April 15, 2005

Director

Regulations Management (00REG1)

Department of Veterans Affairs

810 Vermont Avenue, NW

Room 1068

Washington, DC 20420

Re: RIN 2900-AL65; Servicing Redesign Proposed Rule

Dear Sir or Madam,

We appreciate the opportunity to provide feedback to the VA regarding
the recently proposed regulatory changes. After reviewing the
documentation provided we have assembled our recommendations and
questions pertaining to each section below.

**Loss Mitigation**

We would like to recommend:

-   For the VA to mirror HUD's timeline extensions on loss mitigation
    options

-   That Modifications should not be limited to the original guaranty
    amount

-   That VA allow servicers to capitalize all advances including legal
    fees when completing a Modification

-   That VA limit the term of a Special Forbearance

-   For Loss Mitigation incentives to be paid at the beginning of the
    repayment plan

-   That out of pocket expenses associated with Loss Mitigation be
    reimbursed via claim or be collectible from the Mortgagor

-   For VA to require title insurance for Deeds In Lieu, Modifications
    and allow the charge for this to be claimable

-   That VA publish general guidelines for all Loss Mitigation options
    and to spell out a hierarchy for them while allowing flexibility to
    that hierarchy when properly documented.

-   That any VA tier ranking system be primarily based on Loss
    Mitigation data and not simply mirror that of Freddie Mac

**Revised Reporting**

The scope of the reporting that VA is considering is far too broad and
all-encompassing. Servicers would literally have to send an electronic
file every day in order to be in compliance with what has been proposed.
The development and maintenance of the kind of system that would be
necessary to accommodate this along with the personnel costs would be
extremely burdensome. We estimate the cost to be in the millions. This
could make servicing VA loans cost prohibitive for many servicers.

We would like to recommend:

-   That VA limit the default reporting requirement to a list of data
    fields that can be provided monthly -- similar to that currently
    reported under the HUD SFDMS reporting with the additional ability
    to report multiple events in the same month.

-   That electronic default reporting only include loans that have
    reached the 61^st^ day of delinquency or beyond

-   That VA confirm all servicing systems agree to proposed file formats
    and data elements before final decisions are made

**Calculation of Net Value and Servicer Appraisal Processing Program**

We appreciate that the VA is considering our need for receiving bidding
instructions timely. At first glance, we would welcome the opportunity
to complete the simple calculation to arrive at the net value. However,
the responsibility for arriving at the correct value and the unknown
penalty for making even minor errors in the debt calculations have us
questioning whether we could take this on. We do not want to incur the
\$100 cost for each SAR and the qualified personnel in our own
origination division will not give priority to liquidation appraisals
when a new loan appraisal is pending.

Has the VA given consideration to the actual recoveries they realize by
utilizing value-based bids? We would like to recommend that the VA
consider:

-   The possibility of bidding total debt and eliminating the need for
    liquidation appraisals and bidding instructions. Unless the Veteran
    has received a discharge of their debt in bankruptcy, it's very
    likely they will want to work with our Loss Mitigation area to reach
    a foreclosure alternative.

-   If appraisals must continue, that the VA guarantee their Appraisers
    work so that the servicer does not have liability for the value they
    provided

**Time for Loan Termination and Limit on Interest Charges**

We recommend that the VA more specifically define 'uncontrollable
events' in the due diligence timeline that can impact the interest cut
off date. We would like to see at least the following items included:

Bankruptcies

Contested foreclosures

Loss Mitigation

Probate

Court delays

Title problems

Document problems

Service delays

Litigation

**Attorney Fees**

The attorneys that provide us with default related services are our
business partners. We are very pleased that the VA is proposing to
increase the allowable fees in certain areas similar to that of the GSE
schedule. But it is important to note that even those fee amounts are
approaching the five year old mark. We would like to recommend that:

-   The VA consider an across the board increase for allowable attorney
    fees to at least or greater than the FNMA allowable.

-   The VA consider the unusual expenses absorbed by firms working in
    our industry such as the risk of class action lawsuits which
    increases their uncollectible costs and insurance premiums.

-   The VA consider that the attorneys have also had increased personnel
    costs in order to attract and keep quality staff members.

-   A full bankruptcy fee would be allowed when defending additional
    filings. No less work is done on these cases and often the cost can
    be increased as additional measures are taken to control abusive
    debtor tactics. A full fee should be allowed and reimbursed for each
    new bankruptcy filing and \$250 should be allowed for each
    additional action within each case.

-   An additional full foreclosure fee be allowed when foreclosure must
    be restarted through no fault of the servicer or attorney. This
    would apply in Texas, Georgia and other states following relief from
    a bankruptcy stay along with other scenarios.

**Claims**

We would like to recommend that:

-   Servicers be allowed to electronically submit over-allowable items
    and supporting documentation at the time of the initial claim
    submission. Separating this process would create needless effort and
    expense for both VA and the Servicer.

-   When the new VA claim system is developed that it include a
    provision for viewing and printing the claims payment advice

-   That the one year claim submission timeframe not begin until after
    the redemption period ends in post-sale redemption states

-   That 6 months instead of 30 days be allowed for the resubmission of
    denied items

-   That the title documents required for Refunding be reduced to
    confirm with the liquidation Title Package.

**Title Evidence**

We would like to recommend that:

-   the VA continue to reimburse servicers for title policies following
    liquidation. The attorneys only clear title issues to the extent
    that they would prevent a valid foreclosure completion. Under the VA
    proposal, the responsibility of guaranteeing title would shift to
    the servicer and would be burdensome. By obtaining a policy it
    promotes a cleaner process and reduces the number of REO closing
    problems later when the property is resold.

-   The VA specify that servicers will warrant title only to the date of
    conveyance and not beyond

**Miscellaneous Servicing Procedures**

We would like to recommend that:

-   The word 'abandoned' be deleted and replaced with the word 'vacant'.
    Abandoned is a subjective term and often unverifiable. Determining
    whether a property is vacant is a more practical approach to
    addressing the risk.

-   That VA require vacant properties to be reported during the
    reporting cycle following the date that the servicer determined that
    the property was vacant.

In summary, we believe that the VA is working toward overall improvement
of its guidelines and procedures and we certainly appreciate the
opportunity to respond to this proposal of broad sweeping changes. We
trust that our feedback and recommendations will be given due
consideration in the formulation of future policy.

Sincerely,

Michael Fisher

Vice President

First Horizon - Default Servicing

4000 Horizon Way cc 6205

Irving, TX 75063

Copy to: Sharon Schultz, Vice President -- First Horizon

Dwayne Orr, Vice President -- First Horizon

Tim Bowman, Vice President -- First Horizon