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  • VA proposes amendments to IRRRL requirements

    Agency Rule-Making & Guidance

    On November 1, the Department of Veterans Affairs (VA) published a proposed rule in the Federal Register, which would amend the agency’s rules on VA-backed interest rate reduction refinancing loans (IRRRLs). Specifically, the proposed amendments would update existing VA IRRRL regulations to meet current statutory requirements for determining whether the agency can guarantee or insure a refinance loan. The amendments would modify current regulations to reflect requirements related to, among other things, net tangible benefit, recoupment, and seasoning standards. Additionally, due to confusion among program participants, VA is proposing clarifications to minimize the risk of lender noncompliance, thereby safeguarding veterans, easing lender concerns, reducing potential instability in the secondary loan market, and insulating taxpayers from unnecessary financial risk. Comments on the proposed rule are due January 3, 2023.

    Agency Rule-Making & Guidance Federal Issues Department of Veterans Affairs IRRRL Compliance

  • VA issues lender guidance on Covid-19

    Federal Issues

    On June 30, the Department of Veterans Affairs issued Circular 26-20-25 (and subsequently issued Circular 26-20-25, Change 1), which provides guidance on the impact of the CARES Act foreclosure protections on VA-guaranteed purchase and refinance transactions. The circular states that for purchase and cash-out refinance loans, the “VA will not consider a Veteran as an unsatisfactory credit risk, based solely upon the fact that the Veteran received some type of credit forbearance or experienced some type of deferred payment during the COVID-19 national emergency.” With regard to Interest Rate Reduction Refinance Loans (IRRRL), the Circular notes that the VA is waiving certain prior approval requirements for delinquent loans if (i) the lender is approved to close loans on an automatic basis; (ii) the loan being refinanced is under CARES Act forbearance protections; (iii) the borrower is no longer experiencing the financial hardship caused by the Covid-19 pandemic; and (iv) the borrower qualifies for other IRRRL credit standards. Moreover, the Circular details additional IRRRL considerations for lenders, including maximum loan amounts, loan seasoning, and valuation requirements. Lastly, the Circular encourages lenders to waive origination fees and consider discount points and premium pricing offsets for veterans impacted by the Covid-19 pandemic.

    Federal Issues Covid-19 CARES Act Department of Veterans Affairs Refinance IRRRL Foreclosure

  • VA issues guidance for noncompliant interest rate reduction refinance loans

    Agency Rule-Making & Guidance

    On April 20, the Veterans Benefits Administration (VA) issued Circular 26-20-16, which provides guidance for noncompliant interest rate reduction refinance loans (IRRRLs). The guidance notes that the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) provides statutory criteria that affect whether the VA can guarantee refinance loans. In VA Circular 26-19-22, the VA notified lenders that an IRRRL must meet the requirements of the Act to receive and retain the full amount of VA’s guarantee. As such, Circular 26-20-16 sets forth requirements for IRRRLs, including enterprise level reporting and loan level reporting. The circular also discusses loan seasoning issues and the VA’s oversight of lender actions. The circular is rescinded April 1, 2023.

    Agency Rule-Making & Guidance Department of Veterans Affairs IRRRL EGRRCPA Consumer Lending Refinance

  • VA consolidates and clarifies IRRRL guidance

    Agency Rule-Making & Guidance

    On August 8, the Department of Veterans Affairs (VA) issued Circular 26-19-22, which consolidates and clarifies guidance related to Section 309 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, Public Law No. 115-174, and updates guidance regarding loan seasoning requirements based on the “Protecting Affordable Mortgages for Veterans Act of 2019,” Public Law No. 116-33. (Covered by InfoBytes here and here.) The Circular states that a lender (broker or agent included), a servicer, or issuer of an Interest Rate Reduction Refinance Loan (IRRRL) must, among other things:

