[Federal Register Volume 59, Number 37 (Thursday, February 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4145]
[[Page Unknown]]
[Federal Register: February 24, 1994]
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DEPARTMENT OF VETERANS AFFAIRS
38 CFR Part 36
RIN 2900-AG14
Loan Guaranty: Implementation of Public Law 102-547
AGENCY: Department of Veterans Affairs.
ACTION: Proposed regulatory amendments.
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SUMMARY: The Department of Veterans Affairs (VA) is proposing to amend
its loan guaranty regulations to comply with certain provisions of the
Veterans Home Loan Program Amendments of 1992 and the Onmibus Budget
Reconciliatory Act of 1993. VA proposes to amend its regulations to
provide for the guarantee of loans for reservists and members of the
national guard, loans where the interest rate has been negotiated
between the borrower and the lender, adjustable rate mortgages, and
energy efficient mortgages. VA also proposes to amend its regulations
to reflect a reduced funding fee for interest rate reduction
refinancing loans, and a revised guaranty percentage for these loans as
well as an increased funding fee on most guaranteed loans, and an
increased funding fee for second and subsequent use of the loan
guaranty benefit, except for interest rate reduction refinancing loans.
These changes will increase the types of loans available to veterans
and the categories of veterans eligible for VA home loans.
DATES: Comments must be received on or before April 25, 1994. Comments
will be available for public inspection until May 5, 1994. VA proposes
to make these regulations effective 30 days after publication of the
final regulations.
ADDRESSES: Interested persons are invited to submit written comments,
suggestions or objections regarding this proposal to the Secretary of
Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420. All
written comments will be available for public inspection in room 170,
Veterans Service Unit, at the above address between the hours of 8 a.m.
and 4:30 p.m., Monday through Friday (except holidays) until May 5,
1994.
FOR FURTHER INFORMATION CONTACT: Ms. Judith Caden, Assistant Director
for Loan Policy (264), Loan Guaranty Service, Veterans Benefits
Administration, Department of Veterans Affairs, Washington, DC 20420,
(202) 233-3042.
SUPPLEMENTARY INFORMATION: VA is proposing to incorporate into its
regulations several changes to comply with certain provisions of Public
Law 102-547 and Public Law 103-66.
Prior to the enactment of Public Law 102-547 persons whose only
military service consisted of active duty for training and inactive
duty training in the reserve components of the Armed Forces did not
qualify for loan guaranty benefits. Public Law 102-547 extends
eligibility for VA-guaranteed home loans to certain members of the
Selected Reserve as defined in 38 U.S.C. 3701(b)(5). This eligibility
expires 7 years from the date of enactment of the law.
38 U.S.C. 3729 requires that a funding fee be collected from each
veteran obtaining a VA-guaranteed loan except for veterans who receive
compensation or from a surviving spouse of a veteran who died from a
service-connected disability. Public Law 102-547 requires that a higher
funding fee be collected on loans to the newly eligible members of the
Selected Reserve as defined in 38 U.S.C. 3701(b)(5) than on loans to
other veterans. Effective October 1, 1993, Public Law 103-66, the
Omnibus Budget Reconciliation Act of 1993, increased the funding fee by
0.75 percent on all VA loans except interest rate reduction refinancing
loans, vendee loans, direct loans, manufactured home loans under 38
U.S.C. 3712, and loan assumptions. This new law also established an
increased fee for second and subsequent use of the loan guaranty
benefit, except for interest rate reduction refinancing loans. The
increase in funding fees established by Public Law 103-66 will expire
on September 30, 1998. VA is proposing to amend 38 CFR 36.4312 to add
the funding fee structure for members of the Selected Reserves, and to
provide for the higher funding fees required by Public Law 103-66, as
discussed in the following paragraphs.
