[Code of Federal Regulations]
[Title 38, Volume 2]
[Revised as of July 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 38CFR36.4278]

[Page 580-582]
 
            TITLE 38--PENSIONS, BONUSES, AND VETERANS' RELIEF
 
          CHAPTER I--DEPARTMENT OF VETERANS AFFAIRS (CONTINUED)
 
PART 36--LOAN GUARANTY--Table of Contents
 
Sec. 36.4278  Servicing procedures for holders.

    (a) Establishment of loan servicing program. The holder of a loan 
guaranteed or insured by the Secretary shall develop and maintain a loan 
servicing program which follows accepted industry standards for 
servicing of similar type conventional loans. The loan servicing program 
established pursuant to this section may employ different servicing 
approaches to fit individual borrower circumstances and avoid 
establishing a fixed routine. However, it must incorporate each of the 
provisions specified in paragraphs (b) through (l) of this section.
    (b) Procedures for providing information. (1) Loan holders shall 
establish procedures to provide loan information to borrowers, arrange 
for individual loan consultations upon request and maintain controls to 
assure prompt responses to inquiries. One or more of the following means 
of making information readily available to borrowers is required:
    (i) An office staffed with trained servicing personnel with access 
to loan account information located within 200 miles of the property.
    (ii) Toll-free telephone service or acceptance of collect telephone 
calls at an office capable of providing needed information.
    (2) All borrowers must be informed of the system available for 
obtaining answers to loan inquiries, the office from which the needed 
information may be obtained, and reminded of the system at least 
annually.
    (c) Statement for income tax purposes. Within 60 days after the end 
of each calendar year, the holder shall furnish to the borrower a 
statement of the interest paid and, if applicable, a statement of the 
taxes disbursed from the escrow account during the preceding year. At 
the borrower's request, the holder shall furnish a statement of the 
escrow account sufficient to enable the borrower to reconcile the 
account.
    (d) Change of servicing. Whenever servicing of a loan guaranteed or 
insured by the Secretary is transferred from one holder to another, 
notice of such transfer by both the transferor and transferee, the form 
and content of such notice, the timing of such notice, the treatment of 
payments during the period of such transfer, and damages and costs for 
failure to comply with these requirements shall be governed by the 
pertinent provisions of the Real Estate Settlement Procedures Act as 
administered by the Department of Housing and Urban Development.
    (e) Escrow accounts. A holder of a loan guaranteed or insured by the 
Secretary may collect periodic deposits from the borrower for taxes and/
or insurance on the security and maintain a tax and insurance escrow 
account provided such a requirement is authorized under the

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terms of the security instruments. In maintaining such accounts, the 
holder shall comply with the pertinent provisions of the Real Estate 
Settlement Procedures Act.
    (f) System for servicing delinquent loans. In addition to the 
requirements of the Real Estate Settlement Procedures Act concerning the 
duties of the loan servicer to respond to borrower inquiries, to protect 
the borrower's credit rating during a payment dispute period, and to pay 
damages and costs for noncompliance, holders shall establish a system 
for servicing delinquent loans which ensures that prompt action is taken 
to collect amounts due from borrowers and minimize the number of loans 
in a default status. The holder's servicing system must include the 
following:
    (1) An accounting system which promptly alerts servicing personnel 
when a loan becomes delinquent;
    (2) A collection staff which is trained in techniques of loan 
servicing and counseling delinquent borrowers to advise borrowers how to 
cure delinquencies, protect their equity and credit rating and, if the 
default is insoluble, pursue alternatives to foreclosure;
    (3) Procedural guidelines for individual analysis of each 
delinquency;
    (4) Instructions and appropriate controls for sending delinquent 
notices, assessing late charges, handling partial payments, maintaining 
servicing histories and evaluating repayment proposals;
    (5) Management review procedures for evaluating efforts made to 
collect the delinquency and the response from the borrower before a 
decision is made to initiate action to liquidate a loan;
    (6) Procedures for reporting delinquencies of 90 days or more and 
loan terminations to major consumer credit bureaus as specified by the 
Secretary and for informing borrowers that such action will be taken; 
and,
    (7) Controls to ensure that all notices required to be given to the 
Secretary on delinquent loans are provided timely and in such form as 
the Secretary shall require.
    (g) Collection actions. (1) Holders should employ collection 
techniques which provide flexibility to adapt to the individual needs 
and circumstances of each borrower. A variety of collection techniques 
may be used based on the holder's determination of the most effective 
means of contact with borrowers during various stages of delinquency. 
However, at a minimum, the holder's collection procedures must include 
the following actions:
    (i) A written delinquency notice to the borrower(s) requesting 
immediate payment if a loan installment has not been received within 17 
days after the due date. This notice must be mailed no later than the 
20th day of the delinquency and state the amount of the payment and of 
any late charges that are due.
    (ii) An effort, concurrent with the written delinquency notice, to 
establish contact with the borrower(s) by telephone. When talking with 
the borrower(s), the holder should attempt to determine why payment was 
not made and emphasize the importance of remitting loan installments as 
they come due.
    (iii) A letter to the borrower(s) if payment has not been received 
within 30 days after it is due and telephone contact could not be made. 
This letter should emphasize the seriousness of the delinquency and the 
importance of taking prompt action to resolve the default. It should 
also notify the borrower(s) that the loan is in default, state the total 
amount due and advise the borrower(s) how to contact the holder to make 
arrangements for curing the default.
    (iv) In the event the holder has not established contact with the 
borrower(s) and has not determined the financial circumstances of the 
borrower(s) or established a reason for the default or obtained 
agreement to a repayment plan from the borrower(s), then a face-to-face 
interview with the borrower(s) or a reasonable effort to arrange such a 
meeting is required.
    (2) The holder must provide a valid explanation of any failure to 
perform these collection actions when reporting loan defaults to the 
Secretary. A pattern of such failure may be a basis for sanctions under 
38 CFR 36.4216.
    (h) Conducting interviews with delinquent borrowers. When personal 
contact with the borrower(s) is established, the

