[Federal Register Volume 87, Number 199 (Monday, October 17, 2022)]
[Proposed Rules]
[Pages 62752-62753]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22414]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 36

[2900-AR78]


Loan Guaranty: Loss-Mitigation Options for Guaranteed Loans

AGENCY: Department of Veterans Affairs.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Department of Veterans Affairs (VA) Loan Guaranty Service 
(LGY) is requesting public comment on expanding VA's incentivized loss-
mitigation options available to servicers that assist veterans whose 
VA-guaranteed loans are in default. Although VA identifies, below, 
specific topics and questions for discussion, it encourages commenters 
to discuss any other topic that will help VA as it explores whether to 
expand the incentivized loss-mitigation options outlined in VA 
regulation.

DATES: Comments must be received on or before January 17, 2023.

ADDRESSES: Comments must be submitted through www.regulations.gov. 
Except as provided below, comments received before the close of the 
comment period will be available at www.regulations.gov for public 
viewing, inspection, or copying, including any personally identifiable 
or confidential business information that is included in a comment. We 
post the comments received before the close of the comment period on 
the following website as soon as possible after they have been 
received: https://www.regulations.gov. VA will not post on 
Regulations.gov public comments that make threats to individuals or 
institutions or suggest that the commenter will take actions to harm 
the individual. VA encourages individuals not to submit duplicative 
comments. We will post acceptable comments from multiple unique 
commenters even if the content is identical or nearly identical to 
other comments. Any public comment received after the comment period's 
closing date is considered late and will not be considered in any 
future proposed rulemaking or otherwise addressed by VA.

FOR FURTHER INFORMATION CONTACT: Andrew Trevayne, Assistant Director 
for Loan and Property Management, and Stephanie Li, Chief of 
Regulations, Loan Guaranty Service (26), Veterans Benefits 
Administration, Department of Veterans Affairs, 810 Vermont Avenue NW, 
Washington, DC 20420, 202-632-8862. (This is not a toll-free telephone 
number.)

SUPPLEMENTARY INFORMATION: VA provides financial incentives to loan 
servicers for helping veterans avoid the foreclosure of their VA-backed 
loans. 38 CFR 36.4319. As VA continues to consider how best to serve 
veterans, VA is requesting public comment on whether expanding VA's 
incentivized loss-mitigation tools for servicers might help veterans 
retain their homes. VA is also requesting specific comments on the 
recent use of VA's loan refunding authority and loan deferment as 
temporary home retention options to assist certain veteran borrowers.
    In response to the COVID-19 pandemic, VA developed new, temporary 
home retention options to assist veterans with VA-guaranteed loans who 
were financially affected, either directly or indirectly, by the COVID-
19 National Emergency. Use of these new options, including loan 
deferment,\1\ the Veterans Assistance Partial Claim Payment program 
(VAPCP),\2\ and the COVID-19 Refund Modification,\3\ is limited to 
certain guaranteed loans (i.e., those in which a veteran has 
outstanding payments associated with a COVID-19 forbearance). A common 
thread across these three temporary home retention options is the 
veteran's ability to defer missed mortgage payments until the first of 
the following occurs: (i) the maturity date of the VA-guaranteed loan, 
(ii) the date of transfer of the property, or (iii) the date the 
guaranteed loan is refinanced or otherwise paid in full. The major 
difference is that VA does not act as a mortgage investor of last 
resort for the loan deferment option but does for the VAPCP and the 
COVID-19 Refund Modification. While VA has seen significant use of both 
the VAPCP and the COVID-19 Refund Modification, fewer servicers have 
opted for loan deferment.
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    \1\ VA Circular 26-21-19, Loan Deferment as a COVID-19 Home 
Retention Option (Sept. 29, 2021, expiring July 1, 2023 unless 
otherwise renewed), https://www.benefits.va.gov/HOMELOANS/resources_circulars.asp.
    \2\ 38 CFR 36.4800 et seq. (sunset date October 28, 2022).
    \3\ VA Circular 26-21-13, COVID-19 Home Retention Waterfall and 
COVID-19 Refund Modification (July 23, 2021, expiring July 1, 2023 
unless otherwise renewed), https://www.benefits.va.gov/HOMELOANS/resources_circulars.asp.
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    As VA explores changes to its incentivized loss-mitigation options, 
VA is interested in understanding whether loan deferment would be a 
viable incentivized loss-mitigation option. VA is also interested in 
how changes to the VAPCP or COVID-19 Refund Modification programs might 
affect veterans, servicers, and taxpayers. In sum, VA is requesting 
public comment on whether expanding VA's incentivized loss-mitigation 
tools, outlined at 38 CFR 36.4319, might further assist veterans who 
have VA-backed loans to retain their homes, and is including the 
following specific questions:

Questions Related to Flexibility/Adaptability of VA's Incentivized 
Loss-Mitigation Options

    1. Are VA's incentivized loss-mitigation options, outlined at 38 
CFR 36.4319, flexible and adaptable, particularly for those 
transitional times when the market is in flux (e.g., rising interest 
rate environments, recession, etc.)? Please, where possible, provide 
data and evidence in support of your response. What could VA do to 
increase the flexibility and adaptability of section 36.4319's 
incentivized loss-mitigation options?

