VA Home Loan Program Reform Act in plain language
1: Short title
This section states that the Act may be called the VA Home Loan Program Reform Act.
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1. Short title This Act may be cited as the VA Home Loan Program Reform Act .
2: Authority of the Secretary of Veterans Affairs to take certain actions in the case of a default on a home loan guaranteed by the Secretary
This section would amend two parts of title 38 of the U.S. Code that govern the VA home loan guaranty program: section 3732 and section 3720. Changes to section 3732: in subsection (a)(1), the word obligation would be replaced with the word loan everywhere it appears in that paragraph; the text provided does not show what paragraph (a)(1) otherwise says, so its substance beyond this wording change is not covered here. In subsection (a)(2), subparagraph (A) would be rewritten so the Secretary may, on terms and conditions the Secretary sets, do three things for a VA-guaranteed loan: pay the loan holder the amount needed to avoid foreclosure of the loan; require the loan holder and the veteran who owes the loan to sign whatever documents are needed to give the Secretary a secured interest in the property covering the loan; and require the loan holder to take any actions needed to carry this out, including preparing, signing, sending, receiving, and recording documents, and placing the loan into forbearance. In the same subsection (a)(2), subparagraph (B) would have the word obligation replaced with the words housing loan everywhere it appears (the text does not show what subparagraph (B) otherwise says). Two new subparagraphs would be added to subsection (a)(2): first, any decision the Secretary makes under this paragraph would be final and could not be reviewed by a court, and such a decision would not count as a decision under a law affecting the provision of benefits, so it could not be challenged through VA's normal benefits-appeal process; second, the Secretary could set standards for processing these payments based on a loan holder's certification that the holder met all of the Secretary's requirements, but the Secretary would still have to run random-sample audits after payment to check that holders actually complied. In subsection (a)(5), the word obligation would be replaced with the word loan. In subsection (c)(10)(B)(i), a misspelling of the word forbearance would be corrected, with no change in meaning. A new subsection (d) would require the Secretary to set loss-mitigation procedures for VA-guaranteed loans, including a required order in which the loan holder must offer loss-mitigation options to the veteran, including the option to enter a partial claim agreement under this Act, in order to help prevent foreclosure of the loan; the Secretary could not buy an entire loan until the veteran completed that required sequence of options. Changes to section 3720: subsection (a) would add the phrase Except as provided in subsection (h) before its existing notwithstanding clause, so the powers subsection (a) grants the Secretary would now be limited by a new subsection (h); the text does not show what else subsection (a) covers. The current subsections (f), (g), and (h) would be renumbered as (e), (f), and (g), with no change to their content. A new subsection (h) would bar the Secretary from taking any action under paragraph (2), (3), (4), or (5) of subsection (a) for a VA-guaranteed loan until the veteran has completed the loss-mitigation sequence required under the new section 3732(d) described above.
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2. Authority of the Secretary of Veterans Affairs to take certain actions in the case of a default on a home loan guaranteed by the Secretary (a) In general Section 3732 of title 38, United States Code, is amended— (1) in subsection (a)— (A) in paragraph (1), by striking obligation each place it appears and inserting loan ; (B) in paragraph (2)— (i) by amending subparagraph (A) to read as follows: (A) The Secretary may, under terms and conditions as determined by the Secretary— (i) pay the holder of a loan guaranteed under this chapter an amount necessary to avoid the foreclosure of such loan; (ii) require the holder of the loan and the veteran obligated on the loan to execute all documents necessary to ensure the Secretary obtains a secured interest in the property covered by the loan; and (iii) require the holder of the loan to take any actions necessary to carry out this paragraph, including preparing, executing, transmitting, receiving, and recording documents, and requiring the holder of the loan to place the loan in forbearance. ; (ii) in subparagraph (B), by striking obligation each place it appears and inserting housing loan ; and (iii) by adding at the end the following new subparagraphs: (C) (i) Any decision by the Secretary under this paragraph is final and is not subject to judicial review. (ii) For purposes of section 511 of this title, any decision under this paragraph shall not be treated as a decision under a law that affects the provision of benefits. (D) (i) The Secretary may establish standards for processing payments under this paragraph based on a certification by a holder of a loan guaranteed under this chapter that the holder has complied with all applicable requirements established by the Secretary. (ii) The Secretary shall carry out, on a random-sampling basis, post-payment audits to ensure compliance with all requirements described in clause (i). ; and (C) in paragraph (5), by striking obligation and inserting loan ; (2) in subsection (c)(10)(B)(i), by striking forebearance each place it appears and inserting forbearance ; and (3) by adding at the end the following new subsection: (d) The Secretary shall prescribe loss mitigation procedures, including a mandatory sequence in which the holder of a loan guaranteed under this chapter shall offer loss mitigation options (including an option to enter into a partial claim agreement under the VA Home Loan Program Reform Act ) to a veteran, to help prevent the foreclosure of such loan. The Secretary may not purchase an entire such loan until the veteran has completed such sequence. . (b) Relationship to other powers of Secretary Section 3720 of such title is amended— (1) in subsection (a), by striking Notwithstanding and inserting Except as provided in subsection (h), notwithstanding ; (2) by redesignating subsections (f) through (h) as subsections (e) through (g), respectively; and (3) by adding at the end the following new subsection (h): (h) The Secretary may not take any action under paragraph (2),(3),(4), or (5) of subsection (a) with respect to a loan guaranteed under this chapter before the completion of the sequence of mitigation options offered to the veteran to whom the loan is made under section 3732(d) of this title. .
