Full text of Statements and Speeches of Charles B. Aycock : Loans Provisions of the "G. I. Bill of Rights" : Delivered Before the Conference of Supervising Examiners, Washington, D.C.

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LOAN PROVISIONS OF THE «G. I. BILL OF RIGHTS"

BY
CHARLES B. AYCOCK
LEGAL DIVISION
FEDERAL DEPOSIT INSURANCE CORPORATION

DELIVERED BEFORE THE
CONFERENCE OP SUPERVISING EXAMINERS
WASHINGTON, D. C.
APRIL 23, 1946.

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FEDERAL DEPOSIT INSURANCE
CORPORATION

INTRODUCTION

Mr. Chairman: - It is with some trepidation that I talk to you on
the assigned subject in view of the fact that Chairman Harl spoke to the
National Association of Supervisors of State Banks on the sane subject at the
New Orleans meeting and I assume that all of you were present at the meeting
or have read his speech.

However, since the Chairman’s speech the so-called

f,G. I. Bill of Rights” has been materially amended and it is on these amend­
ments and the regulations issued thereunder which I propose to talk on today.
Let me say in the beginning that my talk will be limited to the loan
provisions of the &, I. Bill.

Some of you may be interested in the other

provisions of the bill but time will not permit a discussion of the educar*
tional, hospitalization and other benefits provided for in the

kct.

I do

not like to make a technical talk - However, there are times when technicali­
ties are necessary.
I assume that each of you is generally familiar with the old Law
and consequently I shall not discuss it but merely point out the significant
changes» which may be summed up as follows:
(1)

An increase in the guarantee of real estate loans
from $2000 to $4000,

(2)

An extension of time in which veterans may take
advantage of the guarantee or insurance from two
years to ten years,

(3)

An extension of the time limit on the terms of
payment from 20 to 25 years on real estate and
from 20 to 40 years on farm realty.

(4)

A provision for the insurance of loans, in lieu
of guaranty, of up to 15$ of the aggregate of
loans made or purchased by a lender. This
allows a choice to the veteran and lender and
consequently broadens the scope of credit assis­
tance to veterans.




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(5)

Loans made for construction may now include the
cost of the land on which the veteran intends to
build.

(6)

Certain delinquent indebtedness may he refinanced.

(7)

Farm loan provisions allow for the improvement of
grounds and buildings, the construction of new
buildings, and the use of funds to purchase livestock and seed or for money needed for any farm
operation.

(8)

The business loan provisions now allow purchase
of inventory and the use of funds for working
capital,

(9)

Benefits are extended to persons on terminal
leave or hospitalized pending final discharge,
and persons in the military or naval service of
governments allied with the United States who
were U. S. Citizens at the time of entering such
service.

On March 1st, 1946 the Veterans Administration issued new regulartions pursuant to the provisions of the amended G. I. Bill.

These regula­

tions are rather lengthy but a working knowledge of their provisions will
be well worth any examineras time,

I seriously recommend that each examiner

be furnished with a copy of these regulations, together with the explanatory
notes prepared by the Veterans Administration.

The American Bankor in its

issue of March 7 printed the complete text of the regulations and explana­
tory notes.

ELIGIBILITY AIK) NATURE OF GUARANTY

Probably the first question to arise is who is entitled to the
benefits of the Act,

Any person who served in the active military or naval

service of the United States at any time on or after September 16, 1940 and
prior to the termination of the present war and who has been discharged or




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released therefrom under conditions other than dishonorable after active ser­
vice of 90 days or nore, or by reason of injury or disability incurred in
line of duty is a veteran within the terns of the Act*

Certain other indi­

viduals who sorved in the Armed Forces of governments allied with the United
States in World War II and who at the time of entrance into such service were
citizens of the United States* are also eligible veterans*
The tern ffG. I , loan” has become popular.

Let us understand at

the beginning that a G. 1. loan is not a loan from the Government but is a
loan made by a financial institution or other lender, a portion of which may
be guaranteed or insured by the Veterans Administrator.