Questions Related To Evaluating VA Loss-Mitigation Options

    2. Should VA have a prescribed order of loss-mitigation options 
that servicers must follow, or would stakeholders like to see VA's 
regulation continue to provide VA's preferred order of consideration 
(i.e., a hierarchy for review)? If VA were to incentivize options such 
as loan deferment and/or a partial loan refunding option (e.g., VAPCP 
or COVID-19 Refund), where should these options rank among other 
options, and should they be either prescribed or preferred?
    3. During the COVID-19 pandemic, veterans were given more 
opportunity to

[[Page 62753]]

select the home retention option that they thought would be best for 
them. Under what circumstances, if any, should veterans retain 
opportunities to select from VA loss-mitigation options? How would 
giving veterans the ability to select from VA loss-mitigation options 
impact servicers? If VA were to switch to a prescribed order of loss-
mitigation options that servicers must follow, what limitations, if 
any, should be placed on veterans' ability to select from them?
    4. During the COVID-19 pandemic, certain loss-mitigation options 
were offered without the requirement of collecting financial 
information. Moving beyond the pandemic, under what circumstances 
should VA require servicers to collect financial information before a 
loss-mitigation option is selected? Under what circumstances might a 
trial payment plan serve as a substitute for the collection of 
financial information?

Questions Related to Loan Deferment, VAPCP, and COVID-19 Refund 
Modifications

    5. How should VA develop a loan deferment option that would assist 
veterans without placing undue burden on servicers? For example, if VA 
were to incentivize a hybrid loan deferment/repayment plan in which 
servicers would defer the missed principal and interest and establish a 
loan repayment plan for missed taxes and insurance, would that address 
potential concerns related to short-term lost income from deferring 
missed mortgage payments? For veterans, what consumer protection 
concerns should VA be aware of in considering a loan deferment loss-
mitigation option?
    6. In what way(s), if any, should VA use the VAPCP and/or COVID-19 
Refund Modification after the COVID-19 national emergency? VA is 
particularly interested in data and evidence showing whether the VAPCP 
and/or COVID-19 Refund Modification programs have assisted veterans, 
servicers, and taxpayers.
    7. What challenges would exist for veterans, servicers, holders, 
and VA, if VA were to develop a loss-mitigation option similar to the 
VAPCP, but with a requirement for repayment at a low interest rate 
(rather than the zero percent interest rate under the VAPCP)? What 
hurdles might servicers face in executing such loan documents on behalf 
of VA? What if VA required servicers to service such loans on VA's 
behalf?
    8. Would a low-interest second loan option similar to the VAPCP be 
more helpful to veterans and/or servicers than a loan deferment loss-
mitigation option, and what data and evidence exist to support your 
response? What sort of financial evaluation would be appropriate to 
determine whether a low-interest second loan would be an appropriate 
loss-mitigation option for a veteran, as opposed to VA's existing loss-
mitigation options at 38 CFR 36.4319?
    9. What, if any, limitations should VA place on a deferment-style 
loss-mitigation option, including minimum/maximum deferment amounts, 
lifetime uses, etc.?

Questions Related to Incentive Payments

    10. What kind of incentive payment might be appropriate to make 
loan deferment a more viable option for servicers and VA? What kind of 
incentive payment might be appropriate for a loss-mitigation option 
similar to the VAPCP or COVID-19 Refund Modification?
    11. How could VA structure an incentive payment that does not 
encourage servicers to use one of these loss-mitigation options if more 
financially feasible options are available to assist the veteran?

Questions Related to Investor Requirements

    12. What, if any, Government National Mortgage Association (Ginnie 
Mae) specific investor requirements should VA consider when evaluating 
changes to VA loss-mitigation options, including the introduction of a 
deferment-style loss-mitigation option?

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess the 
costs and benefits of available regulatory alternatives and, when 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, and other advantages; distributive impacts; 
and equity). Executive Order 13563 (Improving Regulation and Regulatory 
Review) emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
The Office of Information and Regulatory Affairs has determined that 
this rule is a significant regulatory action under Executive Order 
12866. The Regulatory Impact Analysis associated with this rulemaking 
can be found as a supporting document at www.regulations.gov.

Signing Authority

    Denis McDonough, Secretary of Veterans Affairs, approved this 
document on October 11, 2022, 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.

Jeffrey M. Martin,
Assistant Director, Office of Regulation Policy & Management, Office of 
General Counsel, Department of Veterans Affairs.
[FR Doc. 2022-22414 Filed 10-14-22; 8:45 am]
BILLING CODE 8320-01-P