Custom Federal Regulations Service™

**This is supplemental material**

**for Book H of your set of**

**Federal Regulations**

Title 38, Part 36

*Loan Guaranty*

**Veterans Benefits Administration**

Supplement No. 26

Covering period of *Federal Register* issues

through February 23, 2003

Copyright © 2003 Jonathan Publishing

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> **GENERAL INSTRUCTIONS**

Custom Federal Regulations Service™

**Supplemental Materials for *Book H***

**Code of Federal Regulations**

**Title 38, Part 36**

***Loan Guaranty***

**Veterans Benefits Administration**

**Supplement No. 26**

25 February 2003

Covering the period of Federal Register issues

through February 23, 2003

When **Book H** was originally prepared, it was current through final
regulations published in the *Federal Register* of 5 March 1992. These
supple­mental materials are designed to keep your regulations up to date.
You should file the attached pages immediately, and record the fact that
you did so on the *Supplement Filing Record* which is at page H-8 of
Book H, *Loan Guaranty*.

> **To ensure accuracy and timeliness of your materials,**
>
> **it is important that you follow these simple procedures:**
>
> 1\. Always file your supplemental materials immediately upon receipt.
>
> 2\. Before filing, always check the Supplement Filing Record (page
> H-8) to be sure that all prior supplements have been filed. If you are
> missing any supple­ments, contact the Veterans Benefits Administration
> at the address listed on page H-2.
>
> 3\. After filing, enter the relevant information on the Supplement
> Filing Record sheet (page H-8)---the date filed, name/initials of
> filer, and date through which the *Federal Register* is covered.
>
> 4\. If as a result of a failure to file, or an undelivered supplement,
> you have more than one supplement to file at a time, be certain to
> file them in chronological order, lower number first.
>
> 5\. Always retain the filing instructions (simply insert them at the
> back of the book) as a backup record of filing and for reference in
> case of a filing error.
>
> 6\. Be certain that you *permanently discard* any pages indicated for
> removal in the filing instructions in order to avoid confusion later.

To execute the filing instructions, simply remove *and throw away* the
pages listed under *Remove These Old Pages,* and replace them in each
case with the corres­pond­ing pages from this supplement listed under *Add
These New Pages*. Occasionally new pages will be added without removal
of any old material (reflecting new regulations), and occasionally old
pages will be removed with­out addition of any new material (reflecting
rescinded regulations)---in these cases the word *None* will appear in
the appropriate column.

> **FILING INSTRUCTIONS**

**Book H, Supplement No. 26**

**February 25, 2003**

*Remove these Add these Section(s)*

*[old pages]{.underline} [new pages]{.underline} [Affected]{.underline}*

**Do not file this supplement until you confirm that**

**all prior supplements have been filed**

36.4302-1 to 36.4302-4 36.4302-1 to 36.4302-4 §36.4302

36.4308-1 to 36.4309-1 36.4308-1 to 36.4309-1 §36.4308

**36.4403-1 to 36.4407-1 36.4403-1 to 36.4407-1 §36.4404**

36.4527-1 to 36.4527-6 36.4527-1 to 36.4527-6 §36.4527

**Be sure to complete the**

***Supplement Filing Record* (page H-8)**

**when you have finished filing this material.**

> **HIGHLIGHTS**

**Book H, Supplement No. 26**

**February 25, 2003**

***Supplement* Highlights *references***: Where substantive changes are
made in the text of regulations, the paragraphs of *Highlights* sections
are cited at the end of the relevant section of text. Thus, if you are
reading §3.263, you will see a note at the end of that section which
reads: "Supplement *Highlights* references---6(2)." This means that
paragraph 2 of the *Highlights* section in Supplement No. 6 contains
information about the changes made in §3.263. By keeping and filing the
*Highlights* sections, you will have a reference source explaining all
substantive changes in the text of the regulations.

***Supplement frequency***: This Book H (*Loan Guaranty*) was originally
supplemented four times a year, in January, April, July and October.
Beginning 1 August 1995, supplements will be issued *every month* during
which a final rule addition or modification is made to the parts of
Title 38 covered by this book. Supplements will be numbered
consecutively as issued.

**Modifications in this supplement include the following:**

1\. On 10 February 2003, the VA published an interim final rule,
effective that same date, to amend its loan guaranty regulations in
order to implement §§401-404 of Public Law 107-103 (*Veterans Education
and Benefits Expansion Act of 2001*) by increasing the maximum amount of
loan guaranty entitlement from \$50,750 to \$60,000; liberalizing the
requirements regarding Memoranda of Understanding between VA and Native
American Tribes in order for their members to qualify for direct housing
loans to Native American veterans; revising the requirement that loan
instruments used in connection with VA guaranteed loans contain a
statement that such loans are not assumable without prior VA approval;
and increasing the specially adapted housing grant from \$43,000 to
\$48,000 and in the special housing adaptations grant from \$8,250 to
\$9,250. Changes:

• In §36.4302, revised paragraphs (a)(4), (e)(1)(i), (e)(2)(i), and
(e)(3);

• In §36.4308, revised paragraph (c)(2);

• In §36.4404, revised paragraphs (a) introductory text, and (b)(2); and

• In §36.4527, redesigned paragraph (a)(2) as (a)(3), and added a new
paragraph (a)(2).