The Act and the

regulations provide that the sum of all guaranties and credits to the insur­
ance accounts covering loans made to all individual veterans shall not exceed
$2000 for non—real estate loans, nor $4000 for real estate loans, nor a proper
portion of such maxima on loans of both types or in combination thereof.

Hot

more than 50$ of the original, principal amount of any loan except loans which
are fully guaranteed under Section 505(A), which provides for a 100$ guaranty
in the case of certain types of second mortgages, within limitations may be
guaranteed and the maximum credit to the insurance account of a lender relartive to any insured loan shall be 15$ of the original principal amount of
each loan or the amount thereof which could be guaranteed, whichever is less.
By way of illustration, with reference to the proportion of loans between
real estate and non—real estate loans which may bo guaranteed or insured,
assume that a veteran has used $1500 for a real estate guarantee and $350
for a non-real estate guarantee.

In order to determine the remaining amount

add the amount of the prior real-estate loan plus twiqo the amount of the
non-r.eal estate loan and substract this sum from $4000.




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In our illustration

this would he $1500 for the real estate loan plus $700 (twice the amount of
the non-real estate loan) which would amount to $2200.

Deduct this sum from

$4000 which leaves a balance of $1800, which remains available for a realty*
guaranty or divide the same by two which equals $900, which is available for
a non-real estate guaranty.
With reference to the extent of the guaranty, the guaranty may not
exceed 50$ of the loan or $4000.

However, this does not mean that 50$ of

each loan is guaranteed nor that the maximum loan may not exceed $8000.
True in the case of an $8000 loan, the Veterans Administrator may guarantee
$4000, which is equivalent to 50$ of the loan.

However, on a $16,000 loan

the Veterans Administrator would guarantee an amount not in excess of $4000
which in this case would be 25$ of the loan.

Here let me point out that

where a loan exceeds $15,000 the prior approval of the Administrator must
be obtained.
One of the more important provisions to remember in this connec­
tion is that the guaranty is reduced or increased pro rata with any reduc­
tion or increase in the amount of the guaranteed indebtedness, but in no
event will the amount payable on a guaranty exceed the amount of the original
guaranty or the percentage of the indebtedness corresponding to that of the
original guaranty.
To use the same illustration given above should a loan of $16,000
be guaranteed to the extent of $4,000 or 25$ and later be reduced by payment
to $12,000* the amount of the guaranty would be reduced pro rata.

That is,

the loan has been reduced by one-fourth and accordingly the guaranty has
been reduced by one-fourth or $1000.

Thus reducing the guaranty to $3000.

The $3000, however, still represents the same percentage of the guaranty




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as was originally in forco.

That is, 25$ of the remaining balance.

The converse of the above is also true.

Taking the same illustra­

tion, should the loan after it has been reduced to $12,000 be increased by
the lender advancing funds for certain necessary repairs to the extent of
say $2000 thus now making a total of $14,000 - 25$ of the $14,000 or $3,500
would be guaranteed.

A point to bear in mind is that should the loan in­

crease above $16,000 the Veterans Administrator will not guarantee any
amount beyond the original guaranty or $4,000, in the case used for illus­
trative purposes#
The provisions of the law with reference to the method of effect­
ing the guaranty have been materially simplified.

The basic instrument by

which the guaranty is effected is the veteran*s discharge certificate.
Should the veteran not have his discharge certificate or should any question
be raised as to whether or not the discharge is dishonorable the lender
should exercise caution and determine that the veteran is entitled to the
guaranty.

An application may be made by the veteran to the Veterans Ad­

ministration for a certificate of eligibility.
Care should also bo exercised by lending agencies to determine
whether or not the veteran has obtained a prior guaranty.

Because if a

veteran has obtained a prior guaranty the amount of the subsequent guaranty
will be reduced to the extent that the total guarantee exceed $4,000.

And,

if application for several guaranties are filed with the Veterans Adminis­
trator the guaranty will be applied to the loans in the order in which they
are filed with the Administrator.