    • Recoup Fees. Certify that certain fees and costs of the loan will be recouped on or before 36 months after the loan note date;
    • Net Tangible Benefit. Establish that when the previous loan had a fixed interest rate (i) the new fixed interest rate is at least 0.5 percent lower, or (ii) if the new loan has an adjustable rate, that the rate is at least 2 percent lower than the previous loan. In each instance, the lower rate cannot be produced solely from discount points except in certain circumstances;
    • Loan Seasoning. Follow a seasoning requirement for all VA-guaranteed loans. A loan cannot be refinanced until (i) the date on which the borrower has made at least six consecutive monthly payments on the loan being refinanced, and (ii) the date that is 210 days after the first payment due date of the loan being refinanced; and
    • Disclosure. Present a comparison of the refinance loan to the original loan within two business days from the initial loan application and again at closing that includes information about the overall cost of refinance. The Circular offers a sample comparison statement in Exhibit C.

    Agency Rule-Making & Guidance Federal Issues Ginnie Mae Refinance IRRRL EGRRCPA

  • VA updates fee guidance for IRRRLs

    Agency Rule-Making & Guidance

    On June 28, the Department of Veterans Affairs (VA) issued Circular 26-19-17, which provides new funding fee guidance to lenders and servicers concerning Interest Rate Reduction Refinancing Loans (IRRRLs). The new guidance, effective immediately, requires, among other things, that: (i) a Certificate of Eligibility (COE) be obtained for IRRRLs to ensure the funding fee exemption information is up to date at the time of closing; (ii) lenders ask active duty servicemembers if they have a pre-discharge claim pending, and, if so, contact the Regional Loan Center to request assistance in obtaining a proposed or memorandum rating in the event the servicemember is eligible for a funding fee exemption; and (iii) if a lender or servicer is notified by the VA or the veteran of an overpayment of a funding fee, such lender initiate a refund request in the Funding Fee Payment System (FFPS) within three business days.

    Agency Rule-Making & Guidance Department of Veterans Affairs Refinance Fees Mortgages IRRRL

  • District Court orders mortgage company to pay $260,000 in civil money penalties for deceiving veterans about refinance benefits

    Courts

    On December 21, the U.S. District Court for the District of Nevada ordered a non-bank mortgage company to pay $268,869 in redress to consumers and a civil penalty of $260,000 in an action brought by the CFPB for engaging in allegedly deceptive lending practices to veterans about the benefits of refinancing their mortgages. As previously covered by InfoBytes, the CFPB had alleged that, during in-home presentations, the company used flawed “apples to apples” comparisons between the consumers’ mortgages and a Department of Veterans Affairs’ Interest Rate Reduction Refinancing Loan. According to the Bureau, the presentations misrepresented the cost savings of the refinance by (i) inflating the future amount of principal owed under the existing mortgage; (ii) overestimating the future loan’s term, which underestimated the future monthly payments; and (iii) overestimating the total monthly benefit of the loan after the first month. In addition to the monetary penalties, the order prohibits the company from misrepresenting the terms or benefits of mortgage refinancing and requires the company to submit a compliance plan to the Bureau.

    Courts CFPB Civil Money Penalties Military Lending Act Department of Veterans Affairs IRRRL Refinance Mortgages

  • CFPB sues mortgage company for allegedly deceiving veterans about refinance benefits

    Courts

    On December 6, the CFPB announced the filing of a complaint and proposed final judgment in the U.S. District Court for the District of Nevada against a non-bank mortgage company for allegedly deceiving veterans about the benefits of refinancing their mortgages in violation of the Consumer Financial Protection Act. According to the complaint, during in-home presentations, the company would allegedly use flawed “apples to apples” comparisons between the consumers’ mortgages and an Interest Rate Reduction Refinancing Loan (a loan, guaranteed by the Department of Veterans Affairs, which allows veterans to refinance mortgages at lower interest rates). The Bureau alleges the presentations misrepresented the future cost savings of the refinance by (i) inflating the future amount of principal owed under the existing mortgage; (ii) overestimating the future loan’s term, which underestimated the future monthly payments; and (iii) overestimating the total monthly benefit of the loan after the first month.

