83 FR 61573 - Loan Guaranty: Revisions to VA-Guaranteed or Insured Cash-Out Home Loans

DEPARTMENT OF VETERANS AFFAIRS

Federal Register Volume 83, Issue 231 (November 30, 2018)

Page Range		61573-61574
FR Document		2018-26021

The Department of Veterans Affairs (VA) is issuing this document in compliance with the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act). The Act requires VA to amend its regulation on VA-guaranteed or insured cash-out refinance loans and to publish the amended regulation within a shortened time frame. If VA determines that urgent or compelling circumstances make compliance with the advance public notice and comment requirements of the Administrative Procedure Act impracticable or contrary to public interest and publishes notice of that determination in the Federal Register, the Act permits VA to amend the regulation through an interim final rule or final rule. VA has determined that urgent and compelling circumstances do exist and is, therefore, issuing this Federal Register document announcing VA's intent to promulgate an interim final rule implementing the Act.

Federal Register, Volume 83 Issue 231 (Friday, November 30, 2018)

[Federal Register Volume 83, Number 231 (Friday, November 30, 2018)]
[Proposed Rules]
[Pages 61573-61574]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-26021]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 36


Loan Guaranty: Revisions to VA-Guaranteed or Insured Cash-Out 
Home Loans

AGENCY: Department of Veterans Affairs.

ACTION: Advanced notice of rulemaking.

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

SUMMARY: The Department of Veterans Affairs (VA) is issuing this 
document in compliance with the Economic Growth, Regulatory Relief, and 
Consumer Protection Act (the Act). The Act requires VA to amend its 
regulation on VA-guaranteed or insured cash-out refinance loans and to 
publish the amended regulation within a shortened time frame. If VA 
determines that urgent or compelling circumstances make compliance with 
the advance public notice and comment requirements of the 
Administrative Procedure Act impracticable or contrary to public 
interest and publishes notice of that determination in the Federal 
Register, the Act permits VA to amend the regulation through an interim 
final rule or final rule. VA has determined that urgent and compelling 
circumstances do exist and is, therefore, issuing this Federal Register 
document announcing VA's intent to promulgate an interim final rule 
implementing the Act.

DATES: November 30, 2018.

ADDRESSES: Loan Policy & Valuation, Loan Guaranty Service (26), 
Veterans Benefits Administration, Department of Veterans Affairs, 810 
Vermont Avenue NW, Washington, DC 20420.

FOR FURTHER INFORMATION CONTACT: Greg Nelms, Assistant Director for 
Loan Policy & Valuation, 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 number.)

