Loan Guaranty: Loan Reporting and Partial or Total Loss of Guaranty or Insurance

DEPARTMENT OF VETERANS AFFAIRS <CFR>38 CFR Part 36</CFR> <RIN>RIN 2900-AS16</RIN> <SUBJECT>Loan Guaranty: Loan Reporting and Partial or Total Loss of Guaranty or Insurance</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Department of Veterans Affairs. <HD SOURCE="HED">ACTION:</HD> Proposed rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> 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. 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. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before January 21, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Comments must be submitted through <E T="03">www.regulations.gov.</E> Except as provided below, comments received before the close of the comment period will be available at <E T="03">www.regulations.gov</E> for public viewing, inspection, or copying, including any personally identifiable or confidential business information that is included in a comment. We post the comments received before the close of the comment period on <E T="03">www.regulations.gov</E> as soon as possible after they have been received. VA will not post on <E T="03">www.regulations.gov</E> public comments that make threats to individuals or institutions or suggest that the commenter will take actions to harm an individual. VA encourages individuals not to submit duplicative comments; however, we will post comments from multiple unique commenters even if the content is identical or nearly identical to other comments. Any public comment received after the comment period's closing date is considered late and will not be considered in the final rulemaking. In accordance with the Providing Accountability Through Transparency Act of 2023, a 100 word Plain-Language Summary of this proposed rule is available at <E T="03">Regulations.gov</E> , under RIN 2900-AS16(P). <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Stephanie Li, Assistant Director for Regulations, Legislation, Engagement, and Training; Terry Rouch, Assistant Director for Loan Policy and Valuation; and Colin Deaso, Assistant Director for Data and Technology Solutions, Loan Guaranty (26), Veterans Benefits Administration, Department of Veterans Affairs, 1800 G Street NW, Washington DC 20006, (202) 632-8862. (This is not a toll-free telephone number.) </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Purpose of This Rulemaking</HD> VA proposes to amend its reporting regulation at 38 CFR 36.4303 and its partial or total loss of guaranty or insurance regulation at 38 CFR 36.4328 to support its ongoing efforts to modernize and transform technology and processes within its VA-guaranteed home loan program and to make the regulations more reader-friendly. VA is accomplishing the technological transformation by updating reporting requirements and connecting with lenders and holders through application programming interfaces (APIs). Utilizing APIs will more efficiently and effectively support veterans, lenders, servicers, and other stakeholders who participate in the VA-guaranteed home loan program. Specifically, VA would launch an API ecosystem in which VA and veterans would, through increased VA oversight capabilities, have stronger protections against noncompliant lenders and holders. Additionally, lenders and holders would have more assurance and confidence in using their authority to close VA-guaranteed loans on an automatic basis and in carrying out lending and servicing functions in VA's home loan program. To help ensure success, updates to 38 CFR 36.4303 and 36.4328 are necessary. Amendments to § 36.4303 would expand loan reporting requirements by allowing VA, lenders, and holders to take advantage of technological improvements that APIs provide, resulting in more efficient and more effective program administration. Section 36.4328 amendments would clarify provisions addressing partial or total loss of the guaranty or insurance when VA identifies fraud, material misrepresentations, or other noncompliance with VA requirements. <HD SOURCE="HD1">II. Section-by-Section Analysis of the Proposed Regulatory Amendments</HD> <HD SOURCE="HD2">A. 38 CFR 36.4303—Reporting Requirements</HD> <HD SOURCE="HD3">1. Reporting Loans Closed on an Automatic Basis</HD> VA proposes to revise § 36.4303(a) to add the heading, “Automatically guaranteed loans”, and provide that, for loans automatically guaranteed under 38 U.S.C. 3703(a)(1), a lender of a class described under 38 U.S.C. 3702(d), would be required to report the loan, after loan closing, in an electronic format using an API, as designated by the Secretary. The proposed rule would further require that such a lender must, not later than 15 days after the loan closing date, use the designated API to report a loan to VA. When reporting the loan, the lender must also use the designated API to submit the appropriate funding fee as prescribed by 38 U.S.C. 3729 and required information regarding the loan, including the loan application ( <E T="03">e.g.,</E> the Uniform Loan Application Dataset—ULAD), closing disclosures ( <E T="03">e.g.,</E> the Uniform Closing Dataset—UCD), and any other information required by the Secretary. VA further proposes to explain that VA would announce in the <E T="04">Federal Register</E> any designation of a new API at least 60 days before a lender would be required to use the API for reporting the loan and submitting the funding fee and loan information. The notice would provide the name of the newly designated API(s) and a link to VA's website where VA would maintain and update technical details about the operative API(s). At the expiration of the notice period, using the designated API(s) when reporting the loan, including submission of the funding fee and loan information to VA, would be a pre-condition to VA issuing a loan guaranty certificate (LGC). The proposed amendments would be more consistent with standard industry practice for electronic reporting. Additionally, they would allow for more efficient loan oversight. For example, currently, if a funding fee is required, the lender collects the fee at closing and electronically remits the funds to VA within 15 days of closing via VA's electronic Funding Fee Payment System (FFPS). The lender also reports the loan using WebLGY, a different system. Thus, lenders have to submit documents and remittances to two VA systems, using manual processes. Due to the manual processes and separate systems necessary, VA currently allows the lender 60 days within which to submit the loan information. See 38 CFR 36.4313(e)(3) and (4). But under the new electronic reporting system, VA would retire FFPS and combine reporting the loan and remittance of the VA funding fee into one automated process. Furthermore, because of the simplification and automation, the 60-day submission process could be handled efficiently within 15 days. VA is committed to a user-friendly API environment that improves the overall experience with VA—not launching technological improvements for their own sake. VA also understands that many lenders have already been working with other API environments. Accordingly, VA welcomes feedback, including technical, on how VA can maximize the efficiencies that come through reporting loans using APIs and how VA's proposed process might be further refined. To that end, VA has already published on VA's website the specifications for five APIs that are in various stages of development, including the API the Secretary plans to designate as the first API for reporting guaranteed loans. The designated API would allow lenders to report loan information electronically utilizing their Loan Origination Software (LOS). This is another advantage to the API ecosystem, because the LOS is already widely accepted throughout the industry. Most lenders use the Mortgage Industry Standards Maintenance Organization (MISMO's) standards in the delivery of closing disclosure data to other federal, or federally sponsored, housing agencies such as Fannie Mae, Freddie Mac, and the Department of Housing and Urban Development (HUD). With VA's designated API for reporting the loan, lenders would be able to electronically report information in the UCD and ULAD via API directly from the lenders' LOS in accordance with MISMO standards. In the end, the designated API for loan reporting would allow for the full automation of the funding fee payment, loan reporting, and issuance of the LGC via lenders' LOS. Overall, based on industry data and widely held principles, VA assesses that the standardization of data reporting would lead to better accuracy, consistency, and clarity surrounding the loans VA guarantees and would promote a more consistent approach between VA and lenders. Lenders would also make the required certifications related to the loan, using the API, including, for example, that the loan conforms with the applicable provisions of 38 U.S.C. chapter 37 and of the regulations concerning guaranty or insurance of loans to veterans. The lender certifications are consistent with current regulations and approved information collections. See Office of Management and Budget (OMB) Control Number 2900-0909. The primary difference under the proposal is tha ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 87k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━