[Federal Register Volume 82, Number 70 (Thursday, April 13, 2017)]
[Proposed Rules]
[Pages 17792-17793]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07492]



[[Page 17792]]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 36

RIN 2900-AP62


Loan Guaranty: Revisions to Allowable Charges and Fees Assessed 
Incident to VA-Guaranteed Home Loans

AGENCY: Department of Veterans Affairs.

ACTION: Advanced notice of proposed rulemaking.

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

SUMMARY: The Department of Veterans Affairs (VA) Loan Guaranty Service 
(LGY) is currently reviewing its regulations governing the allowable 
expenses that a veteran may pay or be charged in connection with 
obtaining a VA-guaranteed home loan. By issuing this advanced notice of 
proposed rulemaking, LGY seeks comments on how the public believes VA 
should approach this undertaking. Although LGY identifies specific 
issues for discussion below, it encourages commenters to discuss any 
issue related to improving these specific regulations.

DATES: Comments must be received on or before June 12, 2017.

ADDRESSES: Written comments may be submitted through 
www.regulations.gov; by mail or hand-delivery to Director, Regulation 
Policy and Management (00REG), Department of Veterans Affairs, 810 
Vermont Avenue NW., Room 1068, Washington, DC 20420; or by fax to (202) 
273-9026. Comments should indicate that they are submitted in response 
to ``RIN 2900-AP62--Loan Guaranty: Revisions to Allowable Charges and 
Fees Assessed Incident to VA-Guaranteed Home Loans.'' Copies of 
comments received will be available for public inspection in the Office 
of Regulation Policy and Management, Room 1068, between the hours of 
8:00 a.m. and 4:30 p.m., Monday through Friday (except holidays). 
Please call (202) 461-4902 for an appointment. (This is not a toll-free 
number.) In addition, during the comment period, comments may be viewed 
online through the Federal Docket Management System (FDMS) at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: John Bell, III, Assistant Director for 
Loan Policy and Valuation, Loan Guaranty Service (262), Veterans 
Benefits Administration, Department of Veterans Affairs, 810 Vermont 
Avenue NW., Washington, DC 20420, (202) 632-8786. (This is not a toll-
free number.)

SUPPLEMENTARY INFORMATION:

I. Background

    VA has promulgated a list of permissible charges and fees a 
borrower may be charged or may pay incident to obtaining a VA-
guaranteed home loan. See 38 CFR 36.4313. In 1948, VA published its 
rule regulating charges and fees which was codified at the former 38 
CFR 36.4312. See 13 FR 7275, Nov. 27, 1948. That rule set forth the 
costs and expenses that loan proceeds could be used to pay, but was 
silent on whether a veteran might be allowed to pay such costs and 
expenses out of his or her own cash reserves. Id. Under the rule, 
borrowers could use proceeds from the loan to pay any cost or expense 
normally paid under local lending customs, except for certain brokerage 
and service charges. Id.
    In 1954, VA substantially altered the rule's regulatory scheme. 
Instead of permitting lenders to charge costs and expenses normally 
paid under local lending customs, VA restricted the types of charges 
and fees veterans were allowed to pay by expressly enumerating the 
types allowed. See 19 FR 6717, Oct. 19, 1954. VA instituted this rule 
amendment in order to protect veterans from what are commonly known as 
``junk fees''.
    The current charges and fees rule, now codified at 38 CFR 36.4313, 
is substantially similar to the 1954 version. While VA has amended the 
rule to modify the types of permissible charges and fees in the 
intervening years, the rule still retains the express enumeration 
scheme established by the 1954 version. In other words, the current 
rule protects veterans from having to satisfy any charge or fee not 
expressly allowed by the schedule codified at 38 CFR 36.4313(d). The 
rule, however, does allow a lender to charge a veteran, and for the 
veteran to pay, an origination fee of up to 1 percent of the loan 
amount, provided that the 1 percent fee be charged in lieu of all other 
fees permitted by the schedule. See 38 CFR 36.4313(d)(2). Compared with 
a conventional housing loan transaction, the fees the rule permits to 
be charged to veterans are relatively limited. Consequently, in 
transacting a sale with a VA-guaranteed loan borrower, sellers and 
lenders must bear many of the customary real estate transaction 
expenses.
    Since implementation, the rule has protected many veterans from 
having to incur unreasonable closing costs. However, the home buying 
process has changed significantly since VA last implemented substantive 
changes to the permissible fee schedule. In recent years, some veterans 
and their representatives have complained to VA that certain provisions 
of the rule can be detrimental to veterans' bargaining position during 
real estate negotiations. These parties have asserted that VA-
guaranteed loan borrowers are sometimes unable to compete with other 
offerors whose financing options are not restricted by similar 
regulatory constraints. VA recognizes that these constraints can 
contribute to sellers' decisions to accept other offers or lead lenders 
to charge higher interest rates to offset losses.
    VA will continue to safeguard the best interests of veteran 
homebuyers by protecting them from excessive and unreasonable closing 
costs. However, VA recognizes that an overly restrictive list of 
permissible charges and fees might, in certain circumstances, motivate 
market participants to avoid financing or selling homes to veterans.

