[Federal Register Volume 68, Number 27 (Monday, February 10, 2003)]
[Rules and Regulations]
[Pages 6625-6627]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3176]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 36

RIN 2900-AL23


Loan Guaranty: Implementation of Public Law 107-103.

AGENCY: Department of Veterans Affairs.

ACTION: Interim final rule.

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SUMMARY: The Department of Veterans Affairs (VA) amends its loan 
guaranty regulations to implement sections 401 through 404 of Pub. L. 
107-103, the Veterans Education and Benefits Expansion Act of 2001. VA 
is incorporating into the regulations the following statutory changes: 
an increase in the maximum amount of loan guaranty entitlement from 
$50,750 to $60,000, a liberalization of the requirements regarding 
Memoranda of Understanding between VA and Native American Tribes in 
order for their members to qualify for direct housing loans to Native 
American veterans, a revision of the requirement that loan instruments 
used in connection with VA guaranteed loans contain a statement that 
such loans are not assumable without prior VA approval, and an increase 
in the specially adapted housing grant from $43,000 to $48,000 and in 
the special housing adaptations grant from $8,250 to $9,250.

DATES: Effective Date: This interim final rule is effective February 
10, 2003. Comments must be received on or before April 11, 2003.

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; or fax comments 
to (202) 273-9289; or e-mail comments to [email protected]. 
Comments should indicate that they are submitted in response to ``RIN 
2900-AL23.'' All written comments received will be available for public 
inspection at the above address in the Office of Regulations 
Management, Room 1158, between the hours of 8 a.m. and 4:30 p.m., 
Monday through Friday (except holidays).

FOR FURTHER INFORMATION CONTACT: Mr. Robert D. Finneran, Assistant 
Director for Policy and Valuation (262), Loan Guaranty Service, 
Veterans Benefits Administration, Department of Veterans Affairs, 
Washington, DC 20420, (202) 273-7368.

SUPPLEMENTARY INFORMATION: Under 38 U.S.C. chapter 37, VA guarantees 
loans made by private lenders to veterans for the purchase, 
construction, and refinancing of homes owned and occupied by veterans. 
VA also makes direct housing loans to Native American veterans living 
on tribal trust land.
    In addition, under 38 U.S.C. chapter 21, VA provides grants to 
certain severely-disabled veterans with qualifying permanent and total 
service-connected disabilities to make adaptations to their homes that 
are necessary because of the nature of the veterans' disabilities.
    VA is amending its loan guaranty regulations (38 CFR part 36) to 
implement changes to those housing programs made by sections 401 
through 404 of Pub. L. 107-103.
    Section 401 of Pub. L. 107-103 increased the maximum guaranty on a 
housing loan made to eligible veterans from $50,750 to $60,000. VA is 
making conforming changes to Sec.  36.4302 to reflect the new statutory 
maximum.
    Prior to enactment of Pub. L. 107-103, 38 U.S.C. 3762 required 
that, before VA could make a housing loan under 38 U.S.C. chapter 37, 
subchapter V to a Native American veteran, the tribal organization 
having jurisdiction over the veteran must have entered into a 
Memorandum of Understanding (MOU) with the Secretary of Veterans 
Affairs spelling out the conditions under which the program would 
operate on its trust lands. Section 402(b) of Pub. L. 107-103 allows VA 
to make loans under this program to a Native American veteran if the 
tribe has entered into an MOU with another Federal agency with regard 
to loans to Native Americans residing on tribal lands, so long as the 
Secretary of VA determines that the MOU substantially complies with 
VA's home loan requirements. VA is amending 38 CFR 36.4527 to reflect 
this change. The amendment requires that the MOU between the Tribe and 
the other Federal agency complies with the requirements now set forth 
in paragraph (b) of Sec.  36.4527.
    The goal of this statutory change and the new rule is to expand the 
number of Native American tribes participating in the VA Native 
American veteran direct loan program, ultimately increasing the number 
of Native American veterans obtaining housing loans from VA. VA is 
aware that many tribes do not wish to go through the process of 
negotiating an MOU with VA.
    VA has participated in inter-agency task forces seeking to increase 
the availability of housing loans on Native American tribal trust land. 
These include the Executive Branch's One-Stop Mortgage Initiative 
during the Clinton Administration, and a task force created by the 
Federal National Mortgage Association (FNMA, commonly known as ``Fannie 
Mae''). VA believes that the standards for an MOU contained in 
paragraph (b) of Sec.  36.4527 mirror requirements by other Federal 
agencies. Therefore, an MOU between a tribe and another Federal agency 
would likely meet the requirements in paragraph (b).
    VA specifically solicits comments from the public as to whether 
those requirements for an MOU between another Federal agency and a 
Native American tribe to be acceptable to VA are reasonable, or if they 
should be further modified.
    Section 403 of Pub. L. 107-103 liberalized the requirement that 
loan instruments used in connection with VA guaranteed loans contain a