3: Partial Claim Program of the Department of Veterans Affairs
This section would create a new VA program called the Partial Claim Program. Under subsection (a), the Secretary of Veterans Affairs would run the program and could make a partial claim, as defined in subsection (b), on a loan only if the loan meets all three of these conditions: it is guaranteed under chapter 37 of title 38 of the U.S. Code; it covers the borrower's primary residence; and the Secretary determines it is in default or at imminent risk of default. Under subsection (b), a partial claim means the Secretary buys part of the debt owed on the guaranteed loan. To do this, the borrower must enter into a repayment agreement under subsection (c); the Secretary pays the loan holder the amount of debt, limited by subsection (d), that the Secretary decides is necessary to prevent or resolve the default; and the Secretary gets a secured interest in the property, ranked behind the first-lien guaranteed loan, as collateral for the guaranteed loan. Under subsection (c), the borrower agrees to repay the Secretary the amount the Secretary paid, due at the end of the guaranteed loan's term, with interest set as follows: the interest rate is 0 percent if the borrower agrees to start making monthly payments no later than three years after the Secretary makes the payment; the interest rate is 0.5 percent if the borrower does not agree to such a repayment plan, or agrees but fails to comply with it. Under subsection (d): a partial claim cannot exceed 20 percent of the unpaid principal balance of the guaranteed loan on the date the claim is made; the Secretary can make only one partial claim per loan; a partial claim cannot be structured as an advance on a new guaranteed loan; a loan holder that receives a partial claim payment must apply it first to any arrearages on the loan, which can include added costs such as taxes, insurance premiums, or homeowner's dues that the Secretary decides are necessary to prevent or resolve the default; and the Secretary can contract with an outside entity to service partial claims, and that entity must send the borrower quarterly statements. Under subsection (e), the Secretary can require the loan holder to take whatever actions are needed to set up the partial claim, including preparing, signing, sending, receiving, and recording documents; the Secretary must pay the loan holder appropriate compensation, as the Secretary determines, for this work; and the Secretary can use this authority without regard to other laws that would otherwise govern the spending of public funds, unless a law was written specifically to limit this section. Under subsection (f): if a borrower defaults under a partial claim, the borrower is liable to the Secretary for any resulting loss, which can be collected the same way as any other debt owed to the United States, and this liability applies despite section 3703(e) of title 38; if a borrower defaults under a partial claim, the Secretary may also reduce the total amount of guaranty or insurance housing loan entitlement available to that borrower under chapter 37; and despite section 2410(c) of title 28, foreclosure on a lien the United States holds because of a partial claim must follow the foreclosure procedures of the state or local law where the property is located. Under subsection (g), the Secretary has sole discretion to make a partial claim, on terms the Secretary finds acceptable that are consistent with this section; any decision the Secretary makes under this section is final and conclusive and cannot be reviewed by a court; and such a decision does not count as a decision under a law affecting the provision of benefits, so it cannot be challenged through VA's normal benefits-appeal process. Under subsection (h), the Secretary may set standards for processing partial-claim payments based on a loan holder's certification of compliance with the Secretary's requirements, but the Secretary must still run random-sample audits after payment to check compliance. Under subsection (i), for a loan that the Secretary determines was already in default on the date this Act is enacted, the Secretary may, before writing formal regulations, issue administrative guidance on making a partial claim for that loan, and may use that guidance to set additional requirements for such a claim. Under subsection (j), nothing in this section limits the Secretary's authority under subsections (a) and (d) of section 3732 of title 38, as those subsections would be amended by section 2 of this Act. Under subsection (k), the Secretary could not make any partial claim under this section after September 30, 2027.