Public Law 103-66 provides that on loans to veterans whose
entitlement is not based on service in the Selected Reserve as defined
in 38 U.S.C. 3701 (b)(5)(1), the funding fee shall be as follows:
(1) For loans for the purchase or construction of a home on which
the veteran does not make a down payment, the funding fee shall be 2.00
percent of the total loan amount;
(2) For loans where the veteran makes a down payment of 5 percent
or more, but less than 10 percent, the funding fee shall be 1.5 percent
of the loan amount;
(3) For loans where the veteran makes a down payment of 10 percent
or more, the funding fee shall be 1.25 percent of the total loan
amount;
(4) For refinancing loans except interest rate reduction
refinancing loans under 38 U.S.C. 3710(a)(8) and 3710(b)(7), the
funding fee shall be 2.00 percent of the total loan amount; and
(5) For loans where the veteran uses entitlement for a second or
subsequent time and does not make a downpayment, the funding fee shall
be 3.00 percent of the total loan amount.
Public Law 103-66 provides that on loans to veterans whose
entitlement is based on service in the Selected Reserve as defined in
38 U.S.C. 3701(b)(5) the funding fee shall be as follows:
(1) For loans for the purchase or construction of a home on which
the veteran does not make a down payment, the funding fee shall be 2.75
percent of the total loan amount;
(2) For loans where the veteran makes a down payment of 5 percent
or more, but less than 10 percent, the funding fee shall be 2.25
percent of the loan amount;
(3) For loans where the veteran makes a down payment of 10 percent
or more, the funding fee shall be 2.00 percent of the total loan
amount;
(4) For refinancing loans except interest rate reduction
refinancing loans under 38 U.S.C. 3710(a)(8) and 3710(b)(7), the
funding fee shall be 2.75 percent of the total loan amount; and
(5) For loans where the veteran uses entitlement for a second or
subsequent time and does not make a downpayment, the funding fee shall
be 3.00 percent of the total loan amount.
Prior to the enactment of Public Law 102-547 the Secretary was
required to set a maximum interest rate which a veteran could pay when
purchasing a home with a VA guaranteed loan, and the veteran was not
permitted to pay discount points on the loan. Public Law 102-547
authorizes the Secretary to elect either to require that VA-guaranteed
loans bear interest at rates not to exceed the maximum rates
established by the Secretary or to allow such loans to bear interest at
rates agreed upon by the veteran and the lender. The law also
authorizes the Secretary to change the election from time to time, and
provides that when the Secretary has elected to have interest rates
negotiated between the veteran and the lender, the veteran may pay
reasonable discount points on the loan. Effective October 28, 1992, the
Secretary elected to have interest rates negotiated between the veteran
and the lender. VA proposes to amend 38 CFR 36.4212 and 36.4311 to
reflect these changes.
Public Law 102-547 generally prohibits financing discount points
when interest rates are negotiated between the lender and veteran.
However, Public Law 103-78, approved August 13, 1993, permits veterans
to finance discount points on interest rate reduction refinancing
loans. Accordingly, the proposed Secs. 36.4212(b) and 36.4311(b)
prohibit discount points from being financed, except for interest rate
reduction refinancing loans under 38 U.S.C. 3710(a)(8), 3710(b)(7) and
3712(a)(1)(F).
Prior to enactment of Public Law 102-547, VA was authorized to
guarantee fixed rate mortgages only. Public Law 102-547 authorizes a
demonstration project during fiscal years 1993, 1994, and 1995 whereby
VA will guarantee loans with adjustable interest rates. The law
provides that the interest rate adjustments on these loans shall: (1)
Correspond to a specified national interest rate index approved in
regulations by the Secretary, information on which is readily
accessible to mortgagors from generally available published sources;
(2) be made by adjusting the monthly payment on an annual basis; (3) be
limited, with respect to any single annual interest rate adjustment, to
a maximum increase or decrease of 1 percentage point; and (4) be
limited, over the term of the mortgage, to a maximum increase of 5
percentage points above the initial contract interest rate. VA proposes
to amend 38 CFR 36.4311 to provide for an adjustable rate mortgage with
these adjustment provisions. The regulations will also provide that the
first interest rate adjustment may occur 12 to 18 months from the date
of the borrower's first mortgage payment. The VA guaranteed adjustable
rate mortgage with the above features will be similar to the Federal
Housing Administration (FHA) adjustable rate mortgage. This should
facilitate pooling of these mortgages together in Government National
Mortgage Association (GNMA) mortgage-backed securities pools.
