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shall be taken into consideration as if Secretary has suffered a loss on sa made subsequent thereto.

loan, such loss has been paid in full; (g) A loan eligible for insurance may (ii) A veteran-transferee has agre be either guaranteed or insured at the

to assume the outstanding balance option of the borrower and the lender:

the loan and consented to the use of l Provided, That if the Secretary is not

or her entitlement to the extent t advised of the exercise of such option

entitlement of the veteran-transfer at the time the loan is reported pursu

had been used originally; or ant to $36.4303 such loan will not be eli

(3) The loan has been repaid in fu gible for insurance. (h) A guaranty is reduced or in

and the loan for which the veter creased pro rata with any deduction or

seeks to use entitlement is secured increase in the amount of the guaran

the same property which secured t teed indebtedness, but in no event will fully repaid loan; or the amount payable on a guaranty or (4) In a case in which the veteri the percentage of the indebtedness cor- still owns the property purchased wit responding to that of the original guar- a VA-guaranteed loan, the Secreta, anty whichever is less. However, on a may, one time only, restore entitl graduated payment mortgage loan, the ment used on that loan if: percentage of guaranty applicable to

(i) the loan has been repaid in full a the original loan amount pursuant to if the Secretary has suffered a loss paragraph (a) of this section shall the loan. the loss has been paid in ful apply to the loan indebtedness to the

or extent scheduled deferred interest is

(ii) the Secretary has been release added to principal during the graduation period without regard to the origi

from liability as to the loan, and, if th nal maximum dollar amount of guar

Secretary has suffered a loss on th

loan, the loss has been paid in full. anty.

(k) The Secretary may, in any cas (Authority: 38 U.S.C. 3703(b) and (d))

involving circumstances deemed appri (i) The amount of any guaranty or

priate, waive either or both of the re

quirements set forth in paragraph the amount credited to a lender's insurance account in relation to any in

(j)(1) and (j)(2)(i) of this section. sured loan shall be charged against the original or remainder of the guaranty

(Authority: 38 U.S.C. 3702(b), 3710) benefit of the borrower. Complete or (1)(1) The amount of guaranty enti partial liquidation, by payment or oth- tlement, available and unused, of an el erwise, of the veteran's guaranteed origible unmarried surviving spous insured indebtedness does not increase (whose eligibility does not result fron the remainder of the guaranty benefit, his or her own service) is determinable if any, otherwise available to the vet

in the same manner as in the case ol eran. When the maximum amount of

any veteran, and any entitlement guaranty or insurance legally available

which the decedent (who was his or hel to a veteran shall have been granted,

spouse) used shall be disregarded. A no further guaranty or insurance is

certificate as to the eligibility of such available to the veteran. (j) Notwithstanding the provisions of

surviving spouse, issued by the Sec paragraph (g) of this section, the Sec

retary, shall be a condition precedent

to the guaranty or insurance of any retary may exclude the amount of guaranty or insurance entitlement

loan made to a surviving spouse 11 used for any guaranteed or insured such capacity. loan provided:

(1) The property which served as se- (Authority: 38 U.S.C. 3701(a)) curity for the loan has been disposed of (2) An unmarried surviving spouse by the veteran, or has been destroyed who was a co-obligor under an existing by fire or other natural hazard; and

VA guaranteed, insured or direct loan (2)(i) The loan has been repaid in full or the Secretary has been released from liability as to the loan, or if the

(c) Each loan proposed to be made to an eligible veteran by a lender not within a class described in 38 U.S.C. 3702(d) shall be submitted to the Secretary for approval prior to closing. Lenders described in 38 U.S.C. 3702(d) shall have the optional right to submit any loan for such prior approval. The Secretary, upon determining any loan so submitted to be eligible for a guaranty, or for insurance, will issue a certificate of commitment with respect thereto.

