81 FR 71658 - Veterans' Mortgage Life Insurance-Coverage Amendment

DEPARTMENT OF VETERANS AFFAIRS

Federal Register Volume 81, Issue 201 (October 18, 2016)

The Department of Veterans Affairs (VA) proposes to amend its regulations governing the Veterans' Mortgage Life Insurance (VMLI) program in order to provide VMLI-eligible individuals the option to lower their premiums by purchasing less than the minimum coverage amount required under current VA regulations. The proposed rule would also amend current VA regulations to reflect that the statutory maximum amount of coverage available under the VMLI program was previously increased to $200,000, to define the term ``eligible individual,'' and to clarify that eligibility for VMLI coverage has been extended to include servicemembers as well as veterans. These additional amendments are necessary to conform the existing regulations to current statutory provisions.

[Federal Register Volume 81, Number 201 (Tuesday, October 18, 2016)]
[Proposed Rules]
[Pages 71658-71661]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-25025]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 8a

RIN 2900-AP49


Veterans' Mortgage Life Insurance--Coverage Amendment

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

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SUMMARY: The Department of Veterans Affairs (VA) proposes to amend its 
regulations governing the Veterans' Mortgage Life Insurance (VMLI) 
program in order to provide VMLI-eligible individuals the option to 
lower their premiums by purchasing less than the minimum coverage 
amount required under current VA regulations. The proposed rule would 
also amend current VA regulations to reflect that the statutory maximum 
amount of coverage available under the VMLI program was previously 
increased to $200,000, to define the term ``eligible individual,'' and 
to clarify that eligibility for VMLI coverage has been extended to 
include servicemembers as well as veterans. These additional amendments 
are necessary to conform the existing regulations to current statutory 
provisions.

DATES: Comments must be received on or before December 19, 2016.

ADDRESSES: Written comments may be submitted through http://www.Regulations.gov; by mail or hand delivery to Director, Regulation 
Policy and Management (00REG), Department of Veterans Affairs, 810 
Vermont Ave. 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-AP49--Veterans' Mortgage Life Insurance--Coverage 
Amendment.'' 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 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 http://www.Regulations.gov.

FOR FURTHER INFORMATION CONTACT: Jeanne King, Attorney-Advisor, 
Insurance Service, Department of Veterans Affairs (310/290B), 5000 
Wissahickon Avenue, P.O. Box 8079, Philadelphia, PA 19101, (215) 842-
2000, ext. 4839. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: The Veterans' Mortgage Life Insurance (VMLI) 
program was established in 1971 to provide mortgage protection 
insurance to service-disabled veterans who receive Specially Adapted 
Housing Grants from VA. Under 38 U.S.C. 2106(g), the amount of VMLI 
coverage for a veteran is the amount necessary to pay the veteran's 
mortgage indebtedness in full, except as limited by section 2106(b) or 
``regulations prescribed by the Secretary under this section.'' Section 
2106(b) currently limits the amount of VMLI available to $200,000. 
Therefore, currently, a veteran who has a mortgage indebtedness that is 
greater than $200,000 and seeks VMLI must be covered in the amount of 
$200,000 and pay the corresponding premiums for such coverage. VA has 
concluded that requiring this level of coverage in such circumstance 
may cause some individuals to forego VMLI protection because they 
cannot afford the premiums. To address this specific problem and to 
allow veterans to pay lower premiums regardless of their mortgage 
indebtedness, VA proposes to exercise its explicit statutory authority 
set forth in section 2106(g) and amend its regulations to permit 
program participants to lower their premiums by carrying VMLI in an 
amount less than both the $200,000 statutory maximum and the amount 
necessary to pay the covered mortgage indebtedness in full.
    As noted, paying the premiums on the level of coverage required 
under current regulations can present a financial hardship to 
individuals insured under the program. We realize that allowing 
eligible individuals to carry an amount of VMLI lower than the amount 
outstanding on the mortgage loan may result in circumstances where an 
insured dies with a balance on the loan that exceeds the amount of VMLI 
in effect, which currently occurs when an individual's mortgage balance 
exceeds the statutory maximum level of coverage. In such a situation, 
the individual's survivors may have to assume payment on the mortgage. 
However, VA believes that it is preferable for individuals to 
participate in the VMLI program to the extent they can financially, 
rather than foregoing coverage entirely because they cannot afford it. 
If an eligible individual opts out of the program, and then dies with 
an outstanding balance on the loan, his or her survivors could 
ultimately be forced to assume an even greater indebtedness than if the 
individual had carried partial VMLI coverage.
    Individuals often seek to lower their VMLI premiums by requesting 
an amount of coverage less than both the statutory limit and the amount 
necessary to pay the mortgage indebtedness in full. For example, from 
January 1, 2005, to December 31, 2010, when the statutory coverage 
limit was $90,000, VA received 231 requests to terminate existing VMLI 
coverage. VA reviewed approximately 100 requests to determine if 
financial hardship was a factor in individuals' decisions to terminate 
coverage. Thirty percent of veterans who terminated their coverage 
during that period stated that the premium charged for their coverage 
was the main factor motivating their requests.
    Effective October 1, 2011, the Veterans' Benefits Act of 2010 
raised the statutory maximum coverage for VMLI from $90,000 to 
$150,000, and to $200,000 after January 1, 2012. See Public Law 111-
275, Title IV, Sec.  407, 124 Stat. 2864, 2880. Depending on a 
veteran's age and mortgage balance, this statutory change could cause 
an individual's monthly premiums to increase by almost $400.00--from 
less than $460.00 to more than $850.00 per month. As such, VA has 
concluded that, because premiums for the new statutory maximum amount 
of $200,000 are considerably higher than premiums for the former 
maximum amount, an increasing number of individuals may terminate their 
VMLI coverage or decline coverage entirely unless VA offers options to 
buy a lesser amount of VMLI.
    To promptly address this problem, VA adopted an interim policy 
allowing