**General Provisions**

**§36.4302 Computation of guaranties or insurance credits.**

\(a\) With respect to a loan to a veteran guaranteed under 38 U.S.C.
3710 the guaranty shall not exceed the lesser of the dollar amount of
entitlement available to the veteran or:

\(1\) 50 percent of the original principal loan amount where the loan
amount is not more than \$45,000; or

\(2\) \$22,500 where the original principal loan exceeds \$45,000, but
is not more than \$56,250; or

\(3\) Except as provided in subparagraph (4), the lesser of \$36,000 or
40 percent of the original principal loan amount where the loan amount
exceeds \$56,250; or

\(4\) The lesser of \$60,000 or 25 percent of the original principal
loan amount where the loan amount exceeds \$144,000 and the loan is for
the purchase or construction of a home or the purchase of a condominium
unit.

\(b\) With respect to an interest rate reduction refinancing loan
guaranteed under 38 U.S.C. 3710(a)(8), (a)(9)(B)(i), or (a)(11), the
dollar amount of guaranty may not exceed the greater of the original
guaranty amount of the loan being refinanced, or 25 percent of the
refinancing loan amount. (Authority: 38 U.S.C. 3703, 3710)

\(c\) With respect to a loan for an energy efficient mortgage guaranteed
under 38 U.S.C. 3710(d), the amount of the guaranty shall be in the same
proportion as would have been provided if the energy efficient
improvements were not added to the loan amount, and there shall be no
additional charge to the veteran's entitlement as a result of the
increased guaranty amount. (Authority: 38 U.S.C. 3703, 3710)

\(d\) An amount equal to 15 percent of the original principal amount of
each insured loan shall be credited to the insurance account of the
lender and shall be charged against the guaranty entitlement of the
borrower: *Provided,* That no loan may be insured unless the borrower
has sufficient entitlement remaining to permit such credit.

\(e\) Subject to the provisions of §36.4303(g), the following formulas
shall govern the computation of the amount of the guaranty or insurance
entitlement which remains available to an eligible veteran after prior
use of entitlement:

\(1\) If a veteran previously secured a nonrealty (business) loan, the
amount of nonrealty entitlement used is doubled and subtracted from
\$36,000. The sum remaining is the amount of available entitlement for
use, except that:

\(i\) Entitlement may be increased by up to \$24,000 if the loan amount
exceeds \$144,000 and the loan is for purchase or construction of a home
or purchase of a condominium; and

\(ii\) Entitlement for manufactured home loans that are to be guaranteed
under 38 U.S.C. 3712 may not exceed \$20,000.

\(2\) If a veteran previously secured a realty (home) loan, the amount
of realty (home) loan entitlement used is subtracted from \$36,000. The
sum remaining is the amount of available entitlement for use, except
that:

\(i\) Entitlement may be increased by up to \$24,000 if the loan amount
exceeds \$144,000 and the loan is for purchase or construction of a home
or purchase of a condominium: and

\(ii\) Entitlement for manufactured home loans that are to be guaranteed
under 38 U.S.C. 3712 may not exceed \$20,000.

\(3\) If a veteran previously secured a manufactured home loan under 38
U.S.C. 3712, the amount of entitlement used for that loan is subtracted
from \$36,000. The sum remaining is the amount of available entitlement
for home loans and the sum remaining may be increased by up to \$24,000
if the loan amount exceeds \$144,000 and the loan is for purchase or
construction of a home or purchase of a condominium. To determine the
amount of entitlement available for manufactured home loans processed
under 38 U.S.C. 3712, the amount of entitlement previously used for that
purpose is subtracted from \$20,000. The sum remaining is the amount of
available entitlement for use for manufactured home loan purposes under
38 U.S.C. 3712. (Authority: 38 U.S.C. 3703)

\(f\) For the purpose of computing the remaining guaranty or insurance
benefit to which a veteran is entitled, loans guaranteed prior to the
effective date of §§36.4300 to 36.4393, inclusive shall be taken into
consideration as if made subsequent thereto.

\(g\) A loan eligible for insurance may be either guaranteed or insured
at the option of the borrower and the lender: *Provided,* That if the
Secretary is not advised of the exercise of such option at the time the
loan is reported pursuant to §36.4303 such loan will not be eligible for
insurance.