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3. Partial Claim Program of the Department of Veterans Affairs (a) Establishment The Secretary of Veterans Affairs shall carry out a program, to be known as the Partial Claim Program , under which the Secretary may make a partial claim, described in subsection (b), with respect to a loan— (1) guaranteed under chapter 37 of title 38, United States Code; (2) regarding the primary residence of the borrower; and (3) that the Secretary determines is in default or at imminent risk of default. (b) Partial claim described A partial claim described in this subsection is the purchase by the Secretary of a portion of indebtedness under the guaranteed loan, under which— (1) the borrower of the guaranteed loan enters into an agreement under subsection (c); (2) the Secretary pays the holder of the guaranteed loan the amount of indebtedness, subject to subsection (d), that the Secretary determines necessary to help prevent or resolve a default; and (3) the Secretary receives a secured interest in the property, subordinate to the first lien guaranteed loan, serving as collateral for the guaranteed loan. (c) Agreement between borrower and Secretary An agreement under this subsection is an agreement by the borrower of the guaranteed loan to repay the Secretary the amount determined under subsection (b)(2) at the end of the period of such guaranteed loan, subject to the following annual interest: (1) If the borrower agrees to make monthly payments beginning not later than three years after the date on which the Secretary makes the payment under subsection (b)(2), 0 percent. (2) If the borrower does not agree to a repayment plan under paragraph (1), or fails to comply with such a repayment plan, 0.5 percent. (d) Administration of partial claim (1) Amount of claim The amount of a partial claim under this section with respect to a loan guaranteed under such chapter may not exceed 20 percent of the unpaid principal balance of the guaranteed loan on the date on which the partial claim is made. (2) One partial claim per loan The Secretary may make only one partial claim per loan. (3) Not an advance The Secretary may not structure a partial claim as an advance on a new loan guaranteed under such chapter. (4) Application of claim A holder of a loan guaranteed under such chapter who receives a partial claim under this section with respect to such loan shall apply the payment first to arrearages, if any, on the guaranteed loan, which may include any additional costs (such as taxes, insurance premiums, or homeowner’s dues) the Secretary determines necessary to prevent or resolve a default. (5) Authority to contract The Secretary may enter into a contract with an entity for service of a partial claim under this section. Such entity shall provide quarterly statements to the borrower. (e) Requirements of loan holder (1) Establishment of claim The Secretary may require the holder of a loan, regarding which the Secretary makes a partial claim under this section, to take any actions necessary to establish the partial claim, including preparing, executing, transmitting, receiving, and recording loan documents. (2) Compensation of holder The Secretary shall compensate the holder of such a loan appropriately, as determined by the Secretary, for the services required of such holder under this subsection. (3) Exercise of powers The Secretary may exercise the authority of the Secretary under this subsection without regard to any other provision of law not enacted expressly in limitation of this section that would otherwise govern the expenditure of public funds. (f) Default and foreclosure (1) Default (A) In general Notwithstanding section 3703(e) of title 38, United States Code, an individual who defaults under a partial claim made under this section shall be liable to the Secretary for any loss suffered by the Secretary resulting from such default, and such loss may be recovered in the same manner as any other debt due the United States. (B) Reduction of entitlement In the event of default by an individual under a partial claim made under this section, the Secretary may reduce the aggregate amount of guaranty or insurance housing loan entitlement available to the individual under such chapter. (2) Foreclosure Notwithstanding section 2410(c) of title 28, United States Code, an action to foreclose a lien held by the United States arising under a partial claim made under this section shall follow foreclosure procedures in accordance with State or local law where the property involved is located. (g) Decisions by the Secretary (1) Sole discretion Any partial claim under this section shall be made in the sole discretion of the Secretary and on terms and conditions acceptable to the Secretary that are consistent with this section. (2) Final and conclusive Any decision by the Secretary under this section is final and conclusive and is not subject to judicial review. (3) Effect on provision of benefits For purposes of section 511 of title 38, United States Code, any decision under this section shall not be treated as a decision under a law that affects the provision of benefits. (h) Compliance (1) Processing payments The Secretary may establish standards for processing payments under this section based on a certification by a holder of a loan guaranteed under such chapter that the holder has complied with all applicable requirements established by the Secretary. (2) Audits The Secretary shall carry out, on a random-sampling basis, post-payment audits to ensure compliance with all requirements described in paragraph (1). (i) Guidance with respect to certain loans (1) In general With respect to a loan described in paragraph (2), the Secretary may— (A) before prescribing regulations, issue administrative guidance regarding the making of a partial claim relating to such loan; and (B) establish, through such guidance, additional requirements applicable to such a partial claim. (2) Loan described A loan described in this paragraph is a loan that the Secretary determines was in default on the date of the enactment of this Act. (j) Rule of construction Nothing in this section shall be construed to limit the authority of the Secretary under subsections (a) and (d) of section 3732 of title 38, United States Code, as amended by section 2 of this Act. (k) Termination The Secretary may not make a partial claim under this section after September 30, 2027.
4: Strategy of the Secretary of Veterans Affairs regarding the effect of certain litigation
This section would require the Secretary of Veterans Affairs, no later than 90 days after this Act is enacted, to submit a report to the Senate and House Committees on Veterans' Affairs. The report must describe the Secretary's strategy for ensuring that a veteran who is trying to buy a home with a loan guaranteed under chapter 37 of title 38 is not at a disadvantage when trying to secure representation by a real estate agent or broker. The strategy described in the report may include changes to section 36.4313 of title 38 of the Code of Federal Regulations.
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4. Strategy of the Secretary of Veterans Affairs regarding the effect of certain litigation Not later than 90 days after the date of the enactment of this Act, the Secretary of Veterans Affairs shall submit to the Committees on Veterans’ Affairs of the Senate and House of Representatives a report on the strategy of the Secretary to ensure that a veteran who seeks to purchase a home with a loan guaranteed under chapter 37 of title 38, United States Code, is not at a disadvantage when attempting to secure representation by a real estate agent or broker. Such strategy may include amendments to section 36.4313 of title 38, Code of Federal Regulations.