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Federal Register / Vol. 86, No. 102 / Friday, May 28, 2021 / Rules and Regulations experience hardship and that, in some cases, their hardship may have worsened as a result of the pandemic.
VA has provided alternative approaches to assist such veterans in retaining their homes. These include relaxed regulatory requirements to help veterans whose loans were already delinquent take advantage of historically low interest rates and refinance their mortgage, often times with a lower, more affordable, monthly mortgage payment.7 VA also issued guidance authorizing servicers to consider other VA home retention options.8 Finally, VA temporarily waived regulatory requirements prohibiting balloon payments to enable servicers to offer deferment as another home retention option for veterans exiting forbearance.9
D. Partial Claim Payment as Last Resort 38 CFR 36.4804
Five commenters, including the joint trade and consumer group, expressed confusion with VAs proposal that servicers treat the partial claim payment as a last resort and recommended changes in the final rule. Several commenters requested that VA clarify where the partial claim payment fell in a waterfall of home retention options.
Two commenters noted that it was not clear from VAs proposed rule how servicers would know that the partial claim was being offered as a last resort.
In this regard, the commenters pointed to language in the proposed rule that suggested a servicer may elect to utilize the partial claim even if the veteran qualifies for a loan modification. Three commenters, including the two just mentioned, felt that a partial claim payment should be evaluated on equal footing with other home retention options, consistent with current VA
servicing policies, and be utilized when clearly in the veterans best financial interest.
One commenter noted that it was not clear whether proposed language referencing all possible loss-mitigation options included the deferment lossmitigation option referenced by VA
Circular 262033.10 The commenter 7 VA Circular 262025. Impact of CARES Act Forbearance on VA Purchase and Refinance Transactions, June 30, 2020, https vbaw.vba.va.
gov/HOMELOANS/docs/hot_topics/26-20-25.pdf.
8 VA Circular 262012. Extended Relief Under the CARES Act for those Affected by COVID19, Apr. 8, 2020, https www.benefits.va.gov/
HOMELOANS/documents/circulars/26_20_12.pdf.
9 VA Circular 262033. Deferment as a COVID
19 Loss Mitigation Option for CARES Act Forbearance Cases, Sept. 14, 2020, https
www.benefits.va.gov/HOMELOANS/documents/
circulars/26_20_33.pdf.
10 VA Circular 262033. Deferment as a COVID
19 Loss Mitigation Option for CARES Act
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requested that VA clarify in the final rule whether deferment was to be considered before a partial claim payment. Another commenter was concerned that it was unclear from the proposed rule whether a servicer may refuse to offer a partial claim payment if a veteran specifically requested it and the servicer determined another loss mitigation option was available. Finally, one commenter recommended that VA
follow FHA and offer a streamlined partial claim option as the first step in a waterfall of foreclosure alternatives.
VA Response: VA has determined that changes in the final rule are necessary to clarify how VA expects servicers to offer the COVIDVAPCP. VA also agrees that referencing the partial claim payment option as a last resort might lead to an unintended restriction on program participation.
Generally, VA expects servicers to provide veterans with home retention options that are in the veterans financial interest. To ensure that VA can assist as many veterans as possible in retaining their homes and recovering from the pandemic, VA is modifying the final rule such that the COVIDVAPCP
will no longer be characterized as an option of last resort.
Commenters correctly noted that VA
has a longstanding history of not prescribing a required waterfall of home retention options. VA has instead advised of VAs preferred order of consideration for standard home retention options.11 As explained in the proposed rule, one reason supporting this policy is that, in VAs program, lenders, servicers, or other entities that own the loan loan holders often bear significantly more financial risk than the Government.12 Also, VA recognizes that individual circumstances may lead to out of the ordinary considerations.13
In keeping with this longstanding policy, VA declines to require servicers to offer a partial claim payment to veterans, particularly as part of a prescribed waterfall of home retention options. At this stage, VA does not have enough information to warrant the dismantling of a model that achieved one of the lowest foreclosure rates on the market for most of the past decade even with most veterans not making a down payment. VA is also concerned that mandating the partial claim option could increase upfront costs for some Forbearance Cases, Sept. 14, 2020, https
vbaw.vba.va.gov/HOMELOANS/docs/hot_topics/
26_20_33.pdf.
11 38 CFR 36.4319a.
12 85 FR 79142, 79147 Dec. 9, 2020.
13 38 CFR 36.4319a.

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servicers, which could in turn impede them from helping the veterans they would otherwise be able to serve. VA
understands this approach may differ from both FHAs and USDAs partial claim programs, but VA also notes that those agencies and their servicers have been working with more prescriptive waterfalls for quite some time, as servicers have less skin-in-the-game in those agencies programs than they do in VAs.
VA is amending the final rule to clarify that a servicer may consider a partial claim option in the same way that a servicer may consider any of VAs other home retention options. VA is also adopting changes to the final rule to clarify that servicers may elect to offer the partial claim payment instead of other options. While VAs amendments promote a more streamlined application process, VA wants to ensure that servicers are still keeping veterans financial interests in mind. Therefore, VA is also adopting changes to the final rule to remind servicers that the COVIDVAPCP should only be offered if the option is in the veterans financial interest.
Servicers that participate in VAs home loan program have significant experience determining what home retention options to consider and offer when assisting veterans whose loans are in default. Through the changes in this final rule, VA is empowering servicers to continue making decisions that align with both veterans interests and the capabilities of a servicers business model. VA is dispensing with the last resort characterization and will not, for example, require servicers to keep a written record of the servicers justification that the partial claim option was superior to each and every other home retention option. However, a servicers decision to utilize the partial claim option will be subject to VAs oversight, audit, and review.
Furthermore, and with consideration of commenters reflections on home retention policies and the Great Recession, VA believes that it is crucial to allow servicers flexibility to use informed business judgment to determine whether a veteran is well suited for participation in the COVID
VAPCP, without the burdens of a formal evaluation or consideration process. As such, if a veteran exiting forbearance requests a partial claim payment, the servicer may be able to immediately proceed to executing the partial claim payment after determining that the veterans case meets program requirements. Similarly, servicers will be able to evaluate their existing forbearance portfolios to determine
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