82 FR 35902 - Loan Guaranty: Vendee Loan Fees

DEPARTMENT OF VETERANS AFFAIRS

Federal Register Volume 82, Issue 147 (August 2, 2017)

This document adopts as final a proposed rule of the Department of Veterans Affairs (VA) Loan Guaranty Service to amend its regulations to establish reasonable fees that VA may charge in connection with the origination and servicing of vendee loans made by VA. Fees mentioned in this rulemaking are consistent with those charged in the private mortgage industry, and such fees will help VA to ensure the sustainability of this vendee loan program. The loans that will be subject to the fees are not veterans' benefits. This rule will also ensure that all direct and vendee loans made by the Secretary are safe harbor qualified mortgages.

[Federal Register Volume 82, Number 147 (Wednesday, August 2, 2017)]
[Rules and Regulations]
[Pages 35902-35905]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-16106]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 36

RIN 2900-AP32


Loan Guaranty: Vendee Loan Fees

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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SUMMARY: This document adopts as final a proposed rule of the 
Department of

[[Page 35903]]

Veterans Affairs (VA) Loan Guaranty Service to amend its regulations to 
establish reasonable fees that VA may charge in connection with the 
origination and servicing of vendee loans made by VA. Fees mentioned in 
this rulemaking are consistent with those charged in the private 
mortgage industry, and such fees will help VA to ensure the 
sustainability of this vendee loan program. The loans that will be 
subject to the fees are not veterans' benefits. This rule will also 
ensure that all direct and vendee loans made by the Secretary are safe 
harbor qualified mortgages.

DATES: Effective Date: This rule is effective September 1, 2017.

FOR FURTHER INFORMATION CONTACT: Andrew Trevayne, Assistant Director 
for Loan and Property Management (261), Veterans Benefits 
Administration, Department of Veterans Affairs, 810 Vermont Ave. NW., 
Washington, DC 20420, (202) 632-8795 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION: On October 26, 2016, VA published a proposed 
rule in the Federal Register, at 81 FR 74382, to amend VA regulations 
to establish reasonable fees in connection with loans made by VA, 
commonly referred to as vendee loans. The fees associated with vendee 
loans are standard in the mortgage industry. The vendee loans that are 
subject to the fees are not veterans' benefits and are available to any 
purchasers, including investors, who qualify for the loan. 
Specifically, this rulemaking will permit VA to establish a fee to help 
cover costs associated with loan origination. The rule will also permit 
certain reasonable fees to be charged following loan origination, 
during loan servicing. Pursuant to this rulemaking, VA will begin 
charging fees for ad-hoc services performed at the borrower's request 
or for the borrower's benefit, as well as standard fees specified in 
loan instruments. Lastly, third-party fees, those not charged by VA, 
are included in this rule solely to clarify for borrowers the various 
costs that a borrower may incur when obtaining a vendee loan.
    The public comment period for the proposed rule closed on December 
27, 2016. VA received one comment. For the reasons explained below, VA 
adopts, with a change, the proposed rule that revises VA's authority to 
charge reasonable fees associated with vendee loans at 38 CFR 36.4500, 
36.4501, 36.4528, 36.4529, and 36.4530.
    VA received one comment on the proposed rule from an individual. 
The commenter was unclear regarding whether or not VA will use 
discretion in determining fees. The commenter questioned whether fees 
will be waived under the following circumstances: When a veteran is 
purchasing a home from another veteran, including circumstances where 
the purchaser is a disabled veteran in receipt of compensation; when a 
non-profit or non-veteran purchaser seeks a vendee loan to house 
homeless veterans; or when an individual in receipt of VA Family 
Caregiver Program benefits seeks to purchase a repossessed home to 
provide care for a veteran with a serious injury. The commenter also 
expressed concern that this was not a veterans' benefit program 
intended to keep a veteran in his or her home and that the Secretary's 
focus should essentially be on retention options. Lastly, the commenter 
requested veterans' benefits not be used to fund this program.
    In its proposed rule, VA discussed that the Secretary has the 
discretion to negotiate fees on a case-by-case basis (81 FR 74382, 
74383). The very nature of the Secretary's discretion might permit the 
waiver of fees in unique situations. Additionally, as stated in the 
preamble to the proposed rule, VA states that the Secretary may make 
vendee loans to certain entities pursuant to 38 U.S.C. 2041 for the 
purpose of assisting homeless veterans and their families in acquiring 
shelter (81 FR 74382). Specifically, 38 U.S.C. 2041(b)(2)(C) states 
that the Secretary may use discretion when determining whether or not 
to waive fees if appropriate in situations regarding homeless veterans.
    In regard to the commenter's concern regarding purchasers who are 
disabled veterans in receipt of compensation, VA notes that 38 U.S.C. 
3729(c) prohibits VA from charging a loan fee to ``a veteran who is 
receiving compensation (or who, but for the receipt of retirement pay 
or active service pay, would be entitled to receive compensation) or 
[to] a surviving spouse of any veteran (including a person who died in 
the active military, naval, or air service) who died from a service-
connected disability.'' In proposed Sec.  36.4528, VA stated that the 
Secretary may charge a loan origination fee ``[i]n addition to the loan 
fee required pursuant to 38 U.S.C. 3729.'' VA understands that this 
language may be interpreted as VA attempting to charge a loan fee to 
those veterans or surviving spouses who Congress exempted from loan 
fees in 38 U.S.C. 3729(c). In order to clarify that VA is not charging 
a fee prohibited by statute, VA is adding ``if any'' following ``[i]n 
addition to the loan fee required pursuant to 38 U.S.C. 3729'' to 
clarify that not all loans will carry the loan fee described in section 
3729.
    In regard to the commenter's concern that the vendee loan program 
is not a home retention option, VA notes that, prior to a holder 
foreclosing a VA-guaranteed loan, there are specific required actions 
the holder must take that emphasize loss mitigation and retention 
options for borrowers. All participating VA servicers adhere to these 
regulations prior to initiating foreclosure sales. VA also notes that 
the principal and interest resulting from the repayment of vendee loans 
are deposited into the Veterans Housing Benefit Program Fund (VHBPF) to 
help offset the housing operation costs of the Home Loan Guaranty 
Program. Lastly, in response to the commenter's statement asking VA not 
to use veterans' benefits to fund this program, VA notes that vendee 
loans are not classified as veterans' benefits and are available to any 
purchaser VA determines creditworthy and whose offer is awarded a sales 
contract. Vendee loans enable VA to sell more of its properties and to 
sell them at a faster rate, and as previously stated, the proceeds are 
deposited into the VHBPF. The fees are consistent with the private 
mortgage industry and will ensure the sustainability of the vendee loan 
program.
    Therefore, this rule finalizes the proposed rule with the change 
noted above.

