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VA RIN: 2900-AS16 Publication ID: Fall 2024 
Title: ●Loan Guaranty: Modifications to Loan Reporting and Partial or Total Loss of Guaranty or Insurance Regulations 
Abstract:

The Department of Veterans Affairs (VA) proposes to amend its regulations governing loan reporting requirements for lenders that participate in the VA-guaranteed home loan program and circumstances when VA would assert a defense for partial or total loss of guaranty or insurance for lenders and holders. IAW E.O. 14094, VA conducted dozens of modernization presentations, meetings and engagements with trade associations, lenders, servicers, and financial technology companies. Based on information received during these engagements, VA was able to better understand the potential impact of the proposed regulatory changes on key industry stakeholders who provide the earned home loan benefit to Veterans, including potential costs associated with technology changes.  These proposed amendments would support VA’s ongoing efforts to modernize and transform technology and processes within the guaranteed home loan program, capitalizing on industry standard datasets. In addition, the proposed regulatory changes would update and enhance the loan guaranty reporting requirements for lenders, providing veterans stronger protections against noncompliant loans through improved transparency and oversight of the program.

 
Agency: Department of Veterans Affairs(VA)  Priority: Other Significant 
RIN Status: First time published in the Unified Agenda Agenda Stage of Rulemaking: Proposed Rule Stage 
Major: No  Unfunded Mandates: No 
CFR Citation: 38 CFR 36.4303    38 CFR 36.4328   
Legal Authority: 38 U.S.C 3703(a)(1)    38 U.S.C. 3702(d)    38 U.S.C. 3729    31 U.S.C. 3732    38 U.S.C. 3703    38 U.S.C. 3704   
Legal Deadline:  None

Statement of Need:

The Department of Veteran Affairs (VA) has determined this rulemaking is necessary to support its ongoing efforts to provide Veterans stronger protections against lenders closing loans that are noncompliant with VA’s requirements through modernized and transformed technology and process. VA would accomplish this improved oversight by updating and connecting technological systems with lenders to more efficiently and effectively support Veterans, lenders, servicers, and other stakeholders who participate in the VA-guaranteed home loan program. To ensure VA’s efforts are successful, under its authorities 38 U.S.C. 3703(c)(1) and 38 U.S.C. 3702(c), VA proposes regulatory changes to 38 CFR 36.4303 to require lenders to electronically report loans to VA for a Loan Guaranty Certificate (LGC). In addition, under 38 U.S.C. 3721, VA proposes regulatory changes to 38 CFR 36.4328 to ensure lenders and holders have a clear understanding of how failure to comply with VA’s statutory and regulatory requirements affects the guaranty to be paid by VA.

Summary of the Legal Basis:

VA proposes to amend its regulations governing loan reporting requirements for lenders who participate in the VA-guaranteed home loan program and when VA would assert a defense for partial or total loss of guaranty or insurance for lenders and holders. These proposed amendments would support VA’s ongoing efforts to modernize and transform technology and processes and provide Veterans stronger protections against lenders closing loans that are noncompliant with VA’s requirements through increased VA oversight capabilities and authorities. In addition, the proposed regulatory changes would update and enhance the loan guaranty process through improved loan reporting requirements for lenders that capitalize on industry standard datasets and would address issues associated with recent significant growth in the guaranteed home loan program through improved transparency and oversight of the program.

Alternatives:

VA considered a second regulatory alternative in which VA would make automatic electronic submission of loan information optional. With this alternative, VA would expect only small lenders with home-grown LOS software to potentially choose not to report loan information electronically. VA estimates the volume of these potential lenders to be relatively small because most small lenders use LOS software from mortgage software developers (e.g., Ellie Mae). However, this alternative would not provide VA with the same program oversight capabilities as the proposed rule. Additionally, as mentioned above, most lenders are already delivering loan information electronically to other agencies. Given these considerations, VA finds the proposed rule to be more beneficial, with minimal additional burden, compared to this alternative.

Anticipated Costs and Benefits:

This rulemaking would support VA efforts in enabling lenders to complete loan reporting activities utilizing their own Loan Origination System (LOS), the software that automates and manages the loan process from application to funding, rather than entering VA’s own technology environment. The new reporting system, VA’s Guaranty Remittance Application Programming Interface (API), would create a one-step process for lenders, through their LOS, to remit the funding fee, report the loan, and request the LGC, thereby reducing the overall reporting and administrative burden on lenders. Veterans would have stronger protections against lenders closing nonconforming loans through increased VA oversight capabilities and authorities, as the Guaranty Remittance API would allow VA to review 100% of guaranteed loans for policy conformance with certain VA statutory and regulatory requirements that VA only currently evaluates on 3% of loans as part of its Full File Loan Review (FFLR) and audit processes. Specifically, VA would be able to evaluate loan closing data on 100% of guaranteed loans for VA policy conformance with certain statutory, regulatory, or other requirements. As a result, VA would be able to cite defenses to paying the guaranty based on fraud or material misrepresentation and establish partial defenses to the amount payable on the guaranty or insurance.

Risks:

This proposed rulemaking is important as the program has experienced significant growth. Since the program’s inception in 1944, Congress has continually expanded coverage, added features, and sought to maximize the program’s appeal and utility to Veterans. VA has backed more than 28 million home loans, including more than 1.2 million loans with a combined loan balance of $152 billion in 2023. VA-guaranteed home loans now comprise more than 10% of the residential mortgage market. In response to this growth, VA has an obligation to update its technologies and revise its regulations so that risks to Veterans and the Government are minimized. Use of the updated technology would also create efficiencies for lenders.

Timetable:
Action Date FR Cite
NPRM  12/00/2024 
Regulatory Flexibility Analysis Required: No  Government Levels Affected: None 
Small Entities Affected: No  Federalism: No 
Included in the Regulatory Plan: Yes 
RIN Information URL: www.regulations.gov  
RIN Data Printed in the FR: No 
Agency Contact:
Stephanie Li
Assistant Director for Regulations, Legislation, Engagement, and Training
Department of Veterans Affairs
Veterans Benefits Administration, 810 Vermont Avenue NW,
Washington, DC 20420
Phone:202 461-9700
Email: stephanie.li@va.gov

Michael Shores
Director
Department of Veterans Affairs
Office of Regulation Policy and Management (00REG), 810 Vermont Avenue NW.,
Washington, DC 20420
Phone:202 461-4921
Email: michael.shores@va.gov