\(h\) A guaranty is reduced or increased pro rata with any deduction or
increase in the amount of the guaranteed indebtedness, but in no event
will the amount payable on a guaranty exceed the amount of the original
guaranty or the percentage of the indebtedness corresponding to that of
the original guaranty whichever is less. However, on a graduated payment
mortgage loan, the percentage of guaranty applicable to the original
loan amount pursuant to paragraph (a) of this section shall apply to the
loan indebtedness to the extent scheduled deferred interest is added to
principal during the graduation period without regard to the original
maximum dollar amount of guaranty. (Authority: 38 U.S.C. 3703(b) and
(d))

\(i\) The amount of any guaranty or the amount credited to a lender's
insurance account in relation to any insured loan shall be charged
against the original or remainder of the guaranty benefit of the
borrower. Complete or partial liquidation, by payment or otherwise, of
the veteran's guaranteed or insured indebtedness does not increase the
remainder of the guaranty benefit, if any, otherwise available to the
veteran. When the maximum amount of guaranty or insurance legally
available to a veteran shall have been granted, no further guaranty or
insurance is available to the veteran.

\(j\) Notwithstanding the provisions of paragraph (g) of this section,
the Secretary may exclude the amount of guaranty or insurance
entitlement used for any guaranteed or insured loan provided:

\(1\) The property which served as security for the loan has been
disposed of by the veteran, or has been destroyed by fire or other
natural hazard; and

\(2\) (i) The loan has been repaid in full or the Secretary has been
released from liability as to the loan, or if the Secretary has suffered
a loss on said loan, such loss has been paid in full; or

\(ii\) A veteran-transferee has agreed to assume the outstanding balance
on the loan and consented to the use of his or her entitlement to the
extent the entitlement of the veteran-transferor had been used
originally; or

\(3\) The loan has been repaid in full, and the loan for which the
veteran seeks to use entitlement is secured by the same property which
secured the fully repaid loan; or

\(4\) In a case in which the veteran still owns the property purchased
with a VA-guaranteed loan, the Secretary may, one time only, restore
entitlement used on that loan if:

\(i\) the loan has been repaid in full or, if the Secretary has suffered
a loss on the loan, the loss has been paid in full; or

\(ii\) the Secretary has been released from liability as to the loan,
and, if the Secretary has suffered a loss on the loan, the loss has been
paid in full.

\(k\) The Secretary may, in any case involving circumstances deemed
appropriate, waive either or both of the requirements set forth in
paragraphs (j)(1) and (j)(2)(i) of this section. (Authority: 38 U.S.C.
3702(b), 3710)

\(l\) (1) The amount of guaranty entitlement, available and unused, of
an eligible unmarried surviving spouse (whose eligibility does not
result from his or her own service) is determinable in the same manner
as in the case of any veteran, and any entitlement which the decedent
(who was his or her spouse) used shall be disregarded. A certificate as
to the eligibility of such surviving spouse, issued by the Secretary,
shall be a condition precedent to the guaranty or insurance of any loan
made to a surviving spouse in such capacity. (Authority: 38 U.S.C.
3701(a))

\(2\) An unmarried surviving spouse who was a co-obligor under an
existing VA guaranteed, insured or direct loan shall be considered to be
a veteran eligible for an interest rate reduction refinancing loan
pursuant to 38 U.S.C. 3710(a)(8) or (9)(B)(i). (Authority: 38 U.S.C.
3710(e)(3)) (Authority: 38 U.S.C. 501(a), 3703(c)(1))

\[13 FR 7274, Nov. 27, 1948, as amended at 35 FR 17179, Nov. 7, 1970; 40
FR 34589, Aug. 18, 1975; 46 FR 43672, Aug. 31, 1981; 47 FR 15139, Apr.
8, 1982; 49 FR 28243, July 11, 1984; 50 FR 3334, Jan. 24, 1985; 55 FR
40655, Oct. 4, 1990; 60 FR 38259, July 26, 1995; 68 FR 6627, Feb. 10,
2003\]

**Supplement *Highlights* reference**: 13(1), 26(1).

**§36.4308 Transfer of title by borrower or maturity by demand or
acceleration.**

\(a\) Except as provided by paragraphs (b) or (c) of this section the
conveyance of or other transfer of title to property by operation of law
or otherwise, after the creation of a lien thereon to secure a loan
which is guaranteed or insured in whole or in part by the Secretary,
shall not constitute an event of default, or acceleration of maturity,
elective or otherwise, and shall not of itself terminate or otherwise
affect the guaranty or insurance.

