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Federal Register / Vol. 86, No. 102 / Friday, May 28, 2021 / Rules and Regulations the proposed rule, though no specific complaints were provided.
B. Alignment With Other Federal Housing Agency Programs As discussed above, a common recommendation was that VA adopt changes in the final rule to align the COVIDVAPCP with other federal housing agencies programs. Those include programs administered by FHA, USDA, and the Federal Housing Finance Agency FHFA.2 Four commenters, including the joint trade and consumer group, expressed a preference that VA
revise the COVIDVAPCP to be more similar to FHAs COVID19 Standalone Partial Claim program. These commenters noted that aligning the COVIDVAPCP with similar programs offered by other agencies would be in the best interest of veterans, servicers, and VA. One commenter stated that the program, without such alignment, would likely cause substantial and unnecessary mortgage re-defaults and foreclosure.
In recommending that VA align the COVIDVAPCP with other federal partial claim programs, commenters focused on three specific program features.
1. Repayment Terms of the Partial Claim Payment 38 CFR 36.4805: One commenter noted that VA should not charge 1.00 percent interest on the partial claim loan, as the financial situation faced by veterans during the COVID19 national emergency is not due to the individuals own fault.
Another commenter questioned VAs characterization of the repayment terms, including the 1.00 percent interest rate proposed by VA, as being extremely favorable to veterans, given that FHA
and USDA partial claim programs do not charge interest or fees on partial claims. That commenter also noted that VA did not explain why it was necessary to charge interest on the partial claim payment. Finally, the commenter questioned whether the repayment terms, including the 1.00
percent interest rate proposed by VA, were even permissible in states with prohibitions against negative amortization loans.
Regarding VAs proposed ten-year repayment term with a five-year payment deferral, two commenters asserted that this program feature would cause substantial increases in veterans monthly mortgage payments when repayment to VA began in year six, and that such increases would likely lead to 2 The FHFA serves as conservator for the Government Sponsored Enterprises GSEs Freddie Mac and Fannie Mae.

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payment shock and redefault. Both commenters pointed out that VAs own example in the proposed rule resulted in a 20 percent monthly payment increase at year six. Citing lessons learned from the 2008 financial crisis, these commenters noted that the repayment structure utilized by FHA
and USDA avoids payment shock.
VA Response: VA agrees with comments opposing the proposed 1.00
percent interest rate on the partial claim loan and the ten-year repayment term.
VA believes that veterans who need assistance recovering from the economic effects of the COVID19 pandemic should not be charged interest and should not face the risk of payment shock. As discussed in the section-bysection analysis below, VA is therefore adopting repayment terms similar to FHA and USDA, wherein the veteran will not be charged any fees or interest for the subordinate loan established under the COVIDVAPCP. Repayment in full is required immediately upon the veterans transfer of title to the property or the refinancing or payment in full otherwise of the guaranteed loan with which the partial claim payment is associated.
The veteran may make payments for the indebtedness, in whole or in part, without charge or penalty, a policy that carries over from VAs proposed rule and is consistent with FHA and USDA
policies.
2. Borrower Certifications and Residual Income Requirements 38 CFR
36.4803: Five commenters, including the joint trade and consumer group, suggested that VAs proposal contained unnecessary documentation requirements, including an application form, borrower and servicer certifications, and financial documentation requirements. One commenter proposed that VA require no documentation if the veteran was either current or less than 30 days past due on March 1, 2020. Two commenters specifically questioned VAs proposed requirement that servicers certify as to a veterans monthly residual income being adequate as described in 38 CFR
36.4340e. Both commenters noted that if the purpose of the requirement is to assess the veterans ability to afford the additional partial claim payments, a current assessment is unlikely to provide any benefit because the veterans financial situation is likely to change over the next five years while payments on the subordinate loan are deferred.
Similarly, three commenters pointed out that FHA, USDA, and the GSEs all have more streamlined documentation requirements that simplify access for
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borrowers and ensure relief is delivered timely. One commenter pointed out that VAs proposed rule creates at least six discrete steps for a veteran to successfully qualify for a partial claim which, in some cases, was more rigorous than existing VA lossmitigation options. The commenter noted that the cumulative effect of these steps could slow or suppress the partial claim enrollment process for veterans. Additionally, the commenter highlighted that at least three requirements financial evaluation, new borrower disclosures due to the interest being charged, and an application form are not included in any other federal housing agencys COVID19 loss mitigation program.
All three commenters noted that VA
should follow the more streamlined options presented by the other federal agencies. One commenter also highlighted that loss mitigation offered at the outset of the Great Recession required large amounts of paperwork and delayed relief and sometimes prevented borrowers from resolving their delinquencies. That same commenter noted that enrolling in forbearance required no documentation, and specifically recommended that the COVIDVAPCP take advantage of the relaxed regulatory requirements announced by the Consumer Financial Protection Bureau CFPB in a June 2020
interim final rule.3 The commenter asserted that VA should find a way to allow servicers to offer a partial claim option without completing an evaluation of all loss mitigation options available to the borrower based on a complete loss mitigation application including financial information. The commenter stated that such flexibility is authorized by amendments made to CFPBs Regulation X.
VA Response: While VA cannot comment on the applicability of the CFPBs recent amendments to Regulation X, VA does agree with commenters that requirements in VAs proposed rule, namely, the certifications and residual income evaluation, are too stringent. VA notes that it did not intend to dissuade participation in the program, nor did it seek to create unnecessary paperwork for borrowers and servicers that could hinder relief.
Rather, in requiring both veterans and servicers to certify as to the veterans financial situation, VA was attempting to ensure that veterans would not be put in a position where they would be 3 VA believes the commenter was referencing the CFPB rule found at the following link: https
files.consumerfinance.gov/f/documents/cfpb_
interim-final-rule_respa_covid-19-related-lossmitigation-options.pdf last accessed May 1, 2021.

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