Procedure has been set up by which a bank

may determine definitely in advance whether or not a veteran is eligible
and if so the amount of the guaranty remaining.




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It must be remembered that

many veterans obtained, guaranties under the prior provisions of the statute
and will now obtain additional guaranties under the amendments which in­
creased the real estate loan limits from $2000 to $4000*

While on this

subject let me point out that once a veteran has used the full amount of
the guaranty he may not thereafter apply for an additional guaranty al­
though the original loan or loans which were guaranteed may have been paid
in full,
Another factor to be considered in connection with the amount of
the guaranty arises where several veterans desire to pool their resources
and to obtain a larger guaranty.

Irrespective of the interest two or more

veterans may acquire in real or personal property, a loan may be guaranteed
or endorsed for eligible purposes if the veterans are joint obligors under
the obligation,

The amount to be guaranteed or insured may be charged

equally to their respective guaranty benefits or apportioned ‘as they desig­
nate, provided that the aggregate of their guarantee benefits to be used
would not in any event exceed 50$ of the loan, nor 15$ of the principal of
the loan if it is to be insured; nor may the loan be guaranteed or insured
in excess of the guaranty benefits available to the several veterans.

For

instance five veterans may desire to purchase a property costing $25,000,
The maximum issuable guaranty is 50$ or $12,500.

They may elect to charge

each of their respective guarantee benefits with $2,500 each or two of the
veterans may charge their guarantee benefits with $4,000 each or $8,000,
and the other three veterans may charge their respective guarantee benefits
with $1,500 making the total maximum guaranty to be issued $12,500,

A veteran may obtain a loan with a non-veteran.

By way of illus­

tration - Should a veteran do sire to purchase real property with a non-




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veteran a loan for such purpose will "be eligible for guaranty or insurance
but the amount of the guaranty or insurance credit that will be issued by
the Administrator will bo based on the proportional interest the veteran
shall have or may acquire in the property.
Also in the case of a non—real estate loan the veteran may join
with others in a farm or business vonture and his loan may bo guaranteed
or insured based upon the reasonable value to the veteran of his partici­
pating share or contribution to the enterprise,
For examplet

A veteran may contribute $4000. to a machine shop

business, two non—veterans contribute to the other tangible or intangible
assets estimated at a value of $5,000,

A loan to the veteran of $4000 may

be guaranteed to the extent of $2000 or insured for $600,

This will be

true irrespective of any agreement that may exist regarding the interests
of the various parties in the business.

INSURANCE

OF LOANS

One of the most important provisions of the Act relates to the
insurance of loans.

Under this provision - in lieu of loans being guaran­

teed - lending institutions (if subject to supervision and examination by
State and Federal authorities) may have the benefit of insurance against
loss on any type of loan which is eligible for guaranty.
This insurance will bo effected by setting up an account in the
name of the individual lending institution by the Veterans Administration
to which will be credited an amount not in excess of 15$ of the principal
of the loan to be insured subject to the following limitations;

(l) The

account so credited may not exceed $4000 in respect to a real estate loan




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or $2000 in the case of non-real estate loan; (2) it cannot exceed the un­
used portion of the veterans guaranty benefit.

The insurance against loss

plan covers all types of loans, real estate as well as non— real estate.

The

provisions of section 508 of the law (The insurance provisions) are permiss­
ive and operate as follows:
On a $1,000 loan $150 or 15$ will he credited to the lenders
insurance account.

On a loan of $5000, $750 will he credited; on a

$13,333,33 loan, non-real estate $2000 will he credited; on a $15,000 nonreal estate loan $2000 will he credited and not $2,250 for the reason that
$2000 is the maximum guaranty permitted on a non-real estate loan for a
veteran.

The same principle applies in the utilization of the veterans

guaranty benefit for real estate loans.

It should he understood that there

is no limit on the amount of the loan that can he insured, except that loans
in excess of $15,000 must ho submitted to the Veterans Administrator for
prior approval.

This same limitation also applies in the case of a guaranty.