\(b\) (1) The Secretary may issue guaranty on loans in which a State,
Territorial, or local governmental agency provides assistance to a
veteran for the acquisition of a dwelling. Such loans will not be
considered ineligible for guaranty if the State, Territorial, or local
authority, by virtue of its laws or regulations or by virtue of Federal
law, requires the acceleration of maturity of the loan upon the sale or
conveyance of the security property to a person ineligible for
assistance from such authority.

\(2\) At the time of application for a loan assisted by a State,
Territorial, or local governmental agency, the veteran-applicant must be
fully informed and consent in writing to the housing authority
restrictions. A copy of the veteran's consent statement must be
forwarded with the loan application or the report of a loan processed on
the automatic basis. (Authority: 38 U.S.C. 3703(c))

\(c\) Any housing loan which is financed under 38 U.S.C. chapter 37 and
to which section 3714 of that chapter applies, shall include a provision
in the security instrument that the holder may declare the loan
immediately due and payable upon transfer of the property securing such
loan to any transferee unless the acceptability of the assumption of the
loan is established pursuant to section 3714.

\(1\) A holder may not exercise its option to accelerate a loan upon:

> \(i\) The creation of a lien or other encumbrance subordinate to the
> lender's security instrument which does not relate to the transfer of
> rights of occupancy in the property;
>
> \(ii\) The creation of a purchase money security interest for
> household appliances;
>
> \(iii\) A transfer by devise, descent, or operation of law on the
> death of a joint tenant or tenant by the entirety;
>
> \(iv\) The granting of a leasehold interest of three years or less not
> containing an option to purchase;
>
> \(v\) A transfer to a relative resulting from the death of a borrower;
>
> \(vi\) A transfer where the spouse or children of the borrower become
> joint owners of the property with the borrower;
>
> \(vii\) A transfer resulting from a decree of a dissolution of
> marriage, legal separation agreement, or from an incidental property
> settlement agreement by which the spouse of the borrower becomes the
> sole owner of the property. In such a case the borrower shall have the
> option of applying directly to the Department of Veterans Affairs
> regional office of jurisdiction for a release of liability in
> accordance with §36.4323 of this part; or
>
> \(viii\) A transfer into an inter vivos trust in which the borrower is
> and remains a beneficiary and which does not relate to a transfer of
> rights of occupancy in the property.

\(2\) With respect to each such loan at least one of the instruments
used in the transaction shall contain the following statement: "This
loan is not assumable without the approval of the Department of Veterans
Affairs or its authorized agent." This statement must be:

\(i\) Printed in a font size which is the larger of:

> \(A\) Two times the largest font size contained in the body of the
> instrument; or
>
> \(B\) 18 points; and

\(ii\) Contained in at least one of the following:

> \(A\) The note;
>
> \(B\) The mortgage or deed of trust; or
>
> \(C\) A rider to either the note, the mortgage, or the deed of trust.
> Authority: (38 U.S.C.3714(d))

\(d\) The term of payment of any guaranteed or insured obligation shall
bear a proper relation to the borrower's present and anticipated income
and expenses, (except loans pursuant to 38 U.S.C. 3710(a)(8) or
(9)(B)(i)). In addition the terms of payment of any guaranteed or
insured obligation shall provide for discharge of the obligation at a
definite date or dates or intervals in amount specified on or computable
from the face of the instrument. A loan which is payable on demand, or
at sight, or on presentation, or at a time not specified or computable
from the language in the note, mortgage, or other loan instrument, or
which contemplates periodic renewals at the option of the holder to
satisfy the repayment requirements of this section, is not eligible for
guaranty or insurance, except as provided in paragraph (f) of this
section.

\(e\) No guaranteed or insured obligation shall contain a provision to
the effect that the holder shall have the right to declare the
indebtedness due, or to pursue one or more legal or equitable remedies,
if holder "shall feel insecure," or upon the occurrence of one or more
such conditions optional to the holder, without regard to an act or
omission by the debtor, which condition by the terms of the note,
mortgage, or other loan instrument would at the option of the holder
afford a basis for declaring a default.

\(f\) Notwithstanding the inclusion in the guaranteed or insured
obligation of a provision contrary to the provisions of this section,
the right of the holder to payment of the guaranty or insurance shall
not be thereby impaired: *Provided,*

> \(1\) Default was declared or maturity was accelerated under some
> other provision of the note, mortgage, or other loan instrument, or

\(2\) Activation or enforcement of such provision is warranted under
§36.4317 (a), or

> \(3\) The prior approval of the Secretary was obtained. (Authority: 38
> U.S.C. 3703(c))

\(g\) The holder of any guaranteed or insured obligation shall have the
right, notwithstanding the absence of express provision therefor in the
instruments evidencing the indebtedness, to accelerate the maturity or
such obligation at any time after the continuance of any default for the
period specified in §36.4316.