SUPPLEMENTARY INFORMATION: On May 24, 2018, the President signed into 
law the Economic Growth, Regulatory Relief, and Consumer Protection Act 
(the Act), Public Law 115-174, 132 Stat. 1296. Section 309 of the Act, 
codified at 38 U.S.C. 3709, provides new statutory criteria for 
determining when, in general, VA may guarantee a refinance loan. The 
Act also requires, among other things, VA to promulgate regulations, 
within 180 days after the date of the enactment of the Act, for cash-
out refinance loans, specifically those where the principal of the new 
loan to be VA-guaranteed or insured is larger than the payoff amount of 
the loan being refinanced. Public Law 115-174, 132 Stat. 1296.
    Section 309(a)(2) of the Act permits VA to waive the requirements 
of the Administrative Procedure Act (APA), 5 U.S.C. 551 through 559, if 
the Secretary determines that urgent or compelling circumstances make 
compliance with such requirements impracticable or contrary to public 
interest. Public Law 115-174, 132 Stat. 1348-1349.
    VA believes there are several urgent and compelling circumstances 
that make advance notice and comment on this rule contrary to the 
public interest. First, VA is concerned about lenders who seem to 
continue to exploit legislative and regulatory gaps related to 
seasoning, recoupment, and net tangible benefit standards, despite 
anti-predatory lending actions that VA and Congress have already taken. 
VA's regulatory impact analysis for this rule indicates that perhaps 
more than 50 percent of cash-out refinances remain vulnerable to 
predatory terms and conditions until this rule goes into effect. VA 
believes that VA must immediately seal these gaps to fulfill its 
obligation to veterans, prudent lenders, and those who invest in 
securities that include VA-guaranteed loans.
    VA is also gravely concerned about constraints in the availability 
of program liquidity if VA does not act quickly to address early pre-
payment speeds for VA-guaranteed cash-out refinance loans. In large 
part, cashflows derived from investors in mortgage-backed securities 
(MBS) furnished by the Government National Mortgage Association (Ginnie 
Mae) provide liquidity for lenders that originate VA-guaranteed 
refinance loans. When pricing MBS, investors rely on pre-payment models 
to estimate the level of pre-payments and any resultant potential 
losses of revenue expected to occur in a set period, given possible 
changes in interest rates. These pre-payment models tend to drive, at 
least in significant part, the valuation of Ginnie Mae MBS. Ginnie Mae, 
buyers of VA-guaranteed loans, and other industry stakeholders have 
expressed serious concerns that early pre-payments of VA-guaranteed 
loans are devaluing these investments. See ``Slowing Down VA Refi Churn 
Proving More Difficult Than Expected'', National Mortgage News 
(November 12, 2018), https://www.nationalmortgagenews.com/news/slowing-down-va-refi-churn-proving-more-difficult-than-expected. If such 
stakeholders view MBS investments that include VA-guaranteed refinance 
loans as less desirable, even prudent lenders could be deprived of the 
cashflows, i.e. liquidity, necessary to make new VA-guaranteed loans to 
veterans.
    In a hearing before the House Veterans' Affairs Committee's 
Subcommittee on Economic Opportunity, the Government National Mortgage 
Association (Ginnie Mae) issued warnings to Congress regarding the 
ripple effects that risky refinancing practices had on the valuing of 
VA-guaranteed loans, as well as Ginnie Mae pools at-large. See Hearing 
on Home Loan Churning Practices and How Veteran Homebuyers are Being 
Affected Before the Subcomm. on Econ. Opportunity of the House Comm. on 
Veterans' Affairs, 115 Cong. (2018). Thus, VA believes that, unless VA 
promulgates rules quickly, a loss of investor optimism in the VA 
product could further restrict veterans from being able to utilize 
their earned VA benefits.
    Exacerbating the issue is the lending industry's varied 
interpretation of the Act, which has led to lender uncertainty in how 
to implement a responsible cash-out refinance program. VA believes this 
uncertainty has caused prudent lenders to employ a high degree of 
caution, (e.g. refraining from providing veterans with crucial 
refinance loans that are not predatory or risky). Absent swift 
implementation of clear regulatory standards, cautious lenders are less 
likely to make cash-out refinance loans, which means that veterans do 
not enjoy the widest range of competitive, responsible credit options 
that can, when used properly, result in placing the veteran in a better 
financial position than the veteran's current circumstances afford. 
Unfortunately, such caution has the potential to compound the risk of 
predatory lending, as irresponsible

[[Page 61574]]

lenders have more opportunity to prey upon veterans by stepping into 
areas where prudent lenders may have stopped competing.
    At the same time, VA is concerned that certain lenders are 
exploiting cash-out refinancing as a loophole to the responsible 
refinancing Congress envisioned when enacting section 309 of the Act. 
VA recognizes there are certain advantages to a veteran who wants to 
obtain a cash-out refinance, and VA has no intention of unduly 
curtailing veterans' access to the equity they have earned in their 
homes. Nevertheless, some lenders are pressuring veterans to increase 
artificially their home loan amounts when refinancing, without regard 
to the long-term costs to the veteran and without adequately advising 
the veteran of the veteran's loss of home equity. In doing so, veterans 
are placed at a higher financial risk, and the lender avoids compliance 
with the more stringent requirements Congress mandated for less risky 
refinance loans. Essentially, the lender revives the period of subprime 
lending under a new name.
    VA does not plan to dispense with the notice and comment 
requirements altogether. Section 309(a)(2)(A)(ii) and (iii) of the Act 
requires VA, 10 days before publication of the final rule, to submit a 
notice of the waiver to the House and Senate Committees on Veterans' 
Affairs and publish the notice in the Federal Register. Public Law 115-
174, 132 Stat. 1296. VA is complying with these requirements. Section 
309(a)(2)(B) further requires VA to seek public notice and comment on 
this regulation if the regulation will be in effect for a period 
exceeding one year. Public Law 115-174, 132 Stat. 1296. VA anticipates 
the regulation will be in effect past the one-year mark. Therefore, VA 
is seeking public comment on the interim final rule once it is 
published in the Federal Register.

Signing Authority

    The Secretary of Veterans Affairs 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. Robert L. 
Wilkie, Secretary, Department of Veterans Affairs, approved this 
document on November 19, 2018, for publication.

