days of forbearance 
sometime during the months of May and June of 2021. However, as 
discussed above, VA has been a part of the coordinated federal response 
that extends protections for borrowers with federally backed 
mortgages.\44\ For example, certain veterans can now receive COVID-19 
forbearances that can remain in effect until as late as June 30, 2022. 
Additionally, certain veterans who may have already reached the end of 
their initial periods of forbearance can now receive up to two 
additional three-month COVID-19 forbearance periods, which can remain 
in effect until as late as December 31, 2021. Given these additional 
protections, VA now anticipates that most veterans currently in a 
COVID-19 forbearance will remain in such forbearance until at least 
late June 2021. VA also expects that most COVID-19 forbearance periods 
will now end in November 2021.
---------------------------------------------------------------------------

    \44\ See Fact Sheet: Biden Administration Announces Extension of 
COVID-19 Forbearance and Foreclosure Protections for Homeowners, 
(Feb. 16, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/16/fact-sheet-biden-administration-announces-extension-of-covid-19-forbearance-and-foreclosure-protections-for-homeowners/. See also VA Circular 26-21-04. 
Approving Forbearance Requests for Veterans Affected by COVID-19, 
(Feb. 16, 2021), https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_21_04.pdf.
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    In light of the factors mentioned above, VA believes that allowing 
a 60-day timeframe between the publication date and effective date of 
this final rule is not ``impracticable, unnecessary, or contrary to the 
public interest.'' \45\ VA notes that certain veterans who will exit 
forbearance in late June or early July of 2021 will still be able to 
take advantage of the partial claim option, especially since VA has 
provided servicers with an additional 30 days (for a total of 120 days 
post-forbearance) in which to complete certain actions and request a 
partial claim. VA has sought to publish this final rule as quickly as 
possible to ensure that the COVID-VAPCP will be effective in time to 
assist the majority of veterans whose loans are currently in 
forbearance without sacrificing the time needed to ensure servicers are 
able to prepare for assisting veterans coming out of forbearance.
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    \45\ See 5 U.S.C. 553(b)(B).
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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 of the Office of 
Management and Budget (OMB) has determined that this rule is a 
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 final rule will not have a 
significant economic impact on a substantial number of small entities 
as they are defined in the Regulatory Flexibility Act (5 U.S.C. 601-
612). To assess whether the final 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 127 out of 151 companies 
that service VA-guaranteed loans in COVID-19 forbearances, where the 
borrowers could likely receive assistance via a partial claim. VA made 
this determination using the size standards from the Small Business 
Administration (SBA).46 47 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 127 servicers for which VA has 
sufficient data to determine their size, 36 (or 28.35 percent) are 
considered small by SBA standards. The average annual revenue of those 
36 small servicers is $13.04 million.\48\
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    \46\ 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).
    \47\ 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.
    \48\ VA averages the sales volumes from Factiva for all 
servicers considered small, including those primarily considered 
commercial banks, savings institutions, and credit unions.
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    To determine the economic burden of the final rule on small 
entities, VA first 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 prepare and deliver to the veteran the original note and 
security instrument, and then deliver the executed note and security 
instrument to VA. 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 COVID-19 
forbearance loans they service that either meet or could potentially 
meet COVID-VAPCP requirements.
    As described in the impact analysis, the estimated number of 
borrowers who will likely meet the requirements for assistance via a 
partial claim is between 101,132 and 151,812. VA estimates that 15 
percent of those loans are serviced by small entities, or between 
15,170 and 22,772 loans. Given the total PRA cost for servicers of 
$36.64 per loan, the total PRA cost to average small servicers is 
$15,439.49 at the lower bound and $23,176.84 at the upper bound.
    The total cost of this rule to average small VA-guaranteed loan 
servicer ranges from $15,539 ($99.90 + $15,439.49) to $23,277 ($99.90 + 
$23,176.84), while the average annual revenue to small servicers is 
$13.04 million. VA generally considers a rule to have a ``significant 
economic impact'' when the total annual cost associated

[[Page 28707]]

