VA Issues Proposed Refinancing Loan Regulations. JD Supra

The Department of Veterans Affairs (VA) recently suggestion In order to comply with the VA loan refinancing provisions in the Economic Growth, Deregulation and Consumer Protection Act of 2018 and the protection of affordable mortgages, reduced interest rate loan refinancing (often referred to as “IRRRL”) Update the rules for (called). Due to the 2019 Veterans Affairs Act. Comments on this proposal are due by January 3, 2023.

As the name suggests, one of the primary uses of IRRRL is to reduce interest rates on existing VA loans for veterans. However, a veteran’s ongoing refinancing of his VA loan, often referred to as loan churning, may not be in the veterans best interest. Congress has acted to add safeguards to VA loan refinancing requirements to address loan termination concerns. Here are the requirements:

  • A period of up to 36 months for veterans to recoup the cost of refinancing.
  • Veterans must have made at least 6 consecutive months of payments on their existing loan, and the new loan must be made at least 210 days after the first payment of their existing loan. These requirements are called “lawn seasoning”.
  • Minimum interest rate reduction from existing loans to new loans.
  • The need for new loans to provide net tangible benefits to veterans.

The proposed rule provides guidance on compliance with existing statutory requirements.

Maximum payback period

To determine whether the 36-month maximum cost-recovery period has been met, the proposal requires that the sum of fees, closing costs, and costs incurred by veterans to refinance existing loans be paid in cash. It is stipulated to divide by the reduction in dollars, regardless of whether it is financed or financed. With monthly principal and interest payments, the results reflect the number of months it will take to recoup the refinancing costs. For example, if the applicable expense is $3,600 and the monthly principal and interest payments are reduced by $100, the result is 36, satisfying the maximum collection period. The cost of refinancing includes (1) VA’s funding fees, (2) interest paid up front and amounts held in escrow, and (3) taxes on the property that do not accrue even if paid outside of the normal schedule. and appraisal value are not included. Only due to refinancing transactions such as property taxes and special appraisals. If the monthly principal and interest payments on a new loan exceed the monthly principal and interest payments on an existing loan, such as when a veteran refinances a 30-year loan for a 15-year loan, the veteran may We could not charge any fees, closing costs or expenses, except for the exclusions listed in the sentence.

lawn seasoning

For purposes of the six-month consecutive payment requirement, the Proposition states that each monthly payment shall include principal and interest, tax and insurance amounts, and similar charges, fees and charges related to late payments, and one portion of the repayment. It is stipulated to consist of the amount payable in parts. schedule. Additionally, monthly payments must be made before or during the month due. Multiple partial payments equal to at least the required monthly payment will count toward six consecutive monthly payment requirements, provided that all partial payments are made prior to or in the month in which the monthly payment is required will be

Aiming for a minimum 210-day term, the proposal stipulates that new loan notes must be dated at least 210 days after the first payment due date of an existing loan. The first due date of an existing loan is not included in the 210-day calculation and the note date of a new loan is included in such calculation. For example, if the first payment due on an existing loan is 06/01/2022, day 1 is 06/02/2022 and day 210 is 12/28/2022. later. The 210-day period includes all days an existing loan is in arrears. However, if an existing loan is modified, the note date of the new loan must be at least 210 days after the first payment due date under the modification. Additionally, when underwriting an existing loan, the new loan note date must be at least 210 days after the first due date after underwriting.

Lowering the minimum interest rate

The proposal requires that (1) the interest rate must be reduced by a minimum of 50 basis points if both the existing loan and the new loan are fixed rate loans, and (2) if the existing loan is a fixed rate loan. , for a new loan the loan is a variable rate loan and the interest rate must be reduced by at least 200 basis points. Further, if the existing loan is a fixed rate loan and the new loan is a variable rate loan, if (1) the lower interest rate is not generated solely from the discount points (and the lender has (2) the lower interest rate is the discount point a maximum of one discount point is included in the loan, the resulting loan balance (all fees, closing costs, and (3) discount points alone yields a lower interest rate, multiple discount points included and the resulting loan balance (including all costs, fees, closing costs, and costs financed) will not exceed 90% of the value of the property.Under existing VA rules, a maximum of 2 discount points existing VA rules also address veterans using IRRRL to replace existing variable rate loans with fixed rate loans, and these rules specifically Not handled.

net tangible profit

The refinancing must provide the veterans with a substantial benefit, and the proposal explains that the new loans are “for the veterans’ financial benefit.” The net tangible income requirement is met if (1) the above requirements are met and (2) the lender provides the veteran with initial and final loan comparative disclosures. Disclosure must include:

  • The loan repayment amount for the new loan compared to the loan repayment amount for the existing loan.
  • New loan types (whether they are fixed rate loans, traditional variable rate loans, or hybrid variable rate loans) compared to existing loan types.
  • The interest rate of the new loan compared to the current interest rate of the existing loan.
  • The term of the new loan compared to the remaining term of the existing loan.
  • The dollar amount of monthly principal and interest payments on a new loan compared to the current dollar amount of monthly principal and interest payments on an existing loan.

Under the TILA/RESPA Consolidated Disclosures (TRID) rule, lenders are required to provide the initial loan comparison disclosure on the same day that the lender provides the initial loan quote. If the lender provides the veteran with a revised loan quote, the lender will provide the veteran with a revision of the previous loan comparison or recovery of refinancing costs, or any other number, non-office replacement. Finally, the lender must provide the veterans with final loan comparison disclosures on the day they provide the veterans with the closing disclosures under TRID rules. After the Veteran receives the Final Loan Comparison Disclosure, the Veteran must prove receipt of the initial and final Loan Comparison Disclosures to the Lender by signing the Final Disclosure. For the purpose of disclosure requirements, lenders will be required to use a new standardized form, Interest Rate Reduction Refinancing Loan Comparative Disclosure.

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