Public Law 102-547 requires the Secretary to carry out a program to
demonstrate the feasibility of guaranteeing mortgages for the
acquisition of an existing dwelling and the cost of making energy
efficiency improvements to the dwelling or for energy efficient
improvements to a dwelling owned and occupied by a veteran. The law
authorizes an addition to the purchase loan for the cost of energy
efficient improvements. It provides that for a mortgage guaranteed
under 38 U.S.C. 3710(d) the cost of the energy efficient improvements
may be added to the loan amount provided the cost does not exceed (1)
$3,000; or (2) $6,000, if the increase in the monthly payment for
principal and interest does not exceed the likely reduction in monthly
utility costs resulting from the energy efficiency improvements. VA
proposes to amend 38 CFR 36.4336 to provide that a loan for an energy
efficient mortgage guaranteed under 38 U.S.C. 3710(d) may exceed the
reasonable value of the property by the cost of the energy efficient
improvements as stated above. This demonstration program for financing
the cost of energy efficiency improvements will expire on December 31,
1995.
The law provides that the amount of the guaranty for an energy
efficient mortgage guaranteed under 38 U.S.C. 3710(d) will be in the
same proportion as would have been provided if the energy efficiency
improvements were not added to the loan amount. It also provides that
there be no additional charge to the veteran's entitlement as a result
of the increased loan amount. VA proposes to amend 38 CFR 36.4302 to
conform to these changes.
Public Law 102-547 reduces the funding fee for interest rate
reduction refinancing loans guaranteed under sections 3710(a)(8),
3710(a)(9)(B), and 3712(a)(1)(F) to 0.50 percent of the total loan
amount. VA proposes to amend 38 CFR 36.4232, 36.4254 and 36.4312 to
comply with the law. The law also provides that the guaranty amount for
interest rate reduction refinancing loans shall not exceed the greater
of the original guaranty amount or 25 percent of the loan amount. VA
proposes to amend 38 CFR 36.4223 and 36.4302 to reflect this change.
The provisions of Public Law 102-547 and Public Law 103-66 included
in the appropriate regulations by this amendment have been implemented
administratively.
The Secretary hereby certifies that these proposed regulatory
amendments will not, if promulgated, have a significant economic impact
on a substantial number of small entities as they are defined in the
Regulatory Flexibility Act, 5 U.S.C. 601-612. The proposed amendments
simply update VA regulations to incorporate the changes which have
already been made by Public Law 102-547 and Public Law 103-66.
The Catalog of Federal Domestic Assistance Program numbers are
64.114 and 64.119.
List of Subjects in 38 CFR Part 36
Condominiums, Handicapped, Housing Loan programs--housing and
community development, Manufactured homes, Veterans.
These amendments are proposed under Public Law 102-547 and the
authority granted the Secretary by section 501(a) of title 38, United
States Code.
Approved: September 10, 1993.
Jesse Brown,
Secretary of Veterans Affairs.
For the reasons set out in the preamble 38 CFR part 36, is amended
as set forth below.
PART 36--LOAN GUARANTY
1. The authority citation for part 36 Secs. 36.4201 through 36.4287
continues to read as follows:
Authority: Sections 36.4201 through 36.4287 issued under 38
U.S.C. 501(a), 3712.
2. Section 36.4212 is revised to read as follows:
Sec. 36.4212 Interest rates and late charges.