(d) A certificate of commitment shall entitle the holder to the issuance of the evidence of guaranty or insurance upon the ultimate actual payment of the full proceeds of the loan for the purposes described in the original report and upon the submission within 60 days thereafter of a supplemental report showing that fact and:

(1) The identity of any property purchased therewith,

(2) That all property purchased or acquired with the proceeds of the loan has been encumbered as required by the regulations concerning guaranty or insurance of loans to veterans,

(3) Except for acquisition and improvement loans

defined in $36.4301(c), any construction, repairs, alterations, or improvements paid for out of the proceeds of the loan, which have not been inspected and approved subsequent to completion by a compliance inspector designated by the Secretary, have been completed properly in full accordance with the plans and specifications upon which the original appraisal was based; and that any deviations or changes of identity in said property have been approved as quired by $36.4304, and

(4) That the loan conforms otherwise with the applicable provisions of 38 U.S.C. Chapter 37 and the regulations concerning guaranty or insurance of loans to veterans.



(Authority: 38 U.S.C. 3703(C)(1))

(e) Upon the failure of the lender to report in accordance with the provisions of paragraph (d) of this section, the certificate of commitment shall have no further effect, or the amount of guaranty or insurance shall be reduced pro rata, as may be appropriate under the facts of the case: Provided, property while the work is beim pleted. In such a case the vete spouse of the active duty vetera certify that he or she intends too or reoccupy the property as his home upon completion of the su tial improvements or repairs. All mentioned certifications must place at the time of loan appli and closing except in the case of automatically guaranteed, in case veterans or, in the case of tive duty veteran, the veterans' & shall make the required certifid only at the time the loan is closed

considered to be a veteran eliran interest rate reduction reng loan pursuant to 38 U.S.C. 3) or (9)(B)(i).

ty: 38 U.S.C. 3710(e)(3)) ty: 38 U.S.C. 501, 3703(C)(1)) 274, Nov. 27, 1948, as amended at 35

Nov. 7, 1970; 40 FR 34589, Aug. 18, FR 43672, Aug. 31, 1981; 47 FR 15139, 982; 49 FR 28243, July 11, 1984; 50 FR 1. 24, 1985; 55 FR 40655, Oct. 4, 1990; 60 1, July 26, 1995)

3 Reporting requirements. Tith respect to loans automatiguaranteed

under 38 U.S.C. 1), evidence of the guaranty will able to a lender of a class de| under 38 U.S.C. 3702(d) if the reported to the Secretary withdays following full disbursement on the certification of the lender

No default exists thereunder that ontinued for more than 30 days; Except for acquisition and imment loans as defined in 836.4301, onstruction, repairs, alterations, iprovements effected subsequent e appraisal of reasonable value, aid for out of the proceeds of the which have not been inspected upproved upon completion by a liance inspector designated by the tary, have been completed propin full accordance with the plans specifications upon which the nal appraisal was based; and any tions or changes of identity in property have been approved as red in $36.4304 concerning guaranty surance of loans to veterans; The loan conforms otherwise with applicable provisions of 38 U.S.C. pter 37 and of the regulations coning guaranty or insurance of loans eterans.

hority: 38 U.S.C. 3703(C)(1)) Loans made pursuant to 38 U.S.C. a), although not entitled to autoic insurance thereunder, may, n made by a lender of a class debed in 38 U.S.C. 3702(d)(1), be reted for issuance of an insurance lit.

thority: 38 U.S.C. 3702(d), 3703(a)(2))

nevertheless, that if the loan otherwise meets the requirements of this section, said certificate of commitment may be given effect by the Secretary, notwithstanding the report is received after the date otherwise required.

(f) For loans not reported within 60 days, evidence of guaranty will be issued only if the loan report is accompanied by a statement signed by a corporate officer of the lending institution which explains why the loan was reported late. The statement must identify the case or cases in issue and must set forth the specific reason or reasons why the loan was not submitted on time. Upon receipt of such a statement evidence of guaranty will be issued. A pattern of late reporting and the reasons therefore will be considered by VA in taking action under $36.4349.

