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Mr. Mike Frueh

Mr. Mike Frueh, Director, Loan Guaranty Service, Veterans Benefits Administration, U.S. Department of Veterans Affairs

Mr. Chairman, Ranking Member Braley, and Members of the Subcommittee, I am pleased to provide the comments of the Department of Veterans Affairs (VA) on the legislation detailed below.  Joining me today is John Brizzi, Deputy Assistant General Counsel.

Certain bills under discussion today affect programs or laws administered by the Department of Labor, the Department of Defense (DoD), and the Department of Justice.  Respectfully, we defer to those agencies’ views with regard to the following bills:  H.R. 3860 (limiting the availability of an undue hardship defense under the Uniformed Services Employment and Reemployment Rights Act to small businesses); H.R. 4115 (conditioning receipt of certain funds by a state on that state considering a Veteran’s active-duty training in granting specific certificates); and H.R. 5747 (amending the Servicemembers Civil Relief Act (SCRA) to improve protections for Servicemembers against mortgage foreclosures).

H. R. 4740

H.R.4740, the “Fairness for Military Homeowners Act of 2012,” would add a new section 303A to the SCRA to ensure that the relocation of a Servicemember to serve on active duty away from the Servicemember’s principal residence would not prevent the Servicemember from refinancing a mortgage on such residence.  VA does not oppose H.R. 4740, but notes that it could impact loan subsidy costs. 

VA currently guarantees two types of refinances.  The Interest Rate Reduction Refinance Loan (IRRRL) is the more common option, as it is obtained by Veterans who already have VA-guaranteed loans but want to reduce their interest rates.  Section 3703(e) of title 38, United States Code, does not make occupancy a requirement for IRRRLs because the Secretary already has a contingent liability on the loan being refinanced, and any reduction in interest rate could help VA avoid a loss on a guaranty claim payment.  Therefore, H.R. 4740 would not change the way the Secretary administers IRRRLs.

The other type of refinance -- a regular or cash-out refinance -- usually occurs when a Veteran refinances a loan that is not already guaranteed by VA.  Because 38 U.S.C. § 3710(a)(5) includes occupancy as a requirement for these types of refinances, H.R. 4740 would affect the number of Veterans eligible to obtain them.  VA cannot estimate the cost impact of this bill, however, because VA does not have data on the number of Veterans who are currently obligated on loans that are not VA-guaranteed, nor do we know how many of such Veterans might need to obtain a regular refinance pursuant to H.R. 4740.

H.R. 5747

H.R. 5747, the “Military Family Home Protection Act,” would expand the mortgage protections of the SCRA to include Servicemembers who have served in support of a contingency operation, certain disabled Veterans, and surviving spouses.  The bill would further extend from 9-months to 12-months the period within which the protections apply once a Servicemember’s period of service ends, and make such extension permanent.  It would also increase the civil penalties associated with a pattern of violations and with violations of significant public interest. 

Although VA defers to the Departments of Defense and Justice on the merits of this bill, we offer the following comments.

Section 303 of the SCRA, as proposed to be amended, would continue to protect Servicemembers who obtained mortgage obligations prior to the time their military service began and whose military service had a material effect on their ability to repay their mortgage obligations.  The newly covered individuals would receive more protections, however, as their mortgages could be originated at any time, even after the period of military service began. 

Amended section 303(f)(1)(B) would define newly covered individuals to include Veterans who were retired under chapter 61 of title 10, United States Code, and are also “totally disabled.”  It would be helpful if this were clarified to indicate whether “totally disabled” is intended to refer to those Veterans who have been rated by VA as having permanent and total service-connected disabilities.  Likewise, as this provision is currently drafted, we cannot be certain whether the term “surviving spouse” in proposed section 303(f)(1)(B) is intended to mean a survivor who meets the criteria of 38 U.S.C. §§ 101(3) and 103.  VA would be pleased to work with the Subcommittee staff to draft the necessary clarifications. 

Mr. Chairman, expanding the types of covered individuals eligible for SCRA protections would have an effect on VA’s loan subsidy, as would extending from 9-months to 12-months the period in which the protections would apply after a Servicemember’s period of service ends, as well as making such extension permanent.  We also note that a newly covered Veteran would almost always be eligible to assert the protections.  VA is unable to estimate the full cost impact of this proposal before today’s hearing, but will provide an estimate for the record. 

In addition, we note that DoD Defense Manpower Data Center database may not reflect or provide information about the newly covered individuals.  As such, it is not clear to VA how a lender or VA would ascertain the status of either a Servicemember who was serving in support of a contingency operation or that of a surviving spouse of a Servicemember.

Mr. Chairman, this concludes my statement.  I would be happy to answer any questions you or the other Members of the Subcommittee may have.  Thank you.