(a) In guaranteeing or insuring loans under 38 U.S.C. chapter 37
the Secretary may elect to require that such loans bear interest at a
rate that is (1) agreed upon by the veteran and the lender, or (2)
established by the Secretary. The Secretary may, from time to time,
change the election under this paragraph by publishing a notice in the
Federal Register.
(b) For loans bearing an interest rate agreed upon by the veteran
and the lender, the veteran may pay reasonable discount points in
connection with the loan. The discount points may not be included in
the loan amount, except for interest rate reduction refinancing loans
under 38 U.S.C. 3712 (a)(1)(F).
(c) The rate of interest in instruments securing the indebtedness
for all loans may be expressed in terms of add-on or discount.
(d) Interest in excess of the rate reported by the lender when
requesting evidence of guaranty or insurance shall not be payable on
any advance, or in the event of any delinquency of default; Provided,
That a late charge not in excess of an amount equal to 4 percent on any
installment paid more than 15 days after due date shall not be
considered a violation of this limitation.
(e) The interest rate of loans for the purpose of an interest rate
reduction (38 U.S.C. 3712(a)(1)(f)) must be less than the interest rate
of the VA loan being refinanced.
(f) Adjustable rate mortgage loans which comply with the
requirements of this paragraph are eligible for guaranty.
(1) Interest rate index. Changes in the interest rate charged on an
adjustable rate mortgage must correspond to changes in the weekly
average yield on one year (52 week) Treasury bills adjusted to a
constant maturity. Yields on one year Treasury bills at `constant
maturity' are interpolated by the United States Treasury from the daily
yield curve. This curve, which relates the yield on the security to its
time to maturity, is based on the closing market bid yields on actively
traded one year Treasury bills in the over-the-counter market. The
weekly average one year constant maturity Treasury bill yields are
published by the Federal Reserve Board of the Federal Reserve System.
The Federal Reserve Statistical Release Report H.15 (519) is released
each Monday. These one year constant maturity Treasury bill yields are
also published monthly in the Federal Reserve Bulletin, published by
the Federal Reserve Board of the Federal Reserve System, as well as
quarterly in the Treasury Bulletin, published by the Department of the
Treasury.
(2) Frequency of interest rate changes. Interest rate adjustments
must occur on an annual basis, except that the first adjustment may
occur not sooner than 12 months nor later than 18 months from the date
of the borrower's first mortgage payment. To set the new interest rate,
the lender will determine the change between the initial (i.e., base)
index figure and the current index figure. The initial index figure
shall be the most recent figure available before the date of mortgage
loan origination. The current index figure shall be the most recent
index figure available 30 days before the date of each interest rate
adjustment.
(3) Method of rate changes. Interest rate changes may only be
implemented through adjustments to the borrower's monthly payments.
(4) Initial rate and magnitude of changes. The initial contract
interest rate of an adjustable rate mortgage shall be agreed upon by
the lender and the veteran. The rate must be reflective of adjustable
rate lending. Annual adjustments in the interest rate shall be set at a
certain spread or margin over the interest rate index prescribed in
paragraph (f)(1) of this section. Except for the initial rate, this
margin shall remain constant over the life of the loan. Annual
adjustments to the contract interest rate shall correspond to annual
changes in the interest rate index, subject to the following conditions
and limitations:
(i) No single adjustment to the interest rate may result in a
change in either direction of more than one percentage point from the
interest rate in effect for the period immediately preceding that
adjustment. Index changes in excess of one percentage point may not be
carried over for inclusion in an adjustment in a subsequent year.
Adjustments in the effective rate of interest over the entire term of
the mortgage may not result in a change in either direction of more
than five percentage points from the initial contract interest rate.
(ii) At each adjustment date, changes in the index interest rate,
whether increases or decreases, must be translated into the adjusted
mortgage interest rate, rounded to the nearest one-eighth of one
percent, up or down. For example, if the margin is 2 percent and the
new index figure is 6.06 percent, the adjusted mortgage interest rate
will be 8 percent. If the margin is 2 percent and the new index figure
is 6.07 percent, the adjusted mortgage interest rate will be 8\1/8\
percent.
