The U.S. Department of Veteran Affairs (“VA”) recently published a proposed rule in the Federal Register to amend its regulations governing loan reporting requirements at 38 C.F.R. 36.4303, which would affect lenders that participate in the VA-guaranteed home loan program. In addition, the proposed rule includes amendment to VA’s partial or total loss of guaranty or insurance regulation at 38 C.F.R. 36.4328, which would change the circumstances under which the VA would assert a defense for partial or total loss of guaranty or insurance for lenders and holders.
For loans closed with an automatic guarantee, lenders would need to report the loan, within 15 days of closing, in an electronic format, using an application program interface (“API”), designated by VA. Certain information would need to be included by the lender when reporting the loan, including the funding fee, the loan application (e.g., the Uniform Loan Application Dataset – ULAD), and closing disclosures (e.g., the Uniform Closing Dataset – UCD). Lenders would also need to use the API to provide loan certifications and a veteran’s certification of occupancy. Loans that require prior approval from VA would also need to be reported using an API.
The VA currently does not have an approved API ready for use, so lenders must continue to use the VA’s current loan reporting system, WebLGY, until an approved API is announced. The proposed rule requires the VA to announce in the Federal Register any designation of a new API at least 60 days before a lender would be required to use it.
For requirements regarding the partial or total loss of guaranty, VA intends to update certain sections of 38 C.F.R. 36.4328, to make the language clearer regarding “how lender or holder noncompliance with VA requirements can affect the guaranty and VA’s payment of the guaranty.” For instance, the VA intends to add heading through the section to clarify when each provision applies, such as material misrepresentation at origination versus servicing.
Under the proposed rule, if the VA identifies a material misrepresentation made by a lender reporting a loan, before the loan guarantee certificate (“LGC”) is issued, the VA will notify the lender of its findings and issue an LGC with a maximum amount of $1 until corrective action is taken by the lender. If a misrepresentation is found after an LGC is issued, the VA will notify the lender or holder that the maximum guaranty has been reduced to $1 until the VA receives evidence that the issue has been remediated. VA would either restore the guaranty to the full amount or cancel the indemnification.
The VA states that amendments under the proposed rule are intended to “support VA’s ongoing efforts to modernize and transform technology and processes within the guaranteed home loan program, capitalizing on industry standard datasets.” Also, the proposed regulatory changes are meant to provide veterans “stronger protections against noncompliant loans through improved transparency and oversight of the program.”
The VA will consider comments submitted through January 21, 2025. All comments received will be posted on www.regulations.gov for public viewing.
