[Federal Register Volume 70, Number 83 (Monday, May 2, 2005)]
[Rules and Regulations]
[Pages 22596-22597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-8714]


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

DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 36

RIN 2900-AL54


Loan Guaranty: Hybrid Adjustable Rate Mortgages

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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

SUMMARY: The Department of Veterans Affairs (VA) is affirming as final 
an amendment to its loan guaranty regulations implementing section 303 
of the Veterans Benefits Act of 2002. The amendment incorporates into 
the regulations a new authority for hybrid adjustable rate mortgages. 
This allows VA to guarantee loans with interest rates that remain fixed 
for a period of not less than the first three years of the loan, after 
which the rate can be adjusted annually.

DATES: Effective Date: This rule is effective on May 2, 2005.

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: On October 9, 2003, VA published in the 
Federal Register (68 FR 58293) proposed regulations to implement 
sections 303 and 307 of Public Law 107-330. Under this proposal, 38 CFR 
36.4311 would be amended to provide authority for hybrid adjustable 
rate mortgages. Public Law 107-330 authorized VA to guarantee loans 
with interest rates that remain fixed for a period of not less than the 
first three years of the loan, after which the rate can be adjusted 
annually. Under the previous authority, the first adjustment on VA-
guaranteed adjustable rate mortgage loans had to occur no sooner than 
12 months nor later than 18 months from the date of the borrower's 
first mortgage payment. Please refer to the October 9, 2003, Federal 
Register for a complete discussion of this proposal.
    Section 307 of Pub. L. 107-330 also increased the fee payable to VA 
by a person assuming a VA guaranteed loan from .50 percent to 1.00 
percent of the loan amount, for a period beginning

[[Page 22597]]

December 13, 2002, and ending September 30, 2003. Since this period has 
now expired, the proposed changes to 38 CFR 36.4312 are no longer 
necessary to reflect the increase.
    The proposed rule provided for a 60-day comment period that ended 
November 10, 2003. We received three comments. The three commenters 
generally support the proposal for VA guaranteed hybrid ARM loans. Two 
believe the current ceiling on the annual adjustment cap of one percent 
is not in line with comparable conventional loans with a fixed-rate 
period of five or more years. They believe legislation should be 
enacted to remove the one percent annual adjustment cap limitation for 
loans with a fixed-rate period of five years or more. One requested 
that if such legislation is enacted VA implement the change as quickly 
as possible. This suggestion has been noted and will be considered in 
the event of future legislation.
    The third commenter requested that VA clarify language in the 
proposal regarding the increase in the fee payable to VA by a person 
assuming a VA guaranteed loan. The increase was effective for the 
period beginning December 13, 2002, and ending September 30, 2003, and 
was being carried out under the authority of the statute. As the 
effective period has now expired, the proposed change to Sec.  
36.4312(e)(2) has been dropped from the final rule.
    Based on the rationale set forth in the proposed rule we are 
affirming as a final rule the change made to Sec.  36.4311 of title 38, 
Code of Federal Regulations.

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 such effect 
on State, local, or tribal governments, or the private sector.

Paperwork Reduction Act

    This document contains no provisions constituting a collection of 
information under the Paperwork Reduction Act (44 U.S.C. 3501-3521).

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 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 addition of hybrid adjustable rate mortgages will benefit 
lenders by providing an additional loan product for use in making VA-
guaranteed loans. Therefore, pursuant to 5 U.S.C. 605(b), this 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 
applicable to this rule 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 17, 2004.
Anthony J. Principi,
Secretary of Veterans Affairs.

0
For the reasons set out in the preamble 38 CFR part 36 is amended 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, 3701-3704, 3707, 3710-3714, 3719, 
3720, 3729, 3762, unless otherwise noted.


0
2. Section 36.4311 is amended by:
0
a. Revising paragraph (d) introductory text;
0
b. In paragraph (d)(2), revising the first sentence;
0
c. Revising paragraph (d)(4) introductory text;
0
d. Revising paragraph (d)(5) introductory text;
0
e. Revising the authority citation at the end of the section.
    The revisions read as follows:


Sec.  36.4311  Interest rates.

* * * * *
    (d) Effective October 1, 2003, adjustable rate mortgage loans which 
comply with the requirements of this paragraph (d) are eligible for 
guaranty.
* * * * *
    (2) * * * Interest rate adjustments must occur on an annual basis, 
except that the first adjustment may occur no sooner than 36 months 
from the date of the borrower's first mortgage payment. * * *
* * * * *
    (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. Annual adjustments in the interest rate 
shall correspond to annual changes in the interest rate index, subject 
to the following conditions and limitations:
* * * * *
    (5) Pre-loan disclosure. The lender shall explain fully and in 
writing to the borrower, at the time of 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 furnished to VA 
upon request.
* * * * *
(Authority: 38 U.S.C. 3707A)

[FR Doc. 05-8714 Filed 4-29-05; 8:45 am]
BILLING CODE 8320-01-P