[[Page 6626]]

statement that such loans are not assumable without prior VA approval. 
Prior to enactment of Pub. L. 107-103, 38 U.S.C. 3714(d) required that 
the following notice, in all capital letters, using a font at least 
2\1/2\ times larger than the regular type, be placed on the first page 
of the mortgage or deed of trust as well as any other instrument 
evidencing the loan, ``This Loan is not Assumable Without the Approval 
of the Department of Veterans Affairs or its Authorized Agent.'' As 
modified by section 403 of Pub. L. 107-103, section 3714(d) requires 
that such notice appear conspicuously on at least one of the 
instruments evidencing the loan or the security therefor.
    VA is therefore amending Sec.  36.4308 to reflect this change. 
Under the new rule, the required language must appear on one of the 
following instruments: The note, the mortgage, the deed of trust, or a 
VA-specific rider to any of those documents. This language must appear 
in a typeface which is the larger of either twice the largest font size 
contained elsewhere in the body of the instrument or 18 points. VA is 
eliminating the current requirements that this notice be on the first 
page of the document and that it be in all capital letters.
    The former statute imposed a significant paperwork burden on 
lenders, and made it virtually impossible for lenders to use uniform 
loan instruments available for FHA and conventional loans for VA 
guaranteed loans. VA believes the requirements in the new rule will 
provide adequate notice to borrowers regarding the restrictions on 
assumption of VA guaranteed loans while significantly reducing the 
administrative burden the former statute placed on lenders. Because VA 
believes lenders should be able to take immediate advantage of the new 
liberalization, VA is issuing this amendment as an interim-final rule. 
VA is soliciting comments from the public regarding whether the 
standards for such notice are adequate to provide reasonable notice to 
veteran borrowers without imposing an undue burden on our industry 
partners. VA will carefully consider comments received and, if 
warranted, further amend the standards for the required notice.
    Section 404 of Pub. L. 107-103 increased the maximum grants VA may 
make under 38 U.S.C. chapter 21, to certain veterans with total and 
permanent service-connected disabilities to assist those veterans in 
adapting housing to their special needs. The maximum Specially Adapted 
Housing grant authorized by 38 U.S.C. 2101(a) for veterans who have 
lost or lost the use of both lower extremities or have lost or lost the 
use of one lower extremity and also are blind in both eyes or have 
residuals of organic disease or injury so as to preclude locomotion 
without the aid of braces, crutches, canes, or a wheelchair was 
increased from $43,000 to $48,000. The maximum Special Housing 
Adaptations grant authorized by 38 U.S.C. 2101(b) to veterans with 
blindness in both eyes or whose disability includes the anatomical loss 
or loss of use of both hands was increased from $8,250 to $9,250. VA is 
making conforming changes to Sec.  36.4404 to reflect these statutory 
increases.

Administrative Procedure Act

    These amendments are published without regard to the notice and 
comment and delayed effective date provisions of 5 U.S.C. 533 since 
amendments to Sec. Sec.  36.4302, 36.4527, and 36. 4404 merely conform 
existing rules to statutory amendments or, in the case of the amendment 
to Sec.  36. 4308, liberalize existing requirements pursuant to new 
statutory authority. We find that compliance with those provisions of 5 
U.S.C. 533 would be impracticable, unnecessary, and contrary to the 
public interest.

Unfunded Mandates

    The Unfunded Mandates Reform Act requires, at 2 U.S.C. 1532, that 
agencies prepare an assessment of anticipated costs and benefits before 
developing any rule that may result in 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 or local governments. With regard to the 
impact of this rule, on tribal governments, the amendments regarding 
MOUs with tribal governments are, as explained above, a liberalization 
of existing requirements. This rule may eliminate the necessity of some 
tribes having to negotiate a separate MOU with the Secretary. 
Accordingly, this rule may result in some cost saving to tribal 
government. Once VA approves making loans to members of a particular 
tribe, the loans would be funded by VA. Although the Indian housing 
authority may have some involvement in the servicing of some of these 
loans, any costs should be insignificant. Based on the current low loan 
volume in the Native American Veteran Direct Loan Program, VA 
anticipates making fewer than a dozen loans a year to American Indian 
tribal members.

Paperwork Reduction Act

    This document contains no provisions constituting a collection of 
information under the Paperwork Reduction Act (44 U.S.C. 3501-3520).