    Dated: November 19, 2018.
Jeffrey M. Martin,
Assistant Director, Office of Regulation Policy & Management, Office of 
the Secretary, Department of Veterans Affairs.
[FR Doc. 2018-26021 Filed 11-29-18; 8:45 am]
BILLING CODE 8320-01-P

Federal Register / Vol. 83, No. 231 / Friday, November 30, 2018 / Proposed Rules 61573

Question 4: Should post-trade name Policy & Valuation, Loan Guaranty payment models to estimate the level of
give-up be subject to customer choice or Service (26), Veterans Benefits pre-payments and any resultant
SEF choice given the flexible execution Administration, Department of Veterans potential losses of revenue expected to
methods in the Commission’s recent Affairs, 810 Vermont Avenue NW, occur in a set period, given possible
SEF notice of proposed rulemaking? Washington, DC 20420, (202) 632–8862. changes in interest rates. These pre-
Issued in Washington, DC, on November 6, (This is not a toll-free number.) payment models tend to drive, at least
2018, by the Commission. SUPPLEMENTARY INFORMATION: On May in significant part, the valuation of
Christopher Kirkpatrick, 24, 2018, the President signed into law Ginnie Mae MBS. Ginnie Mae, buyers of
Secretary of the Commission. the Economic Growth, Regulatory VA-guaranteed loans, and other
Relief, and Consumer Protection Act industry stakeholders have expressed
Note: The following appendix will not (the Act), Public Law 115–174, 132 Stat. serious concerns that early pre-
appear in the Code of Federal Regulations. payments of VA-guaranteed loans are
1296. Section 309 of the Act, codified at
38 U.S.C. 3709, provides new statutory devaluing these investments. See
Appendix to Post-Trade Name Give-Up ‘‘Slowing Down VA Refi Churn Proving
on Swap Execution Facilities— criteria for determining when, in
general, VA may guarantee a refinance More Difficult Than Expected’’,
Commission Voting Summary National Mortgage News (November 12,
loan. The Act also requires, among other
On this matter, Chairman Giancarlo and things, VA to promulgate regulations, 2018), https://
Commissioners Quintenz, Behnam, Stump, within 180 days after the date of the www.nationalmortgagenews.com/news/
and Berkovitz voted in the affirmative. No slowing-down-va-refi-churn-proving-
Commissioner voted in the negative.
enactment of the Act, for cash-out
refinance loans, specifically those where more-difficult-than-expected. If such
[FR Doc. 2018–24643 Filed 11–29–18; 8:45 am]
the principal of the new loan to be VA- stakeholders view MBS investments that
BILLING CODE 6351–01–P guaranteed or insured is larger than the include VA-guaranteed refinance loans
payoff amount of the loan being as less desirable, even prudent lenders
refinanced. Public Law 115–174, 132 could be deprived of the cashflows, i.e.
DEPARTMENT OF VETERANS Stat. 1296. liquidity, necessary to make new VA-
AFFAIRS guaranteed loans to veterans.
Section 309(a)(2) of the Act permits
In a hearing before the House
VA to waive the requirements of the
38 CFR Part 36 Veterans’ Affairs Committee’s
Administrative Procedure Act (APA), 5 Subcommittee on Economic
Loan Guaranty: Revisions to VA- U.S.C. 551 through 559, if the Secretary Opportunity, the Government National
Guaranteed or Insured Cash-Out Home determines that urgent or compelling Mortgage Association (Ginnie Mae)
Loans circumstances make compliance with issued warnings to Congress regarding
such requirements impracticable or the ripple effects that risky refinancing
AGENCY: Department of Veterans Affairs. contrary to public interest. Public Law practices had on the valuing of VA-
ACTION: Advanced notice of rulemaking. 115–174, 132 Stat. 1348–1349. guaranteed loans, as well as Ginnie Mae