(g) Evidence of a guaranty will be issued by the Secretary by appropriate endorsement on the note or other instrument evidencing the obligation, or by a separate certificate at the option of the lender. Notice of credit to an insurance account will be given to the lender. Unused certificates of eligibility issued prior to March 1, 1946, are void. No certificate of commitment shall be issued and no loan shall be guaranteed or insured unless the lender, the veteran, and the loan are shown to be eligible. Evidence of guaranty or insurance will not be issued on any loan for the purchase or construction of residential property unless the veteran, or the veteran's spouse in the case of a veteran who cannot occupy the property because of active duty status with the Armed Forces, certifies in such form as the Secretary shall prescribe that the veteran, or spouse of the active duty veteran, intends to occupy the property as his or her home. Guaranty or insurance evidence will not be issued on any loan for the alteration, improvement, or repair of any residential property or on a refinancing loan unless the veteran, or spouse of an active duty servicemember, certifies that he or she presently occupies the property as his or her home. An exception to this is if the home improvement or refinancing loan is for extensive changes to the property that will prevent the veteran or the spouse of the active duty veteran from occupying the

(Authority: 38 U.S.C. 3704(c))

(h) Subject to compliance with regulations concerning guaranty surance of loans to veterans, the tificate of guaranty or the eviden insurance credit will be issuable w the available entitlement of the eran on the basis of the loan state the final loan report or certificatio loan disbursement, except for nancing loans for interest rate re tions. The available entitlement veteran will be determined by the retary as of the date of receipt o application for guaranty or insur, of a loan or of a loan report. Such of receipt shall be the date the app! tion or loan report is date-stan into VA. Eligibility derived from most recent period of service:

(1) Shall cancel any unused enti ment derived from any earlier perio service, and

(2) Shall be reduced by the ama by which entitlement from serviced ing any earlier period has been used obtain a direct, guaranteed, or insa loan.

(i) On property which the vete owns at the time of application, or

(ii) As to which the Secretary has curred actual liability or loss, unles the event of loss or the incurrence i payment of such liability by the 8 retary, the resulting indebtedness the veteran to the United States! been paid in full. Provided, That if Secretary issues or has issued a cert cate of commitment covering the lo described in the application for gu anty or insurance or in the loan repo the amount and percentage of guarar or the amount of the insurance cre

contemplated by the certificate of commitment shall not be subject to reduction if the loan has been or is closed on a date that is not later than the expiration date of the certificate of commitment, notwithstanding that the Secretary in the meantime and prior to the issuance of the evidence of guaranty or insurance shall have incurred actual liability or loss on a direct, guaranteed, or insured loan previously obtained by the borrower. For the purposes of this paragraph, the Secretary will be deemed to have incurred actual loss on a guaranteed or insured loan if the Secretary has paid a guaranty or insurance claim thereon and the veteran's resultant indebtedness to the Government has not been paid in full, and to have incurred actual liability on a guaranteed or insured loan if the SecPetary is in receipt of a claim on the guaranty or insurance or is in receipt of a notice of default. In the case of a direct loan, the Secretary will be deemed to have incurred an actual loss if the loan is in default. A loan, the proceeds of which are to be disbursed progressively or at intervals, will be deemed to have been closed for the purposes of this paragraph if the loan has been completed in all respects excepting the actual "payout” of the entire loan proceeds.

(2) Is dated on or after June 4, 1969;

(3) Provides for a purchase price or cost to the veteran in excess of the reasonable value established by the Secretary; and

(4) Was signed by the veteran prior to the veteran's receipt of notice of such reasonable value; unless such contract includes, or is amended to include, a provision substantially as follows:

It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise or be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs.

Aathority: 38 U.S.C. 3702(a), 3710(c))

(i) Any amounts that are disbursed for an ineligible purpose shall be excluded in computing the amount of guaranty or insurance credit.

(1) Notwithstanding the lender has Erroneously, but without intent to misrepresent, made certification with respect to paragraph (a)(1) of this section, the guaranty or insurance will become effective upon the curing of such default and its continuing current for a period of not less than 60 days thereafter. For the purpose of this paragraph a loan will be deemed current so long as the installment is received within 30 days after its due date.

