Fee Recoupment, Net Tangible Benefit and Seasoning Requirements for VA IRRRLs.
On May 24, 2018, the President of the United States signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155 / P.L. 115-174). This includes The Protecting Veterans From Predatory Lending Act of 2018 (the Act), a measure designed to protect Veterans from predatory lending practices known as “loan churning” or “serial refinancing”, when obtaining a VA-guaranteed refinance loan.
In response to the change in law, the Veterans Benefits Administration issued Circular 26-18-13 addressing changes to Fee Recoupment, Net Tangible Benefit and Seasoning Requirements for VA Interest Rate Reduction Refinance Loans “IRRRLs”. As a result of and in accordance with Circular 26-18-13, New Penn Financial is updating our guidelines for all VA IRRRLs with loan applications on or after May 25, 2018. Below is a summary of the changes.
- All Interest Rate Reduction Refinance Loans must meet a recoupment of fees on or before the date that is 36 months after the date of the loan. Recoupment is inclusive of all fees excluding property taxes, hazard insurance and/or flood insurance.
Net Tangible Benefit Requirement:
- A loan in which the previous VA loan had a fixed interest rate and the new refinance loan will have a fixed interest rate; the new refinanced loan must have an interest rate that is not less than 50 basis points (.50 less in interest rate) less than the previous loan.
- A loan in which the previous VA loan had a fixed interest rate and the new refinanced loan will have an adjustable interest rate, the new refinanced loan must have an interest rate that is not less than 200 basis points (2.00 less in interest rate) less than the previous loan.
- For adjustable rate to adjustable rate or adjustable rate to fixed rate transactions a specified rate reduction is not required; however, the 36 month recoupment noted above is required.
- When discount points are used to reduce the interest rate an appraisal will be required and a maximum loan-to-value of 90% or 100% will be required as follows:
o Less than or equal to 1% in discount points paid permits LTV maximum of 100% of the appraised value
o Greater than 1% in discount points paid permits LTV maximum of 90% of the appraised value
o An appraisal is not required if there are zero discount points
Please refer to the product profile and the Net Tangible Benefit Worksheet for specific details.