Insured loans may he transferred without recourse from one insured
institution to another institution which is eligible for insurance,

A re­

port of the transfer on the proper form is made to the Veterans Administraition and the Veterans Administration will debit the seller^ insurance
account and credit the buyers insurance account in an amount equal to the
original percentage credited to the insurance account in respect to the
loan or loans or to the purchase price whichever is lesser.
illustration:

By way of

Bank ffA n has made or purchased in connection with an original

vendor or dealer transaction a loan to veteran X for $5000,
account of hank "A" is credited with $750 or 15$.

The insurance

The loan is paid down

to $4000 at which time hank nA M sells to hank ftB n for this amount.




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The

Administrator will charge to the account nA ” and credit to account "B” $600
or 15$ of the unpaid principal balance.
No transfers between insured accounts are made where the loan
transactions involve a transfer with recourse or guaranty or repurchase
agreement, nor is any such a transaction required to be reported to the
Administrator.
Generally speaking in the event of a claim being made the amount
charged against the insurance account standing in the name of the lender will
be represented by net loss sustained in connection with the insured loan.
This result may be arrived at, however, in several ways*

(l)

The lender

may liquidate the loan and file claim with the Administrator for the net
loss involved, provided the amount standing to his credit in his insured
account is sufficient therefor.

The Administrator will pay such loss and

charge it to the holders account; (2) if, upon notice of default to the
Administrator, the Administrator elects to take over the entire loan, upon
payment to the holder of the full amount of the indebtedness upon assign­
ment to the Administrator of the instruments representing the indebtedness,
there will be charged to the holder’s insurance account an amount equal to
the difference between the amount paid to the holder by the Administrator
and the value of the security as determined by an appraiser designated by
the Administrator.

This amount will not be less than the percentage of the

loan originally credited to the insurance account.

By way of illustration -

I»et us assume that there has been an original loan of $5000 and that a
credit to the lender’s insurance account had been made in the sum of $750
(15$ of $5000) but the loan defaults when the loan balance stands at $4000
and. the Administrator pays this amount to the holder upon assignment of the
papers.

The property, according to appraisal is valued at $3,000, conse»-




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quently, the amount charged against the insurance account is the difference
■between $4000 and $3000 or $1000*

TERMS OF LOAN

A loan may he made for any legitimate purpose prescribed within
the limitations of the Act.

It would he difficult to describe in detail

the type and character of all the eligible purposes for which a guaranteed
or insured loan may be made, but a lender may consider any application for
the purposes generally eligible, provided, that when full disbursement has
been made it will meet the requirements of the Act and Regulations.
If part of the proceeds of a loan are to be used to refinance an
obligation incurred by a veteran prior to sixty days of the filing of a
t

loin report or an application for guaranty (as distinguished from the r^-.
financing loan provided under Section 507), that part of the loan shall be
excluded in computing and requesting an amount of guaranty or insurance*
For examples

A veteran owns a home upon which he has a first lien of $2000

made five years before the date of filing an application*
borrow $3000 for improvements to the property.

He desires to

Assume that the $3,000 ex­

ceeds 40$ of the present reasonable value of the property "as is".
section 4343 of the regulations a first lien is required.
this the present lien of $2,000 must be refinanced.

Under

To accomplish

Therefore, the loan

$5,000 to be secured by a first lien will be guaranteed, not for 50$ of
$5,000 but 50$ of $3,000, or $1,500.

The percentage relationship of the

guaranty to the new loan would be 30$.
In case the foregoing loan was to be insured, the amount of crodit
to a lender*s insurance account would be 15$ of $3,000 or $450 and not 15$
°f $5,000 or $750.




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Exigent conditions may arise in an eligible transaction where it
becomes necessary for a veteran to have temporary financing for the immediate
acquisition of a home, equipment, supplies, or for other purposes.

Assuming

a lender is willing to make the loan for the interim financing, in such cases
the loan if otherwise eligible will be guaranteed or insured if the loan re­
port or application for guaranty is filed with the Veterans Administration
within 60 days of the date the obligation was incurred,
A loan to refinance an installment land contract or a contract
of sale for the purchase of realty in which the veteran has not a vested
but only an equitable interest in the property may if otherwise eligible
be guaranteed or insured.

The reasonable value of the property will be de­

termined at the time the application is made for the loan to refinance.
The balance owing on a deferred purchase money mortgage or con­
tract given for the purchase of unimproved real property is eligible for
refinancing in connection with an eligible loan for new construction.

The

amount owing on such mortgage or contract may be paid out of the proceeds
of the construction loan.
A loan for the purchase of unimproved real estate with the intent
to improve it at some future date is not eligible for a guaranty or insur­
ance.

A lot or unimproved realty may be purchased out of the proceeds of

a construction loan, provided the purchase of such lot or unimproved
realty is in connection with or part of the contract for construction,

A

loan for the purchase of unimproved realty in connection with farming and
business operations is eligible for guaranty or insurance, provided the
land is used for the purpose intended,

For example# in a business loan

the land may bo used for a parking lot.




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Section. 4353 of the Regulation permits the guaranty or insurance
of a loan for the purchase or construction of a combination residential and
business property under the home loan provisions.
If a veteran is in need of a secondary loan, the loan will be
eligible for guaranty provided the proceeds are used concurrently with and
as part of the same transaction to purchase or acquire property or for the
cost of constructing improvements and, provided further that the primaiy
lien to be made, or assumed, is made, guaranteed or insured by a Federal
agency and that the,amount of the second lien does not exceed 20$ of the
purchase price or cost.

This type of loan may be fully guaranteed to the

extent of $4,000 for real estate loans or $2,000 for non-real estate loans
if these amounts of guaranty benefit are available.

The purchase price

shall not exceed the reasonable value as determined by an appraiser desig­
nated by the Administrator,
Under section 507 of the Act a loan may be guaranteed or insured,
the proceeds of which are to be used to refinance a delinquent indebtedness
provided it is secured of record on the property used or occupied by the
veteran as a home or for farm purposes.

A delinquent indebtedness incurred

by a veteran in the pursuit of a gainful occupation, that is, in the conduct
of a business, does not have to be of record but must have been definitely
incurred in the pursuit of a gainful occupation,

IT© loan shall be made to

refinance a delinquent indebtedness less than 60 days in default without a
written statement from the holder of the indebtedness that the loan to bo
refinanced is delinquent.

Loans guaranteed or insured under the provisions

of the Act can not be refinanced under Section 507 of the Act.

And, loans

refinance delinquent unsecured obligations incurred for personal service




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12

—•

or comfort are not eligible for guaranty or insurance.

However, loans for

the payment of delinquent taxes, special assessments, ground rents and other
governmental levies are eligible for guaranty or insurance.
Certain definite provisions have been placed in the 'law with
reference to the terms of the loan.
exceed:

The term of the loan shall in no event

5 years non-amortizod, 10 years for non-real estate loans, 25

years for home or business loans on real estate and 40 years on farm loans
or real estate for farming operations.

However, the maturity of a loan

should not exceed the economic life of the property.
The rate of interest on a guaranteed or insured real estate loan
may not exceed 4$ per annum.

On non-real estate loans the interest rate

may not be in excess of an amount equivalent to the $3.00 discount per $100
on the original face amount of a 1 year note payable in equal monthly in­
stalments or the equivalent of a simple interest rate of 5.70 percent per
annum*

The discount may be deducted from the principal of the loan or in

lieu thereof of a gross charge not exceeding 3$ discount may be added to
the principal of the loan.
Another interesting feature of the law provides for the payment
to the lender by the Veterans Administrator of an amount equivalent to

4(fi

on the amount originally guaranteed or an amount equivalent to 4£ of the
amount credited to the lenders insurance account to bo credited upon the
loan.

This amount shall be treated as payment on the principal of the

loan, or may at the election of the borrower be used to pay part of the
interest during the first year.

This payment will be received by the

lender only after the loan has been closed and disbursed.

Under this plan

it will not be necessary to recant the amortization schedule.




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Another feature of the G-, I. loans requires that all loans, the
maturity date of which is "beyond five years from date of the loan, he
amortized»

The lender and the veteran may hy agreement provide for the

payment of proportionate amounts with each regular amortization period to
care for taxes, ground rents, special assessments, fire and other hazard
insurance premiums.

The regulations require that a debtor shall have the

right to repay at any time without premium or fee the entire loan or any
part thereof, not less than the amount of one installment or $100, whichever
is less.
Any real estate loan other than for repairs, alterations or im­
provements shall he secured hy a first lien on realty, except that a loan
made under the provisions of section 505(A) may he secured hy a second lien.
Loans for less than $1000 for alterations, repair or improvement of real
property need not he secured.

Loans for more than $1000 for alterations,

repairs or improvements of real estate property hut less than 40^ of the
reasonable value of the property to he improved and prior to maiding im­
provement shall he secured hy either a first or second lien.

Loans for

more than $1000 for alterations, repairs or improvement on real property
and in excess of 40 per cent of the reasonable value of the property shall
he secured hy a first lien.

All non-real estate loans shall he secured hy

personalty to the extent legal and practical, except that loans for working
or other capital, merchandise, goodwill and other intangible assets may
he made without a lien.

A farm loan for crop production should ordinarily

he secured hy a first lion on the crop,

DEFAULTS

Provision for the extension of a loan in the case of default is




provided in the regulations*

No loan may he extended beyond the maximum

maturity prescribed in the Act for loans in its class.

A loan guaranteed

under the provisions of the original Act, may, in the case of default, be
extended not beyond the maximum maturity prescribed in the amendments to
the Act.

ITor example, a loan made for twenty years, secured on real estate

may be extended up to and including twenty-five years.
The holder of an extended guaranteed or insured loan is required
to forward to the Regional office of the Veterans Administration, which
issued the evidence of guaranty or insurance, an executed duplicate copy
of the extension agreement.
The regulations set forth specific methods for reporting defaults.
If the failure to any debtor to conqply with the terms of a guaranteed or
insured obligation persist as long as six months or as long as two months
under a loan extended (under the regulations just discussed) the holder of
the indebtedness must give prompt notice of such failure to the .Administrator,
The Administrator may approve the holders request, if any, to
postpone action to press his claim against the debtor or against the
property.

Such postponement, with the consent of the Administrator or

any obligor.

However, if the holder, failing to obtain such consent, fails

to proceed within two months towards the liquidation of the security the
Administrator in addition to the rights to pursue any legal or equitable
remedies which may be available, may fix a date beyond which no further
charges may be included in the computation of the guaranty claim or an
insured claim*

If the holder does not begin appropriate action within two

months after the request by the Administrator, the Administrator may begin
and prosecute to completion any action or proceeding in his name or in the




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name of the holder, which the Administrator deems necessary to liquidate
the loan or the security therefor.
In the event any failure of a debtor to discharge his obligation
under a loan continues for a period of three months or for more than one
month on an extended loan or a term loan, the holder may at his option,
then or thereafter submit a claim for payment of the guaranty.

He may also

notify the Administrator of his intention to pursue his legal rights.

In

any case where any material prejudice to the rights of the holder or hazard
to the security warrants more prompt action a claim for guaranty may be
submitted prior to the three months period.

In normal procedure, however,

a holder shall not begin proceedings in court or give notice of sale under
power of sale or otherwise take steps to terminate the debtor’s rights in
the security until an expiration of thirty days after delivery by regis­
tered mail to the Administrator of a notice of intention to take such
action, except upon express waiver by the Administrator,

However, immediate

action may be taken to protect the property*
The Administrator may, upon receiving a notice of default or a
claim for a guaranty, within thirty days thereafter require the holder
upon penalty of otherwise losing the guaranty or insurance to transfer
and assign the loan and the security therefor to the Administrator or to
another designated by him upon receipt of payment in full of the balance
of the indebtedness remaining unpaid to the date of such assignment.
The regulations require that the Administrator be furnished with
copies of all legal proceedings*
Where security for a guaranty or an insured loan is to be dis­
posed of through private sale, the amount to be realized therefrom shall




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be reported to the Administrator at least ten days in advance of the sale
and the Administrator may thereupon either assent to such sale, or upon
agreement to indemnify the holder to the extent of any increase or resul­
tant loss consequent thereon, may establish an upset price which shall govern
in adjusting the rights and the liabilities of the holder and the Administrartor.
Upon receipt of notice of a public sale to liquidate any security
for a guaranteed or insured loan the Administrator may appraise such se­
curity and notify the holder in advance of the sale of the amount required
to be credited to the indebtedness on account of the sale thereof subject
to the following alternatives!

(l)

If a third party acquires the security

at the sale the holder shall credit against the indebtedness the net pro­
ceeds of the sale or the amount specified by the Administrator, whichever
is greater; (2) if the holder acquires the security at the sale he shall
credit the indebtedness, for the purpose of accounting to the Administrator,
with the amount specified by the Administrator, paying over to the Admin­
istrator the excess, if any, by which such credit exceeds the sum required
to satisfy the indebtedness and he may further dispose of the security in
accordance with the rights he derived through the sale, or he may within
fifteen days after the date of the sale advise the Administrator of his
election to transfer or convey the security /pr the rights therein de­
rived through sale/ to the Administrator in return for payment of the
specified amount required to be credited to the indebtedness, or the
amount required to satisfy the indebtedness, whichever is less; (3) upon
receiving repayment in full on all payments made on the guaranty or insur­
ance the Administrator shall deliver an appropriate release of all rights




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in the property accruing by reason of the guaranty or insurance of tho loan*
When a debtor proposes to transfer or convey any security or other
property to a holder to avoid foreclosure, the consent of the Administrator
to the terms of such proposal shall he obtained in advance of such transfer
or conveyance.

Prior to giving such consent the Administrator will appraise

the property and fix the amount which the holder shall be required to allow
for the value of such property in a subsequent accounting to the Administrartor for a surplus resultant after payment of the guaranty, or in computing
the net loss on an insured loan.

The holder shall be entitled to elect to

transfer or convey the property to tho Administrator upon payment by the
Administrator of the stated valuation up to the amount thereof required to
satisfy in full the remaining balance of tho indebtedness*

Such election

must be exercised within fifteen days*
In computing the amount of the guaranty the total amount payable
shall in no event exceed the original guaranty.

The amount payable on a

claim for the guaranty shall bo the percentage of the loan originally
guaranteed applied to the indebtedness computed as of the date of claim
and not later than (l) the date of judgment or of decree of foreclosure*
or (2) in non-judicial foreclosures the date of publication of the first
notice or sale or (3) in case in which the security is repossessed without
a judgment or decree or foreclosure the date the holder repossesses the se­
curity or (4) if no security is available or no repossession takes place the
date of the claim but not more than six months after the first uncured default.
Probably the most interesting feature and the one which has
given lenders the most trouble in tho past is now apparently cleared up
by Section 36*4323 of the regulations which relates to subrogation and




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indemnity,.

This section provides that the Administrator shall he subrogated

to the contract and the lien or other rights of the holder to the extent of
any sum paid on a guaranty or insured loss, which right shall be

or to

the holders rights as against the debtor or the encumbered property until
the holder shall have received the full amount payable under his contract
with the debtor.

!•

Under this provision should a loan of $8,000, which is guaranteed
up to the extent of $4000, be reduced to $6,000 and then the borrower do/

fault, the holder may file claim with the Veterans Administrator for $3000
which is 50$ of the remaining balance due on the loan.

The Veterans Ad­

ministrator will then pay the lender this amount thus leaving a net debt
of $3000.

The holder may then foreclose and should the property bring $4000

the debtor would be entitled to retain $3000, thus paying his debt in full.
Ho must then refund the remaining $1000 to the Veterans Administrator»




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