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. 
Executive Order 12866 (Regulatory Planning and Review) defines a 
``significant regulatory action'' requiring 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,

[[Page 35904]]

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.''

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 the 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 final rule will have no such effect on 
State, local, and tribal governments, or on the private sector.

Paperwork Reduction Act

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

Regulatory Flexibility Act

    This final rule will affect individuals and small businesses who 
choose to obtain a vendee loan from VA to finance the purchase of a VA-
owned property rather than alternate financing. A party who wants to 
purchase a VA-owned property may choose whatever source of financing he 
wishes. Presumably the purchaser would select the least expensive 
financing option available, which may or may not be a VA vendee loan. 
VA does not believe that this final rule will impose any significant 
economic impact for the following reasons. Should the purchaser decide 
that the VA vendee program was not the most economically advantageous 
to the purchaser then the purchaser would obtain alternate financing. 
Parties would have to choose to be subject to the impact, if any, 
imposed by this rule.
    Accordingly, the Secretary certifies that the adoption of this 
final 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. Therefore, under 5 U.S.C. 605(b), 
this rulemaking is exempt from the final regulatory flexibility 
analysis requirements of section 604.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number and title for the 
program affected by this document is 64.114, Veterans Housing--
Guaranteed and Insured Loans.

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.

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 July 25, 2017, for publication.

    Dated: July 26, 2017.
Michael Shores,
Director, Regulation Policy & Management, Office of the Secretary, 
Department of Veterans Affairs.
    For the reasons set out in the preamble, VA amends 38 CFR part 36, 
subpart D, 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 and 3720.

Subpart D--Direct Loans

0
2. Amend Sec.  36.4500 by:
0
a. Revising paragraph (c)(2).
0
b. Removing the authority citation following paragraph (c)(2).
0
c. Adding paragraph (e).
0
d. Adding an authority citation at the end of the section.
    The revision and additions read as follows:


Sec.  36.4500  Applicability and qualified mortgage status.

* * * * *
    (c) * * *
    (2) Applicability of safe harbor qualified mortgage. Any VA direct 
loan made by the Secretary pursuant to chapter 20 or 37 of title 38, 
U.S.C., is a safe harbor qualified mortgage.
* * * * *
    (e) Sections 36.4528, 36.4529, and 36.4530, which concern vendee 
loans, shall be applicable to all vendee loans.

(Authority: 15 U.S.C. 1639C(b)(3)(B)(ii), 38 U.S.C. 2041, 3710, 
3711, 3720, 3733, and 3761)



0
3. Amend Sec.  36.4501 by:
0
a. Adding in alphabetical order a definition for ``Safe harbor 
qualified mortgage.''
0
b. Revising the definition ``Vendee loan.''
0
c. Removing the authority citation following the definition ``Vendee 
loan.''
    The addition and revision read as follows:


Sec.  36.4501   Definitions.