Executive Order 12866

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

Regulatory Flexibility Act

    The Secretary hereby certifies that this interim 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. The amendments regarding increases in the guaranty 
amount and specially adapted housing grant merely conform the 
regulations to statutory increases. The amendments regarding MOUs with 
tribal governments will not impact private entities. The liberalization 
of the notice requirements regarding loan assumptions should enable 
lenders to use standard loan instruments (such as note, mortgage, or 
deed of trust) they now use with regard to FHA, FNMA and FHLMC loans on 
VA loan transactions. Any costs to small entities originating VA loans 
with respect to these new requirements for loan instruments should be 
minimal. Therefore, pursuant to 5 U.S.C. 605(b), this interim 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 64.119.

List of Subjects in 38 CFR Part 36

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

    Approved: December 4, 2002.
Anthony J. Principi,
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 continues to read as follows:

    Authority: 38 U.S.C. 501, 3701-3704, 3707, 3710-3714, 3719, 
3720, 3729, 3762, unless otherwise noted.


[[Page 6627]]



    2. In Sec.  36.4302, paragraphs (a)(4), (e)(1)(i), (e)(2)(i), 
(e)(3), and the authority citation at the end of paragraph (e)(3) are 
revised to read as follows:


Sec.  36.4302  Computation of guaranties or insurance credits.

    (a) * * *
    (4) The lesser of $60,000 or 25 percent of the original principal 
loan amount where the loan amount exceeds $144,000 and the loan is for 
the purchase or construction of a home or the purchase of a condominium 
unit.
* * * * *
    (e) * * *
    (1) * * *
    (i) Entitlement may be increased by up to $24,000 if the loan 
amount exceeds $144,000 and the loan is for purchase or construction of 
a home or purchase of a condominium; and
    (2) * * *
    (i) Entitlement may be increased by up to $24,000 if the loan 
amount exceeds $144,000 and the loan is for purchase or construction of 
a home or purchase of a condominium: and
* * * * *
    (3) If a veteran previously secured a manufactured home loan under 
38 U.S.C. 3712, the amount of entitlement used for that loan is 
subtracted from $36,000. The sum remaining is the amount of available 
entitlement for home loans and the sum remaining may be increased by up 
to $24,000 if the loan amount exceeds $144,000 and the loan is for 
purchase or construction of a home or purchase of a condominium. To 
determine the amount of entitlement available for manufactured home 
loans processed under 38 U.S.C. 3712, the amount of entitlement 
previously used for that purpose is subtracted from $20,000. The sum 
remaining is the amount of available entitlement for use for 
manufactured home loan purposes under 38 U.S.C. 3712.

(Authority: 38 U.S.C. 3703)

    3. Section 36.4308 is amended by removing the first authority 
citation at the end of the section, and by revising paragraph (c)(2) to 
read as follows:


Sec.  36.4308  Transfer of title by borrower or maturity by demand or 
acceleration.

* * * * *
    (c) * * *
    (2) With respect to each such loan at least one of the instruments 
used in the transaction shall contain the following statement: ``This 
loan is not assumable without the approval of the Department of 
Veterans Affairs or its authorized agent.'' This statement must be:
    (i) Printed in a font size which is the larger of:
    (A) Two times the largest font size contained in the body of the 
instrument; or
    (B) 18 points; and
    (ii) Contained in at least one of the following:
    (A) The note;
    (B) The mortgage or deed of trust; or
    (C) A rider to either the note, the mortgage, or the deed of trust.

Authority: (38 U.S.C.3714(d))

    4. In Sec.  36.4404, paragraph (a) introductory text, paragraph 
(b)(2), and the authority citation at the end of the section are 
revised to read as follows:


Sec.  36.4404  Computation of cost.

    (a) Computation of cost of housing unit. Under section 2101(a) of 
chapter 21, for the purpose of computing the amount of benefits payable 
to a veteran-beneficiary, there may be included in the total cost to 
the veteran the following amount, not to exceed $48,000.
* * * * *
    (b) * * *
    (2) $9,250.

(Authority: 38 U.S.C. 2102)


    5. Section 36.4527(a) is amended by:
    A. In paragraph (a)(1), at the end of the paragraph, removing 
``and'' and adding, in its place, ``or''.
    B. Redesignating paragraph (a)(2) as paragraph (a)(3).
    C. Adding a new paragraph (a)(2).
    The addition reads as follows:


Sec.  36.4527  Direct housing loans to Native American veterans on 
trust lands.

    (a) * * *
    (2) The tribal organization that has jurisdiction over the veteran 
has entered into a memorandum of understanding with any department or 
agency of the United States with respect to such loans and the 
memorandum complies with the requirements of paragraph (b) of this 
section.

(Authority: 38 U.S.C. 3762(a))

[FR Doc. 03-3176 Filed 2-7-03; 8:45 am]
BILLING CODE 8320-01-P