VA Proposal Puts More Weight on Shoulders of Servicers.(Department of Veteran Affairs)(opinion of economists on the proposal)

Washington -- The Department of Veterans Affairs proposal to delegate workout and loss mitigation responsibilities to private servicers has run into a wall of criticism, not for the direction VA is taking, but for the way it would be implemented.

Commenters have raised concerns about nearly every aspect of the proposed rule, which would completely revamp VA's servicing requirements.

Currently, VA personnel take over loss mitigation efforts once a veteran misses three monthly payments. Under the proposal, private servicers will be responsible for working with veterans to avoid foreclosure and getting the loan current again.

However, servicers are complaining about the way they would be paid for loan modifications, the reporting requirements for defaulted loans and a proposal that shifts the cost of title insurance to servicers.

"Many of the provisions contained in the proposal are extremely burdensome and out of sync with VA's industry peers," Midland Mortgage Co. says in a comment letter.

The Mortgage Bankers Association, Countrywide Home Loans, Wells Fargo Home Mortgage, Chase Home Mortgage, ABN Amro, Midland and other commenters support the overall direction VA is taking in delegating more responsibility to servicers.

"However, there are areas addressed in the proposed rule requiring further clarification. In addition, there are some aspects of the proposal which may actually be a detriment to the effective servicing of VA loans and processing of claims," Countrywide chief executive Steve Bailey says.