(5) Pre-loan disclosure. The lender shall explain fully and in
writing to the borrower, no later than on the date upon which the
lender provides the prospective borrower with a loan application, the
nature of the obligation taken. The borrower shall certify in writing
that he or she fully understands the obligation and a copy of the
signed certification shall be placed in the loan folder and included in
the loan submission to VA. Such lender disclosure must include the
following items:
(i) The fact that the mortgage interest rate may change, and an
explanation of how changes correspond to changes in the interest rate
index;
(ii) Identification of the interest rate index, its source of
publication and availability;
(iii) The frequency (i.e., annually) with which interest rate
levels and monthly payments will be adjusted, and the length of the
interval that will precede the initial adjustment;
(iv) A hypothetical monthly payment schedule that displays the
maximum potential increases in monthly payments to the borrower over
the first five years of the mortgage, subject to the provisions of the
mortgage instrument.
(6) Annual disclosure. At least 25 days before any adjustment to a
borrower's monthly payment may occur, the lender must provide a notice
to the borrower which sets forth the date of the notice, the effective
date of the change, the old interest rate, the new interest rate, the
new monthly payment amount, the current index and the date it was
published, and a description of how the payment adjustment was
calculated. A copy of the annual disclosure shall be made a part of the
lender's permanent record on the loan.
3. Section 36.4223 is amended by revising paragraph (a)(4) to read
as follows:
Sec. 36.4223 Interest rate reduction refinancing loan.
(a) * * *
(4) The dollar amount of the guaranty of the 38 U.S.C.
3712(a)(1)(F) loan may not exceed the greater of the original guaranty
amount of the loan being refinanced, or 25 percent of the loan.
* * * * *
4. Section 36.4232 is amended by revising paragraph (e)(1) to read
as follows:
Sec. 36.4232 Allowable fees and charges; manufactured home unit.
* * * * *
(e)(1) Subject to the limitations set out in paragraphs (e)(4) and
(e)(5) of this section, a fee must be paid to the Secretary. A fee of 1
percent of the total amount must be paid in a manner prescribed by the
Secretary before a manufactured home unit loan will be eligible for
guaranty. Provided, however, that the fee shall be 0.50 percent of the
total loan amount for interest rate reduction refinancing loans
guaranteed under section 3712(a)(1)(F). All or part of the fee may be
paid in cash at loan closing or all or part of the fee may be included
in the loan without regard to the reasonable value of the property or
the computed maximum loan amount, as appropriate. In computing the fee,
the lender will disregard any amount included in the loan to enable the
borrower to pay such fee.
* * * * *
5. Section 36.4254 is amended by revising paragraph (d)(1) to read
as follows:
Sec. 36.4254 Fees and charges.
* * * * *
(d)(1) Notwithstanding the provisions of paragraph (c) of this
section and subject to the limitations set out in paragraphs (d)(4) and
(d)(5) of this section, a fee must be paid to the Secretary. A fee of 1
percent of the total loan amount must be paid to the Secretary before a
combination manufactured home and lot loan (or a loan to purchase a lot
upon which a manufactured home owned by the veteran will be placed)
will be eligible for guaranty. Provided, however, that the fee shall be
0.50 percent of the total loan amount for interest rate reduction
refinancing loans guaranteed under Sec. 3712(a)(1)(F). All or part of
such fee may be paid in cash at loan closing or all or part of the fee
may be included in the loan without regard to the reasonable value of
the property or the computed maximum loan amount, as appropriate. In
computing the fee, the lender will disregard any amount included in the
loan to enable the borrower to pay such fee.
* * * * *
6. The authority citation for part 36, Secs. 36.4300 through
36.4375 continues to read as follows:
Authority: Sections 36.4300 through 36.4375 issued under 38
U.S.C. 501(a).