(k) No guaranty or insurance commitment or evidence of guaranty or insurance will be issuable in respect to any loan to finance a contract that:

(1) Is for the purchase, construction, repair, alteration, or improvement of a dwelling or farm residence;

(Authority: 38 U.S.C. 501, 3703(C)(1))

(1) With respect to any loan for which a commitment was made on or after March 1, 1988, the Secretary must be notified whenever the holder receives knowledge of disposition of the residential property securing a VA-guaranteed loan.

(1) If the seller applies for prior approval of the assumption of the loan, then:

(i) A holder (or its authorized seryicing agent) who is an automatic lender must examine the creditworthiness of the purchaser and determine compliance with the provisions of 38 U.S.C. 3714. The creditworthiness review must be performed by the party that has automatic authority. If both the holder and its servicing agent are automatic lenders, then they must decide between themselves which one will make the determination of creditworthiness, whether the loan is current and whether there is a contractual obligation to assume the loan, as required by 38 U.S.C. 3714. If the actual loan holder does not have automatic authority and its servicing agent is an automatic lender, then the servicing agent must make the determinations required by 38 U.S.C. 3714 on behalf of the holder. The actual holder will remain ultimately responsible for any failure of

its servicing agent to comply with the applicable law and VA regulations.

(A) If the assumption is approved and the transfer of the security is completed, then the notice required by this paragraph shall consist of the credit package (unless previously provided in accordance with paragraph (k)(1)(i)(B) of this section) and a copy of the executed deed and/or assumption agreement as required by VA office of jurisdiction. The notice shall be submitted to the Department with VA receipt for the funding fee provided for in $36.4312(e)(3) of this part.

(B) If the application for assumption is disapproved, the holder shall notify the seller and the purchaser that the decision may be appealed to the VA office of jurisdiction within 30 days. The holder shall make available to that VA office all items used by the holder in making the holder's decision in case the decision is appealed to VA. If the application remains disapproved after 60 days (to allow time for appeal to and review by VA), then the holder must refund $50 of any fee previously collected under the provisions of $36.4312(d)(8) of this part. If the application is subsequently approved and the sale is completed, then the holder (or its authorized servicing agent) shall provide the notice described in paragraph (k)(1)(i)(A) of this section.

(C) In performing the requirements of paragraphs (k)(1)(i)(A) or (k)(1)(i)(B) of this section, the holder must complete its examination of the creditworthiness of the prospective purchaser and advise the seller no later than 45 days after the date of receipt by the holder of a complete application package for the approval of the assumption. The 45-day period may be extended by an interval not to exceed the time caused by delays in processing of the application that are documented as beyond the control of the holder, such as employers or depositories not responding to requests for verifications, which were timely forwarded, or follow-ups on those requests.

(ii) If neither the holder nor its authorized servicing agent is an automatic lender, the notice to VA shall include:

(A) Advice regarding wheth loan is current or in default;

(B) A copy of the purchase a and

(C) A complete credit package oped by the holder which the Se may use for determining the worthiness of the purchaser.

(D) The notice and documei quired by this section must i mitted to the VA office of juris no later than 35 days after the receipt by the holder of a compl plication package for the appro the assumption, subject to the extensions as provided in para (k)(1)(i) of this section. If the ag tion is not automatically appro the holder or its authorized agen suant to the automatic authoriti visions, $50 of any fee collected i cordance with $36.4312(d)(8) of this must be refunded. If the Departme Veterans Affairs does not approv assumption, the holder will be no and an additional $50 of any fee lected under $36.4312(d)(8) of this tion must be refunded following th piration of the 30-day appeal peric out in paragraph (k)(1)(i)(B) of this tion. If such an appeal is made ta Department of Veterans Affairs, the review will be conducted at thi partment of Veterans Affairs offi jurisdiction by an individual who not involved in the original disapp decision. If the application for ass tion is approved and the transfer curity is completed, then the holder its authorized servicing agent): provide the notice required in graph (k)(1)(i)(A) of this section

(2) If the seller fails to notify holder before disposing of property curing the loan, the holder shall ng the Secretary within 60 days a learning of the transfer. Such no shall advise whether or not the ho intends to exercise its option to im diately accelerate the loan and wh er or not an opportunity will be tended to the transferor and transit to apply for retroactive approval of

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