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Proposed Rule

Loan Guaranty: Net Value and Pre-Foreclosure Debt Waivers

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Information about this document as published in the Federal Register.

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Department of Veterans Affairs.


Proposed rule.


We propose to amend the Loan Guaranty Regulations to change the formula for calculating the net value of property securing VA guaranteed loans being terminated and to add criteria for granting preforeclosure debt waivers. The proposed changes regarding net value appear necessary to more accurately reflect current costs. The proposed changes regarding waivers appear necessary to more accurately reflect statutory intent.


Comments must be received on or before October 2, 2000. VA proposes to make these regulations effective 30 days after publication of the final regulations.


Mail or hand-deliver written comments to: Director, Office of Regulations Management (02D), Department of Veterans Affairs, 810 Vermont Avenue, NW, Room 1154, Washington, DC 20420. Comments should indicate that they are submitted in response to “RIN 2900-AG20.” All written comments received will be available for public inspection at the above address, Room 1158, between the hours of 8 a.m. and 4:30 p.m., Monday through Friday (except holidays).

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Mr. Richard Fyne, Assistant Director for Loan Management (261), Loan Guaranty Service, Veterans Benefits Administration, Department of Veterans Affairs, Washington DC 20420, (202) 273-7380.

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We propose to amend the Loan Guaranty Regulations to change the formula for calculating the net value of property securing VA guaranteed loans being terminated and to add criteria for granting preforeclosure debt waivers.

Under current law, when a VA guaranteed loan is reported as being in default, the Secretary is required to establish the “net value” of the property securing the guaranteed loan in default. “Net value” means the fair market value of the property minus certain costs that VA would incur to acquire, manage, and dispose of the property. The relationship between the net value of the property, the total indebtedness of the veteran at the time of loan termination, and the amount of VA's guaranty determines whether or not VA may acquire the property following foreclosure from the foreclosing loan holder. These factors also affect the Government's claim payment to the foreclosing holder under the guaranty. In addition, they will affect the amount of the veteran's debt to the Government under those circumstances where, by law, VA is entitled to establish a debt against a veteran. Moreover, they affect the VA's loss on the guaranty transaction which, in turn, will affect the veteran's ability to have previously-used entitlement restored.

Under § 36.4301, VA computes “net value” using cost data for the preceding three fiscal years. We propose to change how VA computes “net value.” Instead Start Printed Page 46883of using three years data, we propose to use data only from the most recent fiscal year. VA believes this change will lead to a calculation of net value that is more reflective of current costs.

We also propose to make nonsubstantive changes to the definition of “net value” for purposes of clarification and conformance to statutory provisions.

Currently § 36.4323(e)(1) sets forth provisions regarding waiver by VA of the establishment of a debt against a veteran whose VA guaranteed loan is being foreclosed. We propose to include provisions stating that VA may grant a preforeclosure debt waiver if the default was caused by a transferee-owner, and there is no indication of fraud, misrepresentation, or bad faith on the part of the veteran. Public Law 101-236 eliminated “material fault” as a bar to waiving a veteran's debt. We believe our proposed changes are consistent with this statutory enactment.

We also would make citation corrections in § 36.4323(e)(4).

This proposed rule supercedes an earlier proposed rule published in the Federal Register on September 22, 1993 (58 FR 49251). The earlier proposed rule was the same in substance as this proposed rule.

Executive Order 12866

This proposed rule has been reviewed by the Office of Management and Budget under the provisions of Executive Order 12866.

Unfunded Mandates

The Unfunded Mandates Reform Act requires (in section 202) that agencies prepare an assessment of anticipated costs and benefits before developing any rule that may result in an expenditure by State, local, or tribal governments, in the aggregate, or by the private sector of $100 million or more in any given year. This rule would have no consequential effect on State, local, or tribal governments.

Regulatory Flexibility Act

The Secretary hereby certifies that the adoption of the 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. The proposed rule only affects VA guaranteed loan foreclosures. Such foreclosures represent only a small part of affected lenders' businesses. Moreover, the effect of the proposed rule would be cost-neutral in almost all cases. Therefore, pursuant to 5 U.S.C. 605(b), the proposed rule is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

The Catalog of Federal Domestic Assistance Program numbers are 64.114 and 64.118.

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List of Subjects in 38 CFR Part 36

  • Condominiums
  • Handicapped
  • Housing loan programs—housing and community development
  • Manufactured homes
  • Veterans
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Approved: March 16, 2000.

Togo D. West, Jr.,

Secretary of Veterans Affairs.

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For the reasons set out in the preamble, 38 CFR part 36 is proposed to be amended as follows:

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1. The authority citation for part 36 continues to read as follows:

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Authority: 38 U.S.C. 501, 3701-3704, 3707, 3710-3714, 3719, 3720, 3729, 3762, unless otherwise noted. 2. In § 36.4301, the definition for the term “Net value” is amended by revising the introductory text and paragraph (3) to read as follows:

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Net value. The fair market value of real property, minus an amount representing the costs that the Secretary estimates would be incurred by VA in acquiring and disposing of the property. The number to be subtracted from the fair market value will be calculated by multiplying the fair market value by the current cost factor. The cost factor used will be the most recent percentage of the fair market value that VA calculated and published in the Notices section of the Federal Register (it is intended that this percentage will be calculated annually). In computing this cost factor, VA will determine the average operating expenses and losses on resale incurred for properties acquired under § 36.4320 which were sold during the preceding fiscal year and the average administrative cost to VA associated with the property management activity. The final net value derived from this calculation will be stated as a whole dollar amount (any fractional amount will be rounded up to the next whole dollar). The cost items included in the calculation will be:

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(3) Administrative costs. (i) An estimate of the total cost for VA of personnel (salary and benefits) and overhead (which may include things such as travel, transportation, communication, utilities, printing, supplies, equipment, insurance claims and other services) associated with the acquisition, management and disposition of property acquired under § 36.4320. The average administrative costs will be determined by:

(A) Dividing the total cost for VA personnel and overhead salary and benefits costs by the average number of properties on hand and adjusting this figure based on the average holding time for properties sold during the preceding fiscal year; then

(B) Dividing the figure calculated in paragraph (3)(i)(A) of this definition by the VBA ratio of personal services costs to total obligations.

(ii) The three cost averages will be added to the average loss on property sold during the preceding fiscal year (based on the average property purchase price) and the sum will be divided by the average fair market value at the time of acquisition for properties which were sold during the preceding fiscal year to derive the percentage to be used in estimating net value.

3. In § 36.4323 amend paragraph (e)(1)(v) at the end of the paragraph by removing “liability.” and adding, in its place, “liability; or”; add paragraph (e)(1)(vi); and revise the first sentence in paragraph (e)(4) and the authority citation at the end of paragraph (e)(4), to read as follows:

Subrogation and indemnity.
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(e) * * *

(1) * * *

(vi) The obligor being released is not the current titleholder to the property and there are no indications of fraud, misrepresentation, or bad faith on the obligor's part in obtaining the loan or disposing of the property or in connection with the loan default.

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(4) Determinations made under paragraphs (e)(1) and (e)(2) of this section are intended for the benefit of the Government in reducing the amount of claim payable by VA and/or avoiding the establishment of uncollectable debts owning to the United States. * * *

(Authority: 38 U.S.C. 501, 3703(c)(1), 5302)

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[FR Doc. 00-19083 Filed 7-31-00; 8:45 am]