II. Questions for Comment

    In order to strike the appropriate balance between making it easier 
for veterans to utilize their home loan benefits and protecting them 
from unreasonable charges and fees, VA is considering ways to revise 
the list of acceptable charges and fees specified by the schedule 
codified at 38 CFR 36.4313(d). VA invites responses to the following 
questions:
    1. What are ways that VA can protect veterans from incurring 
excessive closing costs, without being overly restrictive?
    2. Under the current rule, VA distinguishes between a ``fee'' and a 
``charge'' but does not define the terms. VA invites comments as to 
whether the public finds the distinction meaningful. Should VA 
eliminate the distinction? If not, how should VA define the terms?
    3. Does the term ``origination fee'' accurately reflect what a 
borrower would pay to a lender in order to originate a loan? What do 
veterans and lenders view as the purpose of an origination fee?
    4. How should VA identify which closing costs are acceptable for 
the veteran to pay, which are acceptable for another party but not a 
veteran to pay, and which, if any, should be prohibited?
    5. To what extent, if at all, should VA limit third-party charges 
or fees to the actual costs of the service provided? Alternatively, 
should VA permit borrowers, sellers, and lenders to negotiate their own 
bargains?

[[Page 17793]]

    6. To what extent, if at all, should local real estate customs 
affect (i) the types and amounts of closing costs that VA allows and 
(ii) which party is responsible for paying such costs?
    7. In a non-VA-guaranteed loan transaction, how are attorneys' fees 
usually paid when the attorney is not representing the veteran? Should 
VA allow a borrower to pay an attorney fee if the attorney does not 
have a fiduciary duty to the borrower?
    8. Should VA allow lenders to charge veterans differently depending 
upon the type of transaction (e.g., purchase, cash-out refinance, 
streamlined refinance, etc.)? If so, what are the justifications for 
the different pricing?
    9. What other lending programs, whether public or private, might VA 
consider as models in considering amendments to VA's charges and fees 
rule? What characteristics make these programs useful analogs to the 
VA-guaranteed loan program?
    10. What other information should VA consider in determining the 
types of expenses a veteran should be expected to pay to close a VA-
guaranteed loan?
    11. What charges or fees should VA allow veterans to pay in order 
to close a construction or rehabilitation/renovation loan?

Signing Authority

    The Secretary of Veterans Affairs, or designee, approved this 
document 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. Gina S. 
Farrisee, Deputy Chief of Staff, Department of Veterans Affairs, 
approved this document on March 17, 2017, for publication.

    Dated: March 17, 2017.
Jeffrey Martin,
Office Program Manager, Office of Regulation Policy & Management, 
Office of the Secretary, Department of Veterans Affairs.
[FR Doc. 2017-07492 Filed 4-12-17; 8:45 am]
BILLING CODE 8320-01-P