[[Page 71659]]

insureds to select less than both the statutory maximum and their 
outstanding mortgage balance. VA implemented this interim policy to 
avoid unintended harm to program participants. VA now seeks to amend 
its regulations to make this policy permanent.
    In establishing the VMLI program, Congress intended to provide 
seriously disabled veterans with a reasonable level of mortgage 
protection insurance. If individuals decline coverage because they 
cannot afford the premiums, the purpose of the program is undermined. 
Therefore, VA proposes to amend its Part 8a regulations to reflect the 
new statutory maximum and provide program participants the option to 
select a more affordable level of coverage that is lower than both the 
statutory maximum and their outstanding mortgage balance. VA believes 
this change would benefit all VMLI-eligible individuals because it 
would provide needed flexibility in the program and empower veterans to 
decide what level of coverage they can afford. As explained above, VA 
has concluded that it is preferable for individuals to make their own 
financial decisions as to what level of VMLI they can afford, rather 
than foregoing coverage because they cannot afford a higher amount 
mandated by statute. Absent VA's proposed amendment, current 
regulations would likely prompt some veterans to decline VMLI coverage 
because they cannot afford the required premiums, ultimately forcing 
more survivors into greater mortgage debt than if partial VMLI coverage 
were available.
    We interpret 38 U.S.C. 2106 as authorizing VA to prescribe 
regulations permitting VMLI coverage in amounts less than the statutory 
maximum and the outstanding mortgage indebtedness. Section 2106(g) 
requires that VMLI participants carry the amount of insurance necessary 
to pay their mortgage indebtedness in full, but explicitly authorizes 
the Secretary to prescribe an exception to this requirement. Moreover, 
section 2106(b) imposes a cap of $200,000 in coverage but does not 
mandate that VMLI participants carry the maximum amount of coverage 
available. Therefore, VA's proposed amendments to its regulations are 
implicitly authorized by 38 U.S.C. 2106.
    The proposed amendment would exercise this authority by amending 38 
CFR 8a.1(c) and 38 CFR 8a.2(a) to provide insureds with the option to 
select a more affordable level of coverage. We propose to revise the 
term ``initial amount of insurance'' in Sec.  8a.1(c) to mean ``the 
amount of insurance selected by the insured, which may be less than the 
statutory maximum of $200,000 and less than the amount necessary to pay 
the mortgage indebtedness in full.'' This change would make clear that 
VMLI-eligible individuals are authorized to carry such VMLI coverage as 
they select, up to the lesser of the $200,000 statutory maximum or the 
amount necessary to pay their mortgage indebtedness in full. We would 
also amend Sec.  8a.2(a) and (b)(1) and Sec.  8a.4(b) and (c) to 
reflect that the current statutory maximum of VMLI coverage, as 
previously increased, is $200,000.
    The proposed amendments to 38 CFR 8a.4(b)-(c) removing ``available 
to'' and adding in its place ``selected by'' are designed to ensure 
conformity with this change by making clear that the amount of 
insurance on the life of the eligible individual may be a reduced 
amount selected by the eligible individual, up to the lesser of the 
$200,000 statutory maximum or the amount necessary to pay their 
mortgage indebtedness in full. For the reasons discussed above, these 
amendments would benefit veterans and their beneficiaries by adding 
needed flexibility to the program and empowering individuals to make 
financial decisions based on the level of VMLI coverage they can 
afford. While such decisions require veterans and their families to 
consider the financial risk of choosing a lower amount of VMLI that may 
not cover their mortgage indebtedness in full, we feel that such 
personal financial decisions are best left to veterans and their 
families. Accordingly, VA's proposed amendments seek to provide 
veterans with the flexibility to choose the level of VMLI coverage that 
meets their financial needs. In doing so, we seek to minimize the 
number of eligible individuals who opt out of the program for financial 
reasons, and reduce instances where a veteran's survivors must assume 
greater indebtedness than if the veteran had carried at least partial 
VMLI coverage. In short, VA has concluded that veterans should enjoy 
the option to obtain VMLI coverage tailored to their specific needs.
    We also propose a number of technical changes to 38 CFR part 8a to 
ensure consistency with current statutory authority. In the Housing and 
Economic Recovery Act of 2008, Congress extended eligibility for VMLI 
coverage to servicemembers in addition to veterans. See Public Law 110-
289, section 2602, 122 Stat. 2654, 2858-2860. We propose to add a new 
definition of ``eligible individual'' at Sec.  8a.1(f) to reflect this 
extension of eligibility for VMLI coverage and replace the term veteran 
with individual wherever appropriate in Sec. Sec.  8a.1 through 8a.4. 
These substitutions would not cause any substantive change other than 
that brought about by Public Law 110-289.
    Additionally, we propose one technical change to 38 CFR 8a.2(b)(8), 
which currently prescribes, ``[a]ll claims, arising out of the deaths 
of insured veterans occurring prior to (date of final publication), 
shall be subject to the provisions of paragraph (a) of this section 
then in effect which limited the amount of VMLI coverage to a lifetime 
maximum per eligible veteran.'' The parenthetical ``(date of final 
publication)'' appears to have been erroneously maintained in the Code 
of Federal Regulations, rather than being replaced by the appropriate 
date. We are correcting this error by striking ``(date of final 
publication)'' and inserting ``December 24, 1987,'' which is the 
effective date of the final rule that codified that regulation. See 52 
FR 26356-01 (July 14, 1987) (proposed); 52 FR 48681-02 (Dec. 24, 1987) 
(final). No substantive change is intended.
    We would also revise the authority citations at the end of Sec.  
8a.2 and Sec.  8a.4 and add authority citations at the end of Sec.  
8a.1 and Sec.  8a.3 to cite to 38 U.S.C. 501, 2101, 2101A, and 2106.