\(h\) If sufficient funds are tendered to bring a delinquency current at
any time prior to a judicial or statutory sale or other public sale
under power of sale provisions contained in the loan instruments to
liquidate any security for a guaranteed loan, the holder shall be
obligated to accept the funds in payment of the delinquency unless:

\(1\) The prior approval of the Secretary is obtained to do otherwise,
or

\(2\) Reinstatement of the loan would adversely affect the dignity of
the lien or be otherwise precluded by law.

A delinquency will include all installment payments (principal,
interest, taxes, insurance, advances, etc.) due and unpaid and any
accumulated late charges plus any reasonable expenses incurred and paid
by the holder if termination proceedings have begun (e.g., advertising
costs, foreclosure costs, attorney or trustee fees, recording fees,
etc.). (Authority: 38 U.S.C. 501(a), 3703(c), 3712(g))

(Approved by the Office of Management and Budget under OMB control
number 2900-0516)

\[13 FR 7739, Dec. 15, 1948, as amended at 15 FR 4397, July 12, 1950; 43
FR 53728, Nov. 17, 1978; 46 FR 43673, Aug. 31, 1981; 46 FR 51386, Oct.
20, 1981; 50 FR 3335, Jan. 24, 1985; 55 FR 37476, Sept. 12, 1990; 55 FR
39404, Sept. 27, 1990; 68 FR 6627, Feb. 10, 2003\]

**Supplement *Highlights* reference**: 26(1)

**§36.4309 Amortization.**

\(a\) All loans, the maturity date of which is beyond 5 years from date
of loan or date of assumption by the veteran, shall be amortized. Except
as provided in paragraph (e) of this section, the schedule of payments
thereon shall be in accordance with any generally recognized plan of
amortization requiring approximately equal periodic payments and shall
require a principal reduction not less often than annually during the
life of the loan. The final installment on any loan shall not be in
excess of two times the average of the preceding installments except
that on a construction loan such installment may be for an amount not in
excess of 5 per centum of the original principal amount of the loan. The
limitations imposed herein on the amount of the final installment shall
not apply in the case of any loan extended pursuant to §36.4314(a).

\(b\) Any plan of repayment on loans required to be amortized which does
not provide for approximately equal periodic payments shall not be
eligible unless the plan conforms with the provisions of paragraph (e)
of this section, or is otherwise approved by the Secretary.

\(c\) Every guaranteed or insured loan shall be repayable within the
estimated economic life of the property securing the loan.

\(d\) Subject to paragraph (a) of this section, any amounts which under
the terms of a loan do not become due and payable on or before the last
maturity date permissible for loans of its class under the limitations
contained in 38 U.S.C. Chapter 37 shall automatically fall due on such
date. (See §36.4334.)

\(e\) A graduated payment mortgage loan, providing for deferrals of
interest during the first 5 years of the loan and addition of the
deferred amounts to principal shall be eligible, *Provided:*

\(1\) The loan is for the purpose of acquiring a single-family dwelling
unit, including a condominium unit or simultaneously acquiring and
improving a previously occupied, existing single-family dwelling unit.

\(2\) (i) For proposed construction or existing homes not previously
occupied (new homes), the maximum loan amount cannot exceed 97.5 percent
of the lesser of the reasonable value of the property as of the time the
loan is made or the purchase price.

\(ii\) For previously occupied, existing homes the maximum loan amount
must be computed to assure that the principal amount of the loan,
including all interest scheduled to be deferred and added to the loan
principal, will not exceed the purchase price or reasonable value of the
property, whichever is less, as of the time the loan is made;

\(3\) The increases in the monthly periodic payment amount occur
annually on each of the first five annual anniversary dates of the first
loan installment due date, at a rate of 7.5 percent over the preceding
year's monthly payment amount;

**§36.4403 Joint ownership of housing unit.**

The construction or remodeling of a housing unit, or reimbursement to a
veteran who has acquired a suitable unit at the veteran's own expense
pursuant to section 2101(a) of chapter 21, shall be permissible
notwithstanding that title to the home is or will be vested in an
eligible veteran and spouse. If an undivided interest is or will be
owned by a person other than the spouse of the veteran the cost of the
unit to the veteran shall be computed to be such part of the total cost
of the unit as is proportionate to the undivided interest of the veteran
in the entire property, and the percentages and amounts prescribed in
section 2101(a) of chapter 21 shall be calculated only upon such cost to
the veteran.

\[46 FR 43674, Aug. 31, 1981\]

**§36.4404 Computation of cost.**

\(a\) *Computation of cost of housing unit*. Under section 2101(a) of
chapter 21, for the purpose of computing the amount of benefits payable
to a veteran-beneficiary, there may be included in the total cost to the
veteran the following amount, not to exceed \$48,000.

\(1\) The cost of the necessary land and the grading, landscaping, and
improvement thereof for use for residential purposes.