* * * * *
    Safe harbor qualified mortgage means a mortgage that meets the 
Ability-to-Repay requirements of sections 129B and 129C of the Truth-
in-Lending Act (TILA) regardless of whether the loan might be 
considered a high cost mortgage transaction as defined by section 103bb 
of TILA (15 U.S.C. 1602bb).
* * * * *
    Vendee loan means a loan made by the Secretary for the purpose of 
financing the purchase of a property acquired pursuant to chapter 37 of 
title 38, United States Code. The terms of a vendee loan (e.g., amount 
of down payment; amortization term; whether to escrow taxes, insurance 
premiums, or homeowners' association dues; fees, etc.) are negotiated 
between the Secretary and the borrower on a case-by-case basis, subject 
to the requirements of 38 U.S.C. 2041 or 3733. Terms related to 
allowable fees are also subject to Sec. Sec.  36.4528 through 36.4530.
* * * * *

0
4. Add Sec. Sec.  36.4528, 36.4529, and 36.4530 to read as follows:


Sec.  36.4528   Vendee loan origination fee.

    (a) In addition to the loan fee required pursuant to 38 U.S.C. 
3729, if any, the Secretary may, in connection with the origination of 
a vendee loan, charge a borrower a loan origination fee not to exceed 
one-and-a-half percent of the loan amount.
    (b) All or part of such fee may be paid in cash at loan closing or 
all or part may

[[Page 35905]]

be included in the loan. The Secretary will not increase the loan 
origination fee because the borrower chooses to include such fee in the 
loan amount financed.
    (c) In no event may the total fee agreed upon between the Secretary 
and the borrower result in an amount that will cause the loan to be 
designated as a high-cost mortgage as defined in 15 U.S.C. 1602(bb) and 
12 CFR part 1026.

(Authority: 38 U.S.C. 2041, 3720, 3733)

Sec.  36.4529  Vendee loan post-origination fees.

    (a) The Secretary may charge a borrower the following reasonable 
fees, per use, following origination, in connection with the servicing 
of any vendee loan:
    (1) Processing assumption fee for the transfer of legal liability 
of repaying the mortgage when the individual assuming the loan is 
approved. Such fee will not exceed $300, plus the actual cost of the 
credit report. If the assumption is denied, the fee will not exceed the 
actual cost of the credit report;
    (2) Processing subordination fee, not to exceed $350, to ensure 
that a modified vendee loan retains its first lien position;
    (3) Processing partial release fee, not to exceed $350, to exclude 
collateral from the mortgage contract once a certain amount of the 
mortgage loan has been paid;
    (4) Processing release of lien fee, not to exceed $15, for the 
release of an obligor from a mortgage loan in connection with a 
division of real property;
    (5) Processing payoff statement fee, not to exceed $30, for a 
payoff statement showing the itemized amount due to satisfy a mortgage 
loan as of a specific date;
    (6) Processing payment by phone fee, not to exceed $12, when a 
payment is made by phone and handled by a servicing representative; and
    (7) Processing payment by phone fee, not to exceed $10, when a 
payment is made by phone and handled through an interactive voice 
response system, without contacting a servicing representative.
    (b) The specific fees to be charged on each account may be 
negotiated between the Secretary and the borrower. The Secretary will 
review the maximum fees under paragraph (a) of this section bi-annually 
to determine that they remain reasonable.
    (c) The Secretary may charge a borrower reasonable fees established 
in the loan instrument, including but not limited to the following:
    (1) Property inspection fees;
    (2) Property preservation fees;
    (3) Appraisal fees;
    (4) Attorneys' fees;
    (5) Returned-check fees;
    (6) Late fees; and
    (7) Any other fee the Secretary determines reasonably necessary for 
the protection of the Secretary's investment.
    (d) Any fee included in the loan instrument and permitted under 
paragraph (c) of this section would be based on the amount customarily 
charged in the industry for the performance of the service in the 
particular area, the status of the loan, and the characteristics of the 
affected property.

(Authority: 38 U.S.C. 2041, 3720, 3733)

Sec.  36.4530   Vendee loan other fees.

    (a) In addition to the fees that may be charged pursuant to 
Sec. Sec.  36.4528 and 36.4529 and the statutory loan fee charged 
pursuant to 38 U.S.C. 3729, the borrower may be required to pay third-
party fees for services performed in connection with a vendee loan.
    (b) Examples of the third party fees that may be charged in 
connection with a vendee loan include, but are not limited to:
    (1) Termite inspections;
    (2) Hazard insurance premiums;
    (3) Force-placed insurance premiums;
    (4) Courier fees;
    (5) Tax certificates; and
    (6) Recorder's fees.

(Authority: 38 U.S.C. 2041, 3720, 3733)


[FR Doc. 2017-16106 Filed 8-1-17; 8:45 am]
 BILLING CODE 8320-01-P