PRIA, Government Policy, Made Personal

Summary

The VA will only guarantee or insure a refinance loan for a veteran if the lender shows the fees and closing costs will be paid back quickly and the refinance gives a real benefit to the borrower. The lender must tell the VA how long it will take to recoup fees (not counting taxes, escrow, or VA fees), and those costs must be recouped within 36 months by the borrower getting lower regular monthly payments (again not counting taxes, escrow, or VA fees). The lender must give the borrower a net tangible benefit test. If the old loan was a fixed rate and the new one is fixed, the rate must be at least 50 basis points (0.50%) lower. If the old was fixed and the new is adjustable, the rate must be at least 200 basis points (2.00%) lower. A lower rate cannot come only from discount points unless the points are paid at closing and not added to the loan, or if added meet loan-to-value rules: one point or less allows LTV ≤ 100%; more than one point requires LTV ≤ 90%. The refinance also must wait until the later of six monthly payments have been made on the old loan or 210 days after its first payment due date. If the new loan is larger than the payoff amount (a cash-out refinance), the rules above do not apply. The VA Secretary must issue rules within 180 days after enactment to make sure cash-out refinances are in the borrower’s financial interest, including rules on recoupment, seasoning, and net tangible benefits.

Title 38, §3709

Veterans' Benefits, Source: USLM XML via OLRC

(a)Fee Recoupment.—

Except as provided in subsection (d) and notwithstanding section 3703 of this title or any other provision of law, a loan to a veteran for a purpose specified in section 3710 of this title that is being refinanced may not be guaranteed or insured under this chapter unless—

(1)the issuer of the refinanced loan provides the Secretary with a certification of the recoupment period for fees, closing costs, and any expenses (other than taxes, amounts held in escrow, and fees paid under this chapter) that would be incurred by the borrower in the refinancing of the loan;

(2)all of the fees and incurred costs are scheduled to be recouped on or before the date that is 36 months after the date of loan issuance; and

(3)the recoupment is calculated through lower regular monthly payments (other than taxes, amounts held in escrow, and fees paid under this chapter) as a result of the refinanced loan.

(b)Net Tangible Benefit Test.—

Except as provided in subsection (d) and notwithstanding section 3703 of this title or any other provision of law, a loan to a veteran for a purpose specified in section 3710 of this title that is refinanced may not be guaranteed or insured under this chapter unless—

(1)the issuer of the refinanced loan provides the borrower with a net tangible benefit test;

(2)in a case in which the original loan had a fixed rate mortgage interest rate and the refinanced loan will have a fixed rate mortgage interest rate, the refinanced loan has a mortgage interest rate that is not less than 50 basis points less than the previous loan;

(3)in a case in which the original loan had a fixed rate mortgage interest rate and the refinanced loan will have an adjustable rate mortgage interest rate, the refinanced loan has a mortgage interest rate that is not less than 200 basis points less than the previous loan; and

(4)the lower interest rate is not produced solely from discount points, unless—

(A)such points are paid at closing; and

(B)such points are not added to the principal loan amount, unless—

(i)for discount point amounts that are less than or equal to one discount point, the resulting loan balance after any fees and expenses allows the property with respect to which the loan was issued to maintain a loan to value ratio of 100 percent or less; and

(ii)for discount point amounts that are greater than one discount point, the resulting loan balance after any fees and expenses allows the property with respect to which the loan was issued to maintain a loan to value ratio of 90 percent or less.

(c)Loan Seasoning.—

Except as provided in subsection (d) and notwithstanding section 3703 of this title or any other provision of law, a loan to a veteran for a purpose specified in section 3710 of this title that is a refinance may not be guaranteed or insured under this chapter until the date that is the later of— (1)

(2)the date that is 210 days after the first payment due date of the loan being refinanced.

(d)Cash-out Refinances.—

(1)Subsections (a) through (c) shall not apply in a case of a loan refinancing in which the amount of the principal for the new loan to be guaranteed or insured under this chapter is larger than the payoff amount of the refinanced loan.

(2)Not later than 180 days after the date of the enactment of this section, the Secretary shall promulgate such rules as the Secretary considers appropriate with respect to refinancing described in paragraph (1) to ensure that such refinancing is in the financial interest of the borrower, including rules relating to recoupment, seasoning, and net tangible benefits.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The date of the enactment of this section, referred to in subsec. (d)(2), is the date of enactment of Pub. L. 115–174, which was approved May 24, 2018.

Amendments

2019—Subsec. (c). Pub. L. 116–33 substituted “is a refinance” for “is refinanced” in introductory provisions, added pars. (1) and (2), and struