(b) Whenever the department determines that a shortage of funds exists in any of the funding sources available, the department shall use the following preference categories for the use of those funds.

1. (1) Veterans who are otherwise qualified because of service during a time of war and who were wounded or disabled as a result of their service shall be given first preference in the benefits conferred by this article. The department shall determine, in each case, whether the veteran was wounded or disabled as a result of service.

2. (2) The following group shall be given second preference in the benefits conferred by this article:

   1. (A) The unremarried spouse or registered domestic partner of individuals who were members of the Armed Forces on active military duty and were killed in the line of duty while on active duty.
   2. (B) Members of the Armed Forces who were held as prisoners of war.
   3. (C) The unremarried spouse or registered domestic partner of members of the Armed Forces who have been designated by the Armed Forces as missing in action.
3. (3) Veterans whose eligibility is derived from service any portion of which was on or after August 2, 1990, and prior to a date to be set by law or by a Presidential proclamation ending the Gulf War, and veterans with wartime service discharged or released from active duty within 10 years of their application to the department shall be given third preference in the benefits conferred by this article.
4. (4) Active members of the California National Guard or a reserve component of a branch of the United States Armed Forces who meet the eligibility criteria of paragraph (3) of subdivision (a) of Section 980 shall be given fourth preference in the benefits conferred by this article.
5. (5) Veterans with wartime service discharged or released from active duty more than 10 years prior to their application to the department shall be given fifth preference in the benefits conferred by this article.
6. (6) Veterans who are otherwise qualified and whose only military service was during a time of peace shall be given sixth preference for the benefits conferred by this article.
7. (7) Veterans eligible for a subsequent loan under subdivision (a) of Section 987.86 shall be given seventh preference in the benefits conferred by this article.