\(2\) The cost of the improvement erected thereon and the appurtenances
thereto, including such heating, cooking, laundry, and refrigeration
equipment as may be suitable to equip a housing unit for residential
use.

\(3\) The cost of remodeling a housing unit.

\(4\) The cost of movable facilities and special fixtures.

\(5\) Reasonable architects' and attorneys' fees for services rendered
to the veteran which are necessary to and are in connection with the
transaction.

\(6\) Any charges for the customary necessary connections to or
extensions of public facilities and improvements.

\(7\) Such other reasonable costs or expenses incurred in closing a loan
or financing the acquisition of the housing and land, including unpaid
taxes, ground rents, or assessments, which are normally required to be
paid by a lienor or a purchaser.

\(b\) *Computation of cost of adaptations.* Under section 2101(b) of
Chapter 21, for the purpose of computing the amount of benefits payable
to a veteran-beneficiary, the assistance is limited to the lesser of:

\(1\) The actual cost, or in the case of a veteran acquiring a residence
already adapted with special features, the fair market value of the
adaptations, including installation costs, determined to be reasonably
necessary, or

\(2\) \$9,250. (Authority: 38 U.S.C. 2102)

\[46 FR 43674, Aug. 31, 1981, as amended at 50 FR 13021, Apr. 2, 1985;
56 FR 9862, Mar. 8, 1991; 61 FR 28059, June 4, 1996; 68 FR 6627, Feb.
10, 2003\]

**Supplement *Highlights* references**: 15(1), 26(1).

Reserved

**§36.4405 Submission of proof to the Secretary.**

As a condition precedent to the grant the Secretary may require
submission of such proof of costs and other matters as the Secretary may
deem necessary.

\[13 FR 7282, Nov. 27, 1948, as amended at 46 FR 43674, Aug. 31, 1981\]

**§36.4406 Disbursement of benefit authorized.**

After approval of an application for a grant, the Secretary shall decide
upon a method of disbursement which in the Secretary's opinion is
appropriate and advisable in the interest of the veteran and the
Government and disburse the benefit payable accordingly. Disbursements
may be made to the veteran or to third parties who have contracted with
the veteran, or to an escrow agent under conditions imposed by the
Secretary.

\[14 FR 5780, Sept. 22, 1949, as amended at 46 FR 43674, Aug. 31, 1981\]

**§36.4407 Supplementary administrative action.**

Notwithstanding any requirement, condition, or limitation stated in or
imposed by §§36.4401 through 36.4410, the Secretary, within the
limitations and conditions prescribed in 38 U.S.C. chapters 3 and 21,
may take such action as may be necessary or appropriate to relieve undue
prejudice to a veteran or a third party contracting or dealing with such
veteran which might otherwise result.

\[24 FR 2657, Apr. 7, 1959\]

**§36.4527 Direct housing loans to Native American veterans on trust
lands.**

\(a\) The Secretary may make a direct housing loan to a Native American
veteran if:

\(1\) The Secretary has entered into a memorandum of understanding with
respect to such loans with the tribal organization that has jurisdiction
over the veteran; or

\(2\) The tribal organization that has jurisdiction over the veteran has
entered into a memorandum of understanding with any department or agency
of the United States with respect to such loans and the memorandum
complies with the requirements of paragraph (b) of this section.
(Authority: 38 U.S.C. 3762(a))

\(3\) The memorandum is in effect when the loan is made and will remain
in effect until the maturity of the subject loan.

\(b\) (1) Subject to paragraph (b)(2) of this section, each memorandum
of understanding entered into by the Secretary with a tribal
organization shall provide for the following:

\(i\) That each Native American veteran who is under the jurisdiction of
the tribal organization and to whom the Secretary makes a direct loan
under this section

\(A\) Holds, possesses, or acquires using the proceeds of the loan a
meaningful interest in a lot and/or dwelling that is located on trust
land; and

\(B\) Will purchase, construct, or improve a dwelling on the lot using
the proceeds of the loan.

\(ii\) That each Native American veteran obtaining a direct loan under
this section will convey to the Secretary by an appropriate instrument
the interest referred to in paragraph (A) as security for the direct
loan or, if the laws of the tribal organization do not allow the veteran
to convey the meaningful interest to the Secretary, the memorandum of
understanding may authorize the tribe to serve as Trustee for the
Secretary for purposes of protecting the interest of the Secretary as
lender.

\(iii\) That the tribal organization and each Native American veteran
obtaining a direct loan under this section will permit the Secretary or
his or her designee to enter upon the trust land of that organization or
veteran for the purposes of carrying out such actions as the Secretary
or his or her designee determines may be necessary:

\(A\) To evaluate the advisability of the loan; and

\(B\) To monitor any purchase, construction, or improvements carried out
using the proceeds of the loan.