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in an expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year. This proposed rule would have no such 
effect on State, local, and tribal governments or on the private 
sector.

Paperwork Reduction Act

    This proposed rule contains no provisions constituting a collection 
of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3521).

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
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

[[Page 71660]]

Regulation and Regulatory Review) emphasizes the importance of 
quantifying both costs and benefits, reducing costs, harmonizing rules, 
and promoting flexibility. Executive Order 12886 (Regulatory Planning 
and Review) defines a ``significant regulatory action,'' which requires 
review by the Office of Management and Budget (OMB), unless OMB waives 
such review, as ``any regulatory action that is likely to result in a 
rule that may: (1) Have an annual effect on the economy of $100 million 
or more or adversely affect in a material way the economy, a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities; (2) Create a serious inconsistency or otherwise interfere 
with an action taken or planned by another agency; (3) Materially alter 
the budgetary impact of entitlements, grants, user fees, or loan 
programs or the rights and obligations of recipients thereof; or (4) 
Raise novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in this Executive 
Order.''
    The economic, interagency, budgetary, legal, and policy 
implications of this regulatory action have been examined, and it has 
been determined not to be a significant regulatory action under 
Executive Order 12866. VA's impact analysis can be found as a 
supporting document at http://www.regulations.gov, usually within 48 
hours after the rulemaking document is published. Additionally, a copy 
of the rulemaking and its impact analysis are available on VA's Web 
site at http://www.va.gov/orpm/, by following the link for ``VA 
Regulations Published From FY 2004 Through Fiscal Year to Date.''

Regulatory Flexibility Act

    The Secretary of Veterans Affairs hereby certifies that this 
proposed rule would 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. This proposed rule would 
directly affect only individuals and would not directly affect any 
small entities. Therefore, pursuant to 5 U.S.C. 605(b), this rulemaking 
is exempt from the initial and final regulatory flexibility analysis 
requirements of sections 603 and 604.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number and title for the 
program affected by this document is 64.103, Life Insurance for 
Veterans.

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 October 7, 2016, for publication.

    Dated: October 7, 2016.
Jeffrey Martin,
Office Program Manager, Office of Regulation Policy & Management, 
Office of the Secretary, Department of Veterans Affairs.

List of Subjects in 38 CFR Part 8a

    Life insurance, Mortgage insurance, Veterans.