VA believes there are several urgent pools at-large. See Hearing on Home
SUMMARY: The Department of Veterans and compelling circumstances that
Affairs (VA) is issuing this document in Loan Churning Practices and How
make advance notice and comment on Veteran Homebuyers are Being Affected
compliance with the Economic Growth, this rule contrary to the public interest.
Regulatory Relief, and Consumer Before the Subcomm. on Econ.
First, VA is concerned about lenders Opportunity of the House Comm. on
Protection Act (the Act). The Act who seem to continue to exploit
requires VA to amend its regulation on Veterans’ Affairs, 115 Cong. (2018).
legislative and regulatory gaps related to Thus, VA believes that, unless VA
VA-guaranteed or insured cash-out seasoning, recoupment, and net tangible
refinance loans and to publish the promulgates rules quickly, a loss of
benefit standards, despite anti-predatory investor optimism in the VA product
amended regulation within a shortened lending actions that VA and Congress
time frame. If VA determines that urgent could further restrict veterans from
have already taken. VA’s regulatory being able to utilize their earned VA
or compelling circumstances make impact analysis for this rule indicates
compliance with the advance public benefits.
that perhaps more than 50 percent of Exacerbating the issue is the lending
notice and comment requirements of the cash-out refinances remain vulnerable industry’s varied interpretation of the
Administrative Procedure Act to predatory terms and conditions until Act, which has led to lender uncertainty
impracticable or contrary to public this rule goes into effect. VA believes in how to implement a responsible cash-
interest and publishes notice of that that VA must immediately seal these out refinance program. VA believes this
determination in the Federal Register, gaps to fulfill its obligation to veterans, uncertainty has caused prudent lenders
the Act permits VA to amend the prudent lenders, and those who invest to employ a high degree of caution, (e.g.
regulation through an interim final rule in securities that include VA-guaranteed refraining from providing veterans with
or final rule. VA has determined that loans. crucial refinance loans that are not
urgent and compelling circumstances do VA is also gravely concerned about predatory or risky). Absent swift
exist and is, therefore, issuing this constraints in the availability of implementation of clear regulatory
Federal Register document announcing program liquidity if VA does not act standards, cautious lenders are less
VA’s intent to promulgate an interim quickly to address early pre-payment likely to make cash-out refinance loans,
final rule implementing the Act. speeds for VA-guaranteed cash-out which means that veterans do not enjoy
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DATES: November 30, 2018. refinance loans. In large part, cashflows the widest range of competitive,
ADDRESSES: Loan Policy & Valuation, derived from investors in mortgage- responsible credit options that can,
Loan Guaranty Service (26), Veterans backed securities (MBS) furnished by when used properly, result in placing
Benefits Administration, Department of the Government National Mortgage the veteran in a better financial position
Veterans Affairs, 810 Vermont Avenue Association (Ginnie Mae) provide than the veteran’s current circumstances
NW, Washington, DC 20420. liquidity for lenders that originate VA- afford. Unfortunately, such caution has
FOR FURTHER INFORMATION CONTACT: Greg guaranteed refinance loans. When the potential to compound the risk of
Nelms, Assistant Director for Loan pricing MBS, investors rely on pre- predatory lending, as irresponsible

