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Financial Services Law Insights and Observations

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

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

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The circular is rescinded on January 1, 2020.

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