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 0.18 
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 will be even below that level.
    VA has also considered whether other economic impacts that are not 
easily quantifiable would have a significant impact on small 
servicers.\49\ Ultimately, VA has determined that this final rule is 
not expected to have a significant economic impact on small servicers. 
The effect of the final rule is to provide servicers the opportunity to 
resolve COVID-19 forbearances through a home retention option that will 
both (1) help veterans return to making regular monthly mortgage 
payments to the servicer, and (2) recapitalize the servicer by 
purchasing veterans' total forborne indebtedness from the servicer. As 
discussed above, VA has adopted several changes to the final rule in 
response to industry comments regarding burdens associated with VA's 
proposed rule, including streamlining the process and requirements for 
requesting a partial claim payment. Additionally, and consistent with 
current VA servicing regulations and policies, servicers will not be 
required to offer the partial claim payment as a home retention option. 
Therefore, if a small servicer determines that participating in the 
COVID-VAPCP is not consistent with its business model, the final rule 
provides flexibility for the servicer to resolve forbearances using one 
of many existing home retention options.
---------------------------------------------------------------------------

    \49\ 126 Cong. Rec. S10,940-10,942 (Aug. 6, 1980) (discussing 
that determining whether an economic impact is ``significant'' is 
not an exact standard and that agencies should not be limited to 
considering easily quantifiable costs).
---------------------------------------------------------------------------

    Regarding the economic impact, that is, the paperwork burden, to 
servicers associated with this rule, VA notes that the changes adopted 
in this rule resulted in a 33 percent reduction in the estimated per 
loan paperwork burden to servicers. VA further notes that the economic 
costs of paperwork associated with this rule cannot be considered 
additive. In that regard, under existing VA statute and regulations, 
servicers are required to consider options to resolve a VA-guaranteed 
loan's delinquency once a veteran exits a COVID-19 forbearance. Each 
home retention and alternative to foreclosure option, as well as 
foreclosure itself, imposes some cost to the servicer that is already 
contemplated in its current business model. Under this rule, the cost 
to request a partial claim payment replaces the cost of whichever other 
option would have been selected absent the COVID-VAPCP.
    Notably, one commenter stated that the cost to servicers to execute 
a partial claim payment under the proposed rule was roughly equivalent 
to the cost to execute a loan modification. As VA believes a loan 
modification would be the home retention option most likely to be used 
to resolve COVID-19 forbearances absent this rule, the net impact of 
this rule on small servicers is likely to be insignificant for those 
that choose to participate.
    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 COVID-19 forbearance that are likely to 
participate in the partial claim program to the total number of VA 
servicers with guaranteed loans in COVID-19 forbearance that are likely 
to participate in the partial claim program. As described above, 36 VA 
servicers out of the 127 servicers with sufficient data available are 
small (28.35 percent). Therefore, the final rule is expected to affect 
a substantial number of small entities.
    While the final 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 final 
rule will not have a significant economic impact on a substantial 
number of small entities as they are defined in the Regulatory 
Flexibility Act. 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 final rule will have no such effect on 
State, local, and tribal governments, or on the private sector.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) requires 
that VA consider the impact of paperwork and other information 
collection burdens imposed on the public. Under 44 U.S.C. 3507(a), an 
agency may not collect or sponsor the collection of information, nor 
may it impose an information collection requirement unless it displays 
a currently valid OMB control number.\50\
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    \50\ See also 5 CFR 1320.8(b)(3)(vi).
---------------------------------------------------------------------------

    This final rule contains provisions that constitute a revised 
collection of information under 38 CFR 36.4333, which is currently 
approved under OMB control number 2900-0515. This rule also contains 
provisions that constitute a new collection of information under 38 CFR 
36.4336 and 38 CFR 36.4810, which will be added under OMB control 
number 2900-0515. This rule also contains provisions that constitute a 
new collection of information under 38 CFR 36.4807, which will be added 
under existing OMB control number 2900-0021. Finally, this rule 
contains provisions that constitute a new collection of information 
under 38 CFR 36.4803, 36.4805, 36.4806, and 36.4807.
    As required by 44 U.S.C. 3507(d), VA has submitted to OMB for its 
review and approval the information collections (both new and as 
amended) that have not yet been approved. VA will publish in the 
Federal Register a notice when OMB approves these information 
collections. In the interim, VA has retained the placeholder control 
numbers that appeared in the proposed rule. 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 the OMB.

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.