    For the reasons stated in the preamble, VA proposes to amend 38 CFR 
part 8a as set forth below:

PART 8a--VETERANS MORTGAGE LIFE INSURANCE

0
1. The authority citation for part 8a continues to read as follows:

    Authority:  38 U.S.C. 501, and 2101 through 2106, unless 
otherwise noted.

0
2. Amend Sec.  8a.1 as follows:
0
a. In paragraph (a), remove ``veteran'' each place it appears and add 
in its place ``individual'';
0
b. In paragraph (b), remove ``veterans'' the second time it appears and 
add in its place ``individuals'';
0
c. Revise paragraph (c);
0
d. In paragraph (d), remove ``veteran'' and add in its place 
``individual'';
0
e. In paragraph (e) introductory text, remove ``veteran'' and add in 
its place ``individual'';
0
f. Add paragraph (f); and
0
g. Add an authority citation to the end of the section.
    The revision and additions read as follows:


Sec.  8a.1   Definitions.

* * * * *
    (c) The term initial amount of insurance means the amount of 
insurance selected by the insured, which may be less than the statutory 
maximum of $200,000 and less than the amount necessary to pay the 
mortgage indebtedness in full.
* * * * *
    (f) The term eligible individual means a person who has been 
determined by the Secretary to be eligible for benefits pursuant to 38 
U.S.C. chapter 21.

(Authority: 38 U.S.C. 501, 2101, 2101A, 2106)

0
3. Amend Sec.  8a.2 as follows:
0
a. In paragraph (a), remove ``veteran'' each place it appears and add 
in its place ``individual'', remove ``$90,000'' and add in its place 
``$200,000'', and add ``an initial amount of insurance'' between 
``authorized'' and ``up'';
0
b. In paragraph (b)(1), remove ``$90,000'' and add in its place 
``$200,000'';
0
c. In paragraph (b)(2), remove ``veteran'' and add in its place 
``individual'';
0
d. In paragraph (b)(3), remove ``veteran'' each place it appears and 
add in its place ``individual'';
0
e. In paragraph (b)(4), remove ``veteran'' each place it appears and 
add in its place ``individual'';
0
f. In paragraph (b)(5), remove ``veteran'' and add in its place 
``individual'';
0
g. In paragraph (b)(6), remove ``veteran'' each place it appears and 
add in its place ``individual'';
0
h. In paragraph (b)(7), remove ``veterans'' each place it appears and 
add in its place ``individuals'';
0
i. In paragraph (b)(8), remove ``veteran'' and add in its place 
``individual'', remove ``veterans'' and add in its place 
``individuals'', and remove ``(date of final publication)'' and add in 
its place ``December 24, 1987'';
0
j. In paragraph (c), remove ``veteran'' and add in its place 
``individual''; and
0
k. Revise the authority citation at the end of section.
    The revision reads as follows:


Sec.  8a.2   Maximum amount of insurance.

* * * * *

(Authority: 38 U.S.C. 501, 2101, 2101A, 2106)

0
4. Amend Sec.  8a.3 as follows:
0
a. In paragraph (a), remove ``veteran'' each place it appears and add 
in its place ``individual'';
0
b. In paragraph (b), remove ``veteran'' each place it appears and add 
in its place ``individual'';
0
c. In paragraph (c), remove ``a veteran'' and add in its place ``an 
individual'', and remove ``the veteran'' each place it appears and add 
in its place ``the individual'';
0
d. In paragraph (d), remove ``veteran'' each place it appears and add 
in its place ``individual'';
0
e. In paragraph (e), remove ``veteran'' each place it appears and add 
in its place ``individual''; and
0
f. Add an authority citation to the end of the section.
    The addition reads as follows:


Sec.  8a.3   Effective date.

* * * * *


[[Page 71661]]


(Authority: 38 U.S.C. 501, 2101, 2101A, 2106)

0
5. Amend Sec.  8a.4 as follows:
0
a. In paragraph (b), remove ``$90,000'' each place it appears and add 
in its place ``$200,000'', remove ``available to'' each place it 
appears and add in its place ``selected by'', and remove ``veteran'' 
each place it appears and add in its place ``individual'';
0
b. In paragraph (c), remove ''$90,000'' and add in its place 
``$200,000'', remove ``available to'' and add in its place ``selected 
by'', remove ``eligible veteran'' each place it appears and add in its 
place ``eligible individual'', and remove ``a veteran'' and add in its 
place ``an individual''; and
0
c. Revise the authority citation at the end of section.
    The revision reads as follows:


Sec.  8a.4  Coverage.

* * * * *

(Authority: 38 U.S.C. 501, 2101, 2101A, 2106)

[FR Doc. 2016-25025 Filed 10-17-16; 8:45 am]
 BILLING CODE 8320-01-P