\(C\) To protect the improvements from vandalism and the elements,

\(D\) To make property inspections in conjunction with loan servicing,
financial counseling, foreclosure, acquisition, management, repair, and
resale of the secured interest.

\(iv\) That the tribal organization has established standards and
procedures that authorize the grantee to legally establish the interest
conveyed by a Native American veteran pursuant to subsection (B) and
terminate all interest of the veteran in the land and improvements,
including:

\(A\) Procedures for foreclosing the loan in the event of a default;

\(B\) Procedures for acquiring possession of the veteran's interest in
the property; and

\(C\) Procedures for the resale of the property interest and/or the
dwelling purchased, constructed, or improved using the proceeds of the
loan.

\(v\) That the tribal organization agrees to such other terms and
conditions with respect to the making of direct loans to Native American
veterans under the jurisdiction of the tribal organization as the
Secretary and the tribal organization may negotiate in order to ensure
that direct loans made under this section are made in a responsible and
prudent manner.

\(2\) The Secretary, or his or her designee, may only enter into a
memorandum of understanding with a tribal organization under this
section if the Secretary, or designee, determines that the memorandum
provides for standards and procedures necessary to reasonably protect
the financial interests of the United States.

\(c\) (1) Except as otherwise provided in this paragraph, and
notwithstanding the provisions of §36.4503 of this title, the principal
amount of any loan made under this section may not exceed \$80,000. The
original principal amount of any loan made under this section shall not
exceed an amount which bears the same ratio to \$80,000 as the amount of
the guaranty to which the veteran would be entitled under 38 U.S.C. 3710
at the time the loan is made bears to \$36,000.

\(2\) The Secretary may make loans which exceed the amount specified in
paragraph (c)(1) of this section in geographic areas in which the
Secretary has determined that housing costs are significantly higher
than average housing costs nationwide. The Secretary shall determine the
maximum loan amounts in such areas. The original principal amount of any
such loan shall not exceed an amount which bears the same ratio to the
maximum loan amount established by the Secretary as the amount of the
guaranty to which the veteran would be entitled under 38 U.S.C. 3710 at
the time the loan is made bears to \$36,000.

\(3\) Loans made under this section shall bear interest at a rate
determined by the Secretary after considering yields on comparable
mortgages in the secondary market, including bid and ask prices on
mortgage-backed securities guaranteed by the Government National
Mortgage Association (GNMA).

\(4\) The minimum requirements for planning, construction, improvement,
and general acceptability relating to any direct loan made under this
section shall be consistent with the administrative property standards
established for loans made or guaranteed under title 38, U.S.C., chapter
37.

\(d\) Notwithstanding the provisions of §36.4504(b), for loans made
under this section, the Native American veteran-borrower shall pay the
following loan closing costs to the parties indicated:

\(1\) A loan fee of 1.25 percent of the total loan amount (2 percent for
Reservists who qualify under the provisions of 38 U.S.C. 3701(b)(5)) to
the Department of Veterans Affairs. All or part of such fee may be paid
in cash at loan closing or all or part of the fee may be included in the
loan without regard to the reasonable value of the property or the
maximum loan amount. In computing the fee, the Department of Veterans
Affairs will disregard any amount included in the loan to enable the
borrower to pay such fee.

\(2\) The fee described in paragraph (d)(1) of this section shall not be
collected from a veteran who is receiving compensation (or who but for
the receipt of retirement pay would be entitled to receive compensation)
or from a surviving spouse described in §3701(b)(2) of title 38 U.S.C.

\(3\) If the Secretary designates a third party to process the loan
package on VA's behalf, a processing fee to that third party not to
exceed \$300 plus the actual cost of any credit report required.

\(4\) Costs or expenses normally paid by a purchaser or mortgagee
incident to loan closing including but not limited to the following:

\(i\) Fees of the Department of Veterans Affairs designated appraisers
and compliance inspectors;

\(ii\) Recording fees or other charges incident to recordation;

\(iii\) That portion of assessments and other similar items for the
current year chargeable to the borrower; and

\(iv\) Hazard insurance premiums, if such insurance is available.

\(5\) Charges or costs payable by the Native American veteran-borrower,
except for the loan fee described in paragraph (d)(1) of this section,
shall be paid in cash and may not be paid out of the proceeds of the
loan. No service or brokerage fee shall be charged against the Native
American veteran-borrower by any third party for procuring a direct
loan.

\(e\) (1) The credit underwriting standards of 38 CFR 36.4337 shall
apply to loans made under this section except to the extent the
Secretary determines that they should be modified on account of the
purpose of the program to make available housing to Native American
veterans living on trust lands.

