VA Public Law

Public Law 100-527 redesignated the Veterans Administration as the Department of Veterans Affairs, effective March 15, 1989.

On December 18, 1989, the President signed Public Law 101-237, title III of which is known as the Veterans Home Loan Indemnity and Restructuring Act of 1989.  This law established a new guaranty and indemnity fund for loans closed on or after January 1, 1990, except manufactured home loans guaranteed under section 3712 (formerly 1812).  Under this law, the veteran pays a loan fee of 1.25 percent with no downpayment, 0.75 percent with a 5 percent downpayment and 0.5 percent with a 10 percent downpayment.  The government also contributes 0.75 percent on each GI loan (0.5 percent on 10 percent downpayment loans).  Veterans who pay a fee under this law or are exempt from payment of the fee, except for purchasers of manufactured homes under section 3712, vendee borrowers and assumers, will not be liable to the Secretary in the event of a default unless there is fraud, misrepresentation or bad faith.  The loan fee continued at 1 percent for vendee loans and section 3712 manufactured home loan borrowers, who do not receive the benefit of the new approach on liability.  Loan assumers continue to pay 0.5 percent, and do not receive the new liability protection.

The 90 percent limit on "cash-out" refinancing loans will not apply to a loan made to refinance a construction loan, an installment sales contract, or a loan assumed by the veteran.  However, these loans are limited to the lesser of reasonable value or the balance to be refinanced plus closing costs.  Entitlement may be restored in cases in which a VA loan has been paid-in-full and the veteran still owns the home if the restored entitlement was to be used on a loan secured by the same property.

Additional guaranty entitlement was provided for loans over $144,000, equal to 25 percent of the loan amount up to a maximum total guaranty of $46,000.  This applied only to loans to purchase or construct a home, farm residence or condominium.

Holders were required to notify VA if a partial payment is refused from a veteran in default.  It also extended the "no-bid" formula for two years, until October 1, 1991, and excluded the cost of government borrowing from the net value formula.  Provisions of 38 U.S.C. 3102 on waivers were liberalized to eliminate "material fault" and "lack of good faith" as reasons for denying a waiver, substituting "bad faith" as a reason for denial of waiver.

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