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61574 Federal Register / Vol. 83, No. 231 / Friday, November 30, 2018 / Proposed Rules

lenders have more opportunity to prey Dated: November 19, 2018. hearing and the SUPPLEMENTARY
upon veterans by stepping into areas Jeffrey M. Martin, INFORMATION section for additional
where prudent lenders may have Assistant Director, Office of Regulation Policy information on the public hearing.
stopped competing. & Management, Office of the Secretary, ADDRESSES: Comments. Submit your
Department of Veterans Affairs. comments, identified by Docket ID No.
At the same time, VA is concerned
[FR Doc. 2018–26021 Filed 11–29–18; 8:45 am] EPA–HQ–OAR–2018–0195, at https://
that certain lenders are exploiting cash-
out refinancing as a loophole to the BILLING CODE 8320–01–P www.regulations.gov. Follow the online
responsible refinancing Congress instructions for submitting comments.
envisioned when enacting section 309 Once submitted, comments cannot be
of the Act. VA recognizes there are ENVIRONMENTAL PROTECTION edited or removed from Regulations.gov.
AGENCY See SUPPLEMENTARY INFORMATION for
certain advantages to a veteran who
details about how the EPA treats
wants to obtain a cash-out refinance, 40 CFR Part 60 submitted comments. Regulations.gov is
and VA has no intention of unduly our preferred method of receiving
curtailing veterans’ access to the equity [EPA–HQ–OAR–2018–0195; FRL–9987–37–
OAR] comments. However, the following
they have earned in their homes. other submission methods are also
Nevertheless, some lenders are RIN 2060–AU00
accepted:
pressuring veterans to increase • Email: a-and-r-docket@epa.gov.
artificially their home loan amounts Standards of Performance for New
Residential Wood Heaters, New Include Docket ID No. EPA–HQ–OAR–
when refinancing, without regard to the 2018–0195 in the subject line of the
Residential Hydronic Heaters and
long-term costs to the veteran and message.
Forced-Air Furnaces
without adequately advising the veteran • Fax: (202) 566–9744. Attention
of the veteran’s loss of home equity. In AGENCY: Environmental Protection Docket ID No. EPA–HQ–OAR–2018–
doing so, veterans are placed at a higher Agency (EPA). 0195.
financial risk, and the lender avoids ACTION: Proposed rule. • Mail: To ship or send mail via the
compliance with the more stringent United States Postal Service, use the
requirements Congress mandated for SUMMARY: In this action, the EPA following address: U.S. Environmental
less risky refinance loans. Essentially, proposes to amend the 2015 New Protection Agency, EPA Docket Center,
the lender revives the period of Source Performance Standards (NSPS) Docket ID No. EPA–HQ–OAR–2018–
subprime lending under a new name. for new residential hydronic heaters and 0195, Mail Code 28221T, 1200
new forced-air furnaces by adding a Pennsylvania Avenue NW, Washington,
VA does not plan to dispense with the two-year ‘‘sell-through’’ period for all DC 20460.
notice and comment requirements affected new hydronic heaters and • Hand/Courier Delivery: Use the
altogether. Section 309(a)(2)(A)(ii) and forced-air furnaces that are following Docket Center address if you
(iii) of the Act requires VA, 10 days manufactured or imported before the are using express mail, commercial
before publication of the final rule, to May 2020 compliance date to be sold at delivery, hand delivery, or courier: EPA
submit a notice of the waiver to the retail through May 2022. This will allow Docket Center, EPA WJC West Building,
House and Senate Committees on retailers additional time, after the May Room 3334, 1301 Constitution Avenue
Veterans’ Affairs and publish the notice 2020 effective date of the ‘‘Step 2’’ NW, Washington, DC 20004. Delivery
in the Federal Register. Public Law standards, for the sale of ‘‘Step 1’’ verification signatures will be available
115–174, 132 Stat. 1296. VA is compliant hydronic heaters and forced- only during regular business hours.
complying with these requirements. air furnaces remaining in inventory. The Public Hearing. The hearing will be
Section 309(a)(2)(B) further requires VA EPA is also taking comment on whether held at EPA Headquarters, EPA WJC
to seek public notice and comment on a sell-through period for all affected East Building, Room 1117A&B, 1201
this regulation if the regulation will be new residential wood heaters is Constitution Avenue NW, Washington,
in effect for a period exceeding one year. appropriate following the May 2020 DC 20004. The hearing will convene at
Public Law 115–174, 132 Stat. 1296. VA compliance date and, if so, how long a 8:00 a.m. local time and conclude at
anticipates the regulation will be in sell-through period is needed and why. 6:00 p.m. local time. The EPA will end
effect past the one-year mark. Therefore, In addition, this action is taking the hearing two hours after the last
VA is seeking public comment on the comment on whether the current registered speaker has concluded their
interim final rule once it is published in minimum pellet fuel requirements comments but no later than 6:00 p.m.
should be retained and, if so, whether local time. Two 15-minute breaks and a
the Federal Register.
they should be revised. lunch break will be scheduled as time
Signing Authority DATES: will allow depending on the number of
Comments. Comments must be registered speakers.
The Secretary of Veterans Affairs received on or before January 14, 2019. Because this hearing is being held at
approved this document and authorized Under the Paperwork Reduction Act a U.S. government facility, individuals
the undersigned to sign and submit the (PRA), comments on the information planning to attend the hearing should be
document to the Office of the Federal collection provisions are best assured of prepared to show valid picture
Register for publication electronically as consideration if the Office of identification to the security staff in
amozie on DSK3GDR082PROD with PROPOSALS1

an official document of the Department Management and Budget (OMB) order to gain access to the meeting
of Veterans Affairs. Robert L. Wilkie, receives a copy of your comments on or room. Please note that the REAL ID Act,
Secretary, Department of Veterans before December 31, 2018. passed by Congress in 2005, established
Affairs, approved this document on Public Hearing. The EPA will hold a new requirements for entering federal
November 19, 2018, for publication. public hearing on December 17, 2018, in facilities. For purposes of the REAL ID
Washington, DC. Please refer to the FOR Act, the EPA will accept government-
FURTHER INFORMATION CONTACT section issued IDs, including driver’s licenses
for information on registering for the from the District of Columbia and all

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Document Created: 2018-11-30 04:35:26
Document Modified: 2018-11-30 04:35:26

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Proposed Rules
Action		Advanced notice of rulemaking.
Dates		November 30, 2018.
Contact		Greg Nelms, Assistant Director for Loan Policy & Valuation, 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 number.)
FR Citation		83 FR 61573