Congressional Review Act

    The Office of Information and Regulatory Affairs has determined 
that this regulatory action is a major rule under Subtitle E of the 
Small Business Regulatory Enforcement Fairness Act of 1996 (known as 
the Congressional Review Act), 5 U.S.C. 801-808, because it is likely 
to result in an annual effect on the economy of $100 million or more. 
In accordance with 5 U.S.C. 801(a)(1), VA will submit to the

[[Page 28708]]

Comptroller General and to Congress a copy of this Regulation and the 
Regulatory Impact Analysis associated with the Regulation.

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

    Denis McDonough, Secretary of Veterans Affairs approved this 
document on April 8, 2021 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.

Luvenia Potts
Regulations Development Coordinator, 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 amends 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 2900-
0515)

(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 a guaranteed loan 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 suspended, 
debarred, denied, or otherwise restricted from participation in FHA's 
insurance programs 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, consisting of Sec. Sec.  36.4800 through 36.4810, 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.
36.4803 General requirements of the COVID-19 Veterans Assistance 
Partial Claim Payment program.
36.4804 Partial claim payment as a home retention option.
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.
    COVID-19 forbearance means any forbearance of scheduled monthly 
guaranteed loan payments, granted to a veteran under section 4022 of 
the Coronavirus Aid, Relief, and Economic Security Act (Public Law 116-
136). It can also include any forbearance of scheduled monthly 
guaranteed loan payments, granted to a veteran for a financial hardship 
due, directly or indirectly, to the COVID-19 national emergency.
    COVID-19 indebtedness means the dollar amount the veteran is 
obligated to pay under the guaranteed loan terms, but that is not 
collected during a COVID-19 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)


[[Page 28709]]




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 COVID-19 forbearance by purchasing from the 
servicer the veteran's COVID-19 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 either--
    (1) Current or less than 30 days past due on March 1, 2020; or
    (2) Made on or after March 1, 2020;
    (b) The veteran on whose behalf VA will pay a partial claim payment 
both received a COVID-19 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 COVID-19 forbearance;
    (d) The veteran indicates 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; and
    (e) 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 2900-
XXXX)

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

Sec.  36.4804   Partial claim payment as a home retention option.

    (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. A servicer may 
therefore use the partial claim payment option, even in cases where 
other home retention options are feasible, provided the partial claim 
payment option is in the veteran's financial interest.
    (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 120 days after 
the date the veteran exits the COVID-19 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 30 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 COVID-19 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 COVID-19 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 COVID-19 forbearance.
    (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 servicer provides to the veteran 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 on or after March 1, 2020, but 
before the veteran was granted the COVID-19 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 veteran 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 30 
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 servicer provides to the veteran 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''. The name of the incumbent Secretary should not be included 
unless State law requires naming a real person.
    (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.

[[Page 28710]]

    (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 COVID-19 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 2900-
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''. The name of the incumbent Secretary 
should not be included unless State law requires naming a real person.
    (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) 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.
    (3) A veteran may make payments for the subordinate loan, in whole 
or in part, without charge or penalty. If the veteran makes a partial 
prepayment, there will be no changes in the due date unless VA agrees 
in writing to those changes.

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

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

Sec.  36.4807   Application for partial claim payment.

    (a) 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.
    (b) Servicers must report a partial claim event to VA through VA's 
existing electronic loan servicing system within seven days of the date 
the veteran returns to the servicer the executed note required by Sec.  
36.4805, but not later than 120 days after the date the veteran exits 
the COVID-19 forbearance.

(The Office of Management and Budget has approved the information 
collection requirements in this section under control numbers 2900-
0021 and 2900-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 under the 
National Emergencies Act, 50 U.S.C.161.
    (b) If a veteran's COVID-19 forbearance does not end until after 
the date described in paragraph (a) of this section, the Secretary 
shall accept a request for a partial claim payment, provided that such 
request is submitted to the Secretary not later than 120 days after the 
date the veteran exits the COVID-19 forbearance.
    (c) Notwithstanding paragraphs (a) and (b) of this section, the 
Secretary will not accept a request for a partial claim payment after 
October 28, 2022.

(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 a guaranteed loan 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 suspended, 
debarred, denied, or otherwise restricted from participation in FHA's 
insurance programs 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)


[FR Doc. 2021-11373 Filed 5-27-21; 8:45 am]
BILLING CODE 8320-01-P