    If ordered by the court, the judgment would require the company to pay $268,869 in redress to consumers and a civil penalty of $260,000; it would also prohibit the company from misrepresenting the terms or benefits of mortgage refinancing.

    Courts CFPB Civil Money Penalties Military Lending Department of Veterans Affairs IRRRL Refinance Mortgages

  • HUD publishes interpretive rule on Ginnie Mae loan-seasoning requirement

    Federal Issues

    On July 3, the Department of Housing and Urban Development (HUD) published in the Federal Register an interpretive rule regarding the loan-seasoning requirement for Ginnie Mae mortgage-backed securities from the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), S.2155/ P.L. 115-174. The interpretive rule establishes that (i) any VA refinance mortgage that does not meet the requirements of the Act is not eligible to serve as collateral for Ginnie Mae mortgage-backed securities; (ii) any VA refinance mortgage that does not meet the Act’s requirements, but was guaranteed before the Act’s enactment are unaffected; and (iii) the Act does not prohibit Ginnie Mae from guaranteeing Multiclass Securities where the trust assets consist of certificates previously lawfully guaranteed with underlying VA refinance loans that may not meet the requirements of the Act. Comments on the interpretive rule must be submitted by August 2.

    As previously covered by InfoBytes, Ginnie Mae issued All Participants Memorandum APM 18-04, which establishes (in accordance with the Act) that in order to be eligible for Ginnie Mae securities, the date of the VA refinance loan must be on or after the later of (i) 210 days after the date of the first payment made on the loan being refinanced; and (ii) the date of the sixth monthly payment made on the loan being refinanced. 

    Federal Issues Ginnie Mae MBS Department of Veterans Affairs IRRRL S. 2155 HUD EGRRCPA

  • VA reminds lenders that certification is required for all loans, including IRRRLs

    Federal Issues

    On May 31, the Department of Veterans Affairs (VA) issued Circular 26-18-14 to clarify requirements regarding lender certifications for VA-guaranteed loans. The circular reminds lenders originating VA loans that the lender must certify to the VA that the loans “were made in full compliance with the law and loan guaranty regulations” regardless of the type of VA-guaranteed loan being initiated. The circular highlights that the lender certification is required on the Interest Rate Reduction Refinance Loans (IRRRL). The circular is effective through July 1, 2020.

    Federal Issues Department of Veterans Affairs Refinance IRRRL Lender Certification

  • VA issues policy guidance on VA refinance loans in response to the Economic Growth, Regulatory Relief and Consumer Protection Act

    Federal Issues

    On May 25, the Department of Veterans Affairs (VA) issued Circular 26-18-13 discussing the impact of “The Protecting Veterans from Predatory Lending Act of 2018” (the Act), which was included in the recently enacted bipartisan regulatory relief bill, Economic Growth, Regulatory Relief and Consumer Protection Act, S. 2155, previously covered by InfoBytes here. The Act addresses “loan churning” of VA-guaranteed refinance loans and sets out new requirements for VA eligibility. As of May 25, a lender (broker or agent included), a servicer, or issuer of an Interest Rate Reduction Refinance Loan (IRRRL) must, among other things:

    • Recoup Fees. Certify that certain fees and costs of the loan will be recouped on or before 36 months after the loan note date;
    • Establish a Net Tangible Benefit. Establish that when the previous loan had a fixed interest rate (i) the new fixed interest rate is at least 0.5 percent lower or (ii) if the new loan has an adjustable rate, that the rate is at least 2 percent lower than the previous loan. In each instance, the lower rate cannot be produced solely from discount points except in certain circumstances; and
    • Apply a Seasoning Period. Follow a seasoning requirement for all VA-guaranteed loans. A loan cannot be refinanced by an IRRRL or a VA cash-out refinance (if the new principle amount is less than the loan being refinanced) until (i) 210 days after the date of the first payment made on the loan and (ii) the date of the sixth monthly payment is made on the loan.

    The circular is rescinded on January 1, 2020.

    Federal Issues Department of Veterans Affairs Refinance IRRRL S. 2155 Bank Regulatory Predatory Lending EGRRCPA

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