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holder shall solicit sufficient information to properly evaluate the 
prospects for curing the default and whether the granting of forbearance 
or other relief assistance would be appropriate. At a minimum, the 
holder must make a reasonable effort to establish the following facts:
    (1) The reason for the default and whether the reason is a temporary 
or permanent condition;
    (2) The present income and employment of the borrower(s);
    (3) The current monthly expenses of the borrower(s) including 
household and debt obligations;
    (4) The current mailing address and telephone number of the 
borrower(s); and,
    (5) A realistic and mutually satisfactory arrangement for curing the 
default.
    (i) Property inspection. (1) The holder shall make an inspection of 
the property securing the loan whenever it becomes aware that the 
physical condition of the security may be in jeopardy. Unless a 
repayment agreement is in effect, a property inspection shall also be 
made:
    (i) Before the 60th day of delinquency or before initiating action 
to liquidate a loan, whichever is earlier; and
    (ii) At least once each month after liquidation proceedings have 
been started unless servicing information shows the property remains 
owner-occupied.
    (2) Whenever a holder obtains information which indicates that a 
property securing a loan is abandoned, it shall make appropriate 
arrangements to protect the property from vandalism and the elements. 
Thereafter, the holder shall schedule inspections at least monthly to 
prevent unnecessary deterioration due to vandalism, or neglect. With 
respect to any loan more than 30 days delinquent, a property abandonment 
must be reported to the Secretary and appropriate action initiated under 
36.4280(e) within 15 days after the holder confirms the property is 
abandoned.
    (j) Collection records. The holder shall maintain individual file 
records of collection action on delinquent loans and make such records 
available to the Secretary for inspection on request. Such collection 
records shall show:
    (1) The dates and content of letters and notices which were mailed 
to the borrower(s);
    (2) Dated summaries of each personal servicing contact and the 
result of same;
    (3) The indicated reason(s) for default; and
    (4) The date and result of each property inspection.
    (k) Reporting to the Secretary. A summary of collection efforts, the 
information obtained through such efforts and the holder's evaluation of 
the reason for the default and prospects for resolution of the default 
must be included in any notice provided to the Secretary pursuant to 
Sec. 36.4280.
    (l) Quality control procedures. No later than 180 days after the 
effective date of this regulation, each loan holder shall establish 
internal controls to periodically assess the quality of the servicing 
performed on loans guaranteed by the Secretary and assure that all 
requirements of this section are being met. Those procedures must 
provide for a review of the holder's servicing activities at least 
annually and include an evaluation of delinquency and foreclosure rates 
on loans in its portfolio which are guaranteed by the Secretary. As part 
of its evaluation of delinquency and foreclosure rates, the holder 
shall:
    (1) Collect and maintain appropriate data on delinquency and 
foreclosure rates to enable the holder to evaluate the effectiveness of 
its collection efforts;
    (2) Determine how its VA delinquency and foreclosure rates compare 
with rates in various reports published by the industry, investors and 
others; and
    (3) Analyze significant variances between its foreclosure and 
delinquency rates and those found in available reports and publications 
and take appropriate corrective action.
    (m) Holders shall provide available statistical data on delinquency 
and foreclosure rates and their analysis of such data to the Secretary 
upon request.

(Approved by the Office of Management and Budget under Control Number 
2900-0530)

[58 FR 29114, May 19, 1993]

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