7. In Sec. 36.4302, paragraph (a) is amended by adding the words
``except as provided in paragraphs (b) and (c)'' after ``38 U.S.C.
3710''; paragraph (b) is revised; paragraphs (c), (d), (e) (f), (g),
(h), (i) and (j) are redesignated paragraphs (d), (e) (f), (g), (h),
(i), (j) and (k) respectively; a newly designated paragraph (c) is
added; newly redesignated (e) introductory text is republished; and the
newly redesignated paragraph (e)(1) is revised to read as follows:
Sec. 36.4302 Computation of guaranties or insurance credits.
* * * * *
(b) With respect to an interest rate reduction refinancing loan
guaranteed under 38 U.S.C. 3710 (a)(8) or (b)(7) the dollar amount of
guaranty may not exceed the greater of the original guaranty amount of
the loan being refinanced, or 25 percent of the refinancing loan
amount.
(c) With respect to a loan for an energy efficient mortgage
guaranteed under 38 U.S.C. 3710(d) the amount of the guaranty will be
in the same proportion as would have been provided if the energy
efficiency improvements were not added to the loan amount, and there
will be no additional charge to the veteran's entitlement as a result
of the increased guaranty amount.
* * * * *
(e) Subject to the provisions of paragraph (g) of Sec. 36.4303, the
following formulas shall govern the computation of the amount of the
guaranty or insurance entitlement which remains available to an
eligible veteran after prior use of entitlement:
(1) If a veteran previously secured a nonrealty (business) loan,
the amount of nonrealty entitlement used is doubled and subtracted from
$36,000. The sum remaining is the amount of available entitlement for
use except that (i) entitlement may be increased by up to $10,000 if
the loan amount exceeds $144,000 and the loan is for purchase or
construction of a home, purchase of a condominium, or for an interest
rate reduction refinancing loan, and (ii) entitlement for manufactured
home loans that are to be guaranteed under 38 U.S.C. 3712 may not
exceed $20,000.
* * * * *
8. Section 36.4311 is revised to read as follows:
Sec. 36.4311 Interest rates.
(a) In guaranteeing or insuring loans under 38 U.S.C. chapter 37
the Secretary may elect to require that such loans bear interest at a
rate that is (1) agreed upon by the veteran and the lender, or (2)
established by the Secretary. The Secretary may, from time to time,
change the election under this paragraph by publishing a notice in the
Federal Register. Provided, however, that the interest rate of loans
for the purpose of an interest rate reduction (38 U.S.C. 3710 (a)(8) or
(b)(7)) must be less than the interest rate of the VA loan being
refinanced.
(b) For loans bearing an interest rate agreed upon by the veteran
and the lender, the veteran may pay reasonable discount points in
connection with the loan. The discount points may not be included in
the loan amount, except for interest rate reduction refinancing loans
under 38 U.S.C. 3710(a)(8) and 3710(b)(7). For loans bearing an
interest rate agreed upon by the veteran and the lender the provisions
of Sec. 36.4312, paragraphs (d)(6) and (7) do not apply.
(c) Interest in excess of the rate reported by the lender when
requesting evidence of guaranty or insurance shall not be payable on
any advance, or in the event of any delinquency or default: Provided,
That a late charge not in excess of an amount equal to 4 percent on any
installment paid more than 15 days after due date shall not be
considered a violation of this limitation.
(d) Adjustable rate mortgage loans which comply with the
requirements of this paragraph are eligible for guaranty.
(1) Interest rate index. Changes in the interest rate charged on an
adjustable rate mortgage must correspond to changes in the weekly
average yield on one year (52 week) Treasury bills adjusted to a
constant maturity. Yields on one year Treasury bills at `constant
maturity' are interpolated by the United States Treasury from the daily
yield curve. This curve, which relates the yield on the security to its
time to maturity, is based on the closing market bid yields on actively
traded one year Treasury bills in the over-the-counter market. The
weekly average one year constant maturity Treasury bill yields are
published by the Federal Reserve Board of the Federal Reserve System.
