[Federal Register Volume 65, Number 148 (Tuesday, August 1, 2000)]
[Proposed Rules]
[Pages 46882-46883]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19083]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 36

RIN 2900-AG20


Loan Guaranty: Net Value and Pre-Foreclosure Debt Waivers

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

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SUMMARY: We propose to amend the Loan Guaranty Regulations to change 
the formula for calculating the net value of property securing VA 
guaranteed loans being terminated and to add criteria for granting 
preforeclosure debt waivers. The proposed changes regarding net value 
appear necessary to more accurately reflect current costs. The proposed 
changes regarding waivers appear necessary to more accurately reflect 
statutory intent.

DATES: Comments must be received on or before October 2, 2000. VA 
proposes to make these regulations effective 30 days after publication 
of the final regulations.

ADDRESSES: Mail or hand-deliver written comments to: Director, Office 
of Regulations Management (02D), Department of Veterans Affairs, 810 
Vermont Avenue, NW, Room 1154, Washington, DC 20420. Comments should 
indicate that they are submitted in response to ``RIN 2900-AG20.'' All 
written comments received will be available for public inspection at 
the above address, Room 1158, between the hours of 8 a.m. and 4:30 
p.m., Monday through Friday (except holidays).

FOR FURTHER INFORMATION CONTACT: Mr. Richard Fyne, Assistant Director 
for Loan Management (261), Loan Guaranty Service, Veterans Benefits 
Administration, Department of Veterans Affairs, Washington DC 20420, 
(202) 273-7380.

SUPPLEMENTARY INFORMATION: We propose to amend the Loan Guaranty 
Regulations to change the formula for calculating the net value of 
property securing VA guaranteed loans being terminated and to add 
criteria for granting preforeclosure debt waivers.
    Under current law, when a VA guaranteed loan is reported as being 
in default, the Secretary is required to establish the ``net value'' of 
the property securing the guaranteed loan in default. ``Net value'' 
means the fair market value of the property minus certain costs that VA 
would incur to acquire, manage, and dispose of the property. The 
relationship between the net value of the property, the total 
indebtedness of the veteran at the time of loan termination, and the 
amount of VA's guaranty determines whether or not VA may acquire the 
property following foreclosure from the foreclosing loan holder. These 
factors also affect the Government's claim payment to the foreclosing 
holder under the guaranty. In addition, they will affect the amount of 
the veteran's debt to the Government under those circumstances where, 
by law, VA is entitled to establish a debt against a veteran. Moreover, 
they affect the VA's loss on the guaranty transaction which, in turn, 
will affect the veteran's ability to have previously-used entitlement 
restored.
    Under Sec. 36.4301, VA computes ``net value'' using cost data for 
the preceding three fiscal years. We propose to change how VA computes 
``net value.'' Instead

[[Page 46883]]

of using three years data, we propose to use data only from the most 
recent fiscal year. VA believes this change will lead to a calculation 
of net value that is more reflective of current costs.
    We also propose to make nonsubstantive changes to the definition of 
``net value'' for purposes of clarification and conformance to 
statutory provisions.
    Currently Sec. 36.4323(e)(1) sets forth provisions regarding waiver 
by VA of the establishment of a debt against a veteran whose VA 
guaranteed loan is being foreclosed. We propose to include provisions 
stating that VA may grant a preforeclosure debt waiver if the default 
was caused by a transferee-owner, and there is no indication of fraud, 
misrepresentation, or bad faith on the part of the veteran. Public Law 
101-236 eliminated ``material fault'' as a bar to waiving a veteran's 
debt. We believe our proposed changes are consistent with this 
statutory enactment.
    We also would make citation corrections in Sec. 36.4323(e)(4).
    This proposed rule supercedes an earlier proposed rule published in 
the Federal Register on September 22, 1993 (58 FR 49251). The earlier 
proposed rule was the same in substance as this proposed rule.

Executive Order 12866

    This proposed rule has been reviewed by the Office of Management 
and Budget under the provisions of Executive Order 12866.

Unfunded Mandates

    The Unfunded Mandates Reform Act requires (in section 202) that 
agencies prepare an assessment of anticipated costs and benefits before 
developing any rule that may result in an expenditure by State, local, 
or tribal governments, in the aggregate, or by the private sector of 
$100 million or more in any given year. This rule would have no 
consequential effect on State, local, or tribal governments.