\(2\) The Secretary shall determine the reasonable value of the
leasehold or other property interest that will serve as security for a
loan made under this section in accordance with §37.4519, of this
chapter, unless the Secretary determines that such requirements are
impractical to implement in a geographic area, on particular trust
lands, or under circumstances specified by the Secretary.

\(f\) In connection with the origination of any loan under this section,
the Secretary may make advances in cash to provide for repairs,
alterations, and improvements and to meet incidental expenses of the
loan transaction.

\(g\) Loans made under this section shall be amortized under a generally
recognized plan which provides for equal monthly installments consisting
of principal and interest, except for the final installment, which may
not be in excess of two times the regular monthly installment. The
limitation on the amount of the final installment shall not apply in the
case of any loan extended, ballooned and/or reamortized.

\(h\) The Secretary may:

\(1\) Take any action that the Secretary determines to be necessary for
the custody, management, and protection of properties and the
realization or sale of investments under the VA Native American Direct
Loan Program;

\(2\) Determine any necessary expenses and expenditures and the manner
in which such expenses and expenditures shall be incurred, allowed, and
paid;

\(3\) Employ, utilize, and compensate persons, organizations, or
departments or agencies (including departments and agencies of the
United States) designated by the Secretary to carry out necessary
functions, including but not limited to loan processing and servicing
activities, appraisals, and property inspections.

\(i\) Notwithstanding any requirement, condition, or limitation stated
in or imposed by any provision of this regulation, the Under Secretary
for Benefits, or the Director, Loan Guaranty Service, within the
limitations and conditions prescribed by the Secretary, may execute
memoranda of understanding, make determinations concerning the maximum
direct loan amount as provided in paragraph (c) of this section, and
take such supplementary administrative action as may be necessary or
appropriate to relieve any undue prejudice to a debtor, or other person,
which might otherwise result, provided such action shall not impair the
vested rights of any person affected thereby. If such a requirement,
condition, or limitation is of an administrative or procedural nature,
such action may be taken by any employee authorized to act under
paragraph (j) of this section.

\(j\) (1) Except as hereinafter provided, each employee of the
Department of Veterans Affairs appointed to, or otherwise lawfully
filling, any position designated in paragraph (j)(2) of this section is
hereby delegated authority, within the limitations and conditions
prescribed by law, to exercise the powers and functions of the Secretary
with respect to the making of loans and the rights and liabilities
arising therefrom, including, but not limited to the collection or
compromise of amounts due, in money or other property, the extension,
rearrangement, or sale of loans, and the management and disposition of
secured or unsecured notes and other property. In connection with direct
loans made and held by the Department of Veterans Affairs, such
designated employees may take any action which they are authorized to
consent to or approve in respect to guaranteed loans under §36.4342.
Incidental to the exercise and performance of the powers and functions
hereby delegated, each such employee is authorized to execute and
deliver (with or without acknowledgment) for, and on behalf of, the
Secretary such certificates, forms, conveyances, and other instruments
as may be appropriate in connection with the acquisition, ownership,
management, sale, transfer, assignment, encumbrance, rental, or other
disposition of real or personal property or of any right, title, or
interest therein, including, but not limited to, contracts of sale,
installment contracts, deeds, leases, bills of sale, assignments, and
releases; and to approve disbursements to be made for any purpose
authorized by 38 U.S.C. chapter 37.

\(2\) Designated positions:

Under Secretary for Benefits

Deputy Under Secretary for Benefits

Director, Loan Guaranty Service

Director, Medical and Regional Office Center

Director, VA Regional Office and Insurance Center

Director, Regional Office

Loan Guaranty Officer

Assistant Loan Guaranty Officer

The authority hereby delegated to employees of the positions designated
in this paragraph may, with the approval of the Under Secretary for
Benefits, be redelegated.

\(3\) Nothing in this section shall be construed to authorize any such
employee to exercise the authority vested in the Secretary under 38
U.S.C. 501(a) or 3703(a)(2) or to sue or enter appearance for and on
behalf of the Secretary or confess judgment against the Secretary in any
court without the Secretary's prior authorization.

\(4\) Each Regional Office, Regional Office and Insurance Center, and
Medical and Regional Office Center shall maintain and keep current a
cumulative list of all employees of that Office or Center who, since May
1, 1980, have occupied the positions of Director, Loan Guaranty Officer,
and Assistant Loan Guaranty Officer. This list will include each
employee's name, title, date the employee assumed the position, and the
termination date, if applicable, of the employee's tenure in such
position. The list shall be available for public inspection and copying
at the Regional Office, or Center, during normal business hours.
(Authority: 38 U.S.C. 3761-3764)

\[58 FR 59660, Nov. 10, 1993, as amended at 68 FR 6627, Feb. 10, 2003\]

**Supplement *Highlights* references**: 7(1), 26(1).

*Next Section is 36.4600*

Reserved