The Federal Reserve Statistical Release Report H.15 (519) is released
each Monday. These one year constant maturity Treasury bill yields are
also published monthly in the Federal Reserve Bulletin, published by
the Federal Reserve Board of the Federal Reserve System, as well as
quarterly in the Treasury Bulletin, published by the Department of the
Treasury.
(2) Frequency of interest rate changes. Interest rate adjustments
must occur on an annual basis, except that the first adjustment may
occur no sooner than 12 months nor later than 18 months from the date
of the borrower's first mortgage payment. To set the new interest rate,
the lender will determine the change between the initial (i.e., base)
index figure and the current index figure. The initial index figure
shall be the most recent figure available before the date of mortgage
loan origination. The current index figure shall be the most recent
index figure available 30 days before the date of each interest rate
adjustment.
(3) Method of rate changes. Interest rate changes may only be
implemented through adjustments to the borrower's monthly payments.
(4) Initial rate and magnitude of changes. The initial contract
interest rate of an adjustable rate mortgage shall be agreed upon by
the lender and the veteran. The rate must be reflective of adjustable
rate lending. Annual adjustments in the interest rate shall be set at a
certain spread or margin over the interest rate index prescribed in
paragraph (d)(1) of this section. Except for the initial rate, this
margin shall remain constant over the life of the loan. Annual
adjustments to the contract interest rate shall correspond to annual
changes in the interest rate index, subject to the following conditions
and limitations:
(i) No single adjustment to the interest rate may result in a
change in either direction of more than one percentage point from the
interest rate in effect for the period immediately preceding that
adjustment. Index changes in excess of one percentage point may not be
carried over for inclusion in an adjustment in a subsequent year.
Adjustments in the effective rate of interest over the entire term of
the mortgage may not result in a change in either direction of more
than five percentage points from the initial contract interest rate.
(ii) At each adjustment date, changes in the index interest rate,
whether increases or decreases, must be translated into the adjusted
mortgage interest rate, rounded to the nearest one-eighth of one
percent, up or down. For example, if the margin is 2 percent and the
new index figure is 6.06 percent, the adjusted mortgage interest rate
will be 8 percent. If the margin is 2 percent and the new index figure
is 6.07 percent, the adjusted mortgage interest rate will be 8\1/8\
percent.
(5) Pre-loan disclosure. The lender shall explain fully and in
writing to the borrower, no later than on the date upon which the
lender provides the prospective borrower with a loan application, the
nature of the obligation taken. The borrower shall certify in writing
that he or she fully understands the obligation and a copy of the
signed certification shall be placed in the loan folder and included in
the loan submission to VA. Such lender disclosure must include the
following items:
(i) The fact that the mortgage interest rate may change, and an
explanation of how changes correspond to changes in the interest rate
index:
(ii) Identification of the interest rate index, its source of
publication and availability;
(iii) The frequency (i.e., annually) with which interest rate
levels and monthly payments will be adjusted, and the length of the
interval that will precede the initial adjustment;
(iv) A hypothetical monthly payment schedule that displays the
maximum potential increases in monthly payments to the borrower over
the first five years of the mortgage, subject to the provisions of the
mortgage instrument.
(6) Annual disclosure. At least 25 days before any adjustment to a
borrower's monthly payment may occur, the lender must provide a notice
to the borrower which sets forth the date of the notice, the effective
date of the change, the old interest rate, the new interest rate, the
new monthly payment amount, the current index and the date it was
published, and a description of how the payment adjustment was
calculated. A copy of the annual disclosure shall be made a part of the
lender's permanent record on the loan.