Regulatory Flexibility Act

    The Secretary hereby certifies that the adoption of the proposed 
rule would not have a significant economic impact on a substantial 
number of small entities as they are defined in the Regulatory 
Flexibility Act, 5 U.S.C. 601-612. The proposed rule only affects VA 
guaranteed loan foreclosures. Such foreclosures represent only a small 
part of affected lenders' businesses. Moreover, the effect of the 
proposed rule would be cost-neutral in almost all cases. Therefore, 
pursuant to 5 U.S.C. 605(b), the proposed rule is exempt from the 
initial and final regulatory flexibility analysis requirements of 
sections 603 and 604.

    The Catalog of Federal Domestic Assistance Program numbers are 
64.114 and 64.118.

List of Subjects in 38 CFR Part 36

    Condominiums, Handicapped, Housing loan programs--housing and 
community development, Manufactured homes, Veterans.

    Approved: March 16, 2000.
Togo D. West, Jr.,
Secretary of Veterans Affairs.
    For the reasons set out in the preamble, 38 CFR part 36 is proposed 
to be amended as follows:

PART 36--LOAN GUARANTY

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

    Authority: 38 U.S.C. 501, 3701-3704, 3707, 3710-3714, 3719, 
3720, 3729, 3762, unless otherwise noted.
    2. In Sec. 36.4301, the definition for the term ``Net value'' is 
amended by revising the introductory text and paragraph (3) to read as 
follows:


Sec. 36.4301  Definitions.

* * * * *
    Net value. The fair market value of real property, minus an amount 
representing the costs that the Secretary estimates would be incurred 
by VA in acquiring and disposing of the property. The number to be 
subtracted from the fair market value will be calculated by multiplying 
the fair market value by the current cost factor. The cost factor used 
will be the most recent percentage of the fair market value that VA 
calculated and published in the Notices section of the Federal Register 
(it is intended that this percentage will be calculated annually). In 
computing this cost factor, VA will determine the average operating 
expenses and losses on resale incurred for properties acquired under 
Sec. 36.4320 which were sold during the preceding fiscal year and the 
average administrative cost to VA associated with the property 
management activity. The final net value derived from this calculation 
will be stated as a whole dollar amount (any fractional amount will be 
rounded up to the next whole dollar). The cost items included in the 
calculation will be:
* * * * *
    (3) Administrative costs. (i) An estimate of the total cost for VA 
of personnel (salary and benefits) and overhead (which may include 
things such as travel, transportation, communication, utilities, 
printing, supplies, equipment, insurance claims and other services) 
associated with the acquisition, management and disposition of property 
acquired under Sec. 36.4320. The average administrative costs will be 
determined by:
    (A) Dividing the total cost for VA personnel and overhead salary 
and benefits costs by the average number of properties on hand and 
adjusting this figure based on the average holding time for properties 
sold during the preceding fiscal year; then
    (B) Dividing the figure calculated in paragraph (3)(i)(A) of this 
definition by the VBA ratio of personal services costs to total 
obligations.
    (ii) The three cost averages will be added to the average loss on 
property sold during the preceding fiscal year (based on the average 
property purchase price) and the sum will be divided by the average 
fair market value at the time of acquisition for properties which were 
sold during the preceding fiscal year to derive the percentage to be 
used in estimating net value.
    3. In Sec. 36.4323 amend paragraph (e)(1)(v) at the end of the 
paragraph by removing ``liability.'' and adding, in its place, 
``liability; or''; add paragraph (e)(1)(vi); and revise the first 
sentence in paragraph (e)(4) and the authority citation at the end of 
paragraph (e)(4), to read as follows:


Sec. 36.4323  Subrogation and indemnity.

* * * * *
    (e) * * * 
    (1) * * * 
    (vi) The obligor being released is not the current titleholder to 
the property and there are no indications of fraud, misrepresentation, 
or bad faith on the obligor's part in obtaining the loan or disposing 
of the property or in connection with the loan default.
* * * * *
    (4) Determinations made under paragraphs (e)(1) and (e)(2) of this 
section are intended for the benefit of the Government in reducing the 
amount of claim payable by VA and/or avoiding the establishment of 
uncollectable debts owning to the United States. * * *
(Authority: 38 U.S.C. 501, 3703(c)(1), 5302)
* * * * *

[FR Doc. 00-19083 Filed 7-31-00; 8:45 am]
BILLING CODE 8320-01-P