9. Section 36.4312 is amended by removing from paragraph (e)(3) the
words ``in paragraphs (e)(4) and (e)(5)'' and replacing them with the
words ``in paragraph (e)(4)''; by adding (e) introductory text; and by
revising paragraph (e)(1) to read as follows:
Sec. 36.4312 Charges and fees.
* * * * *
(e) Subject to the limitations set out in paragraph (e)(4) of this
section, a fee must be paid to the Secretary.
(1) The fee on loans to veterans shall be as follows.
(i) On all interest rate reduction refinancing loans guaranteed
under Sections 3710(a)(8) and 3710(b)(7) the fee shall be 0.50 percent
of the total loan amount.
(ii) On all refinancing loans other than those described in
paragraph (e)(1)(i) of this section, the funding fee shall be 2.75
percent of the loan amount for loans to veterans whose entitlement is
based on service in the Selected Reserve under the provisions of
section 3701(b)(5) of title 38, U.S.C., and 2 percent of the loan
amount for loans to all other veterans, provided, however, that if the
veteran is using entitlement for a second or subsequent time, the fee
shall be 3 percent of the loan amount.
(iii) Except for loans to veterans whose entitlement is based on
service in the Selected Reserve under the provisions of section
3701(b)(5) of title 38, U.S.C., the funding fee shall be 2 percent of
the total loan amount for all loans for the purchase or construction of
a home on which the veteran does not make a down payment, unless the
veteran is using entitlement for a second or subsequent time, in which
case the fee shall be 3 percent. On purchase or construction loans on
which the veteran makes a down payment of 5 percent or more, but less
than 10 percent, the amount of the funding fee shall be 1.50 percent of
the total loan amount. On purchase or construction loans on which the
veteran makes a down payment of 10 percent or more, the amount of the
funding fee shall be 1.25 percent of the total loan amount.
(iv) On loans to veterans whose entitlement is based on service in
the Selected Reserve under the provisions of section 3701(b)(5) of
title 38, U.S.C., the funding fee shall be 2.75 percent of the total
loan amount on loans for the purchase or construction of a home on
which the veteran does not make a down payment, unless the veteran is
using entitlement for a second or subsequent time, in which case the
fee shall be 3 percent. On purchase or construction loans on which
veterans whose entitlement is based on service in the Selected Reserve
make a down payment of 5 percent or more, but less than 10 percent, the
amount of the funding fee shall be 2.25 percent of the total loan
amount. On purchase or construction loans on which such veterans make a
down payment of 10 percent or more, the amount of the funding fee shall
be 2.00 percent of the total loan amount.
(v) All or part of such fee may be paid in cash at loan closing or
all or part of the fee may be included in the loan without regard to
the reasonable value of the property or the computed maximum loan
amount, as appropriate. In computing the fee, the lender will disregard
any amount included in the loan to enable the borrower to pay such fee.
* * * * *
10. Section 36.4336 is amended by revising paragraphs (a)(2)(i);
and by adding a new paragraph (a)(4) to read as follows:
Sec. 36.4336 Eligibility of loans; reasonable value requirements.
(a) * * *
(1) * * *
(2)(i) Except as to refinancing loans pursuant to 38 U.S.C. 3710
(a)(8) or (b)(7) and energy efficient mortgages pursuant to 38 U.S.C.
3710(d), the loan including any scheduled deferred interest added to
principal, does not exceed the reasonable value of the property or
projected reasonable value of a new home which is security for a
graduated payment mortgage loan, as appropriate, as determined by the
Secretary, and
* * * * *
(4) A loan guaranteed under 38 U.S.C. 3710(d) which includes the
cost of energy improvements may exceed the reasonable value of the
property, provided, that the cost of the energy efficiency improvements
does not exceed (1) $3,000; or (2) $6,000, if the increase in the
monthly payment for principal and interest does not exceed the likely
reduction in monthly utility costs resulting from the energy efficiency
improvements.
[FR Doc. 94-4145 Filed 2-23-94; 8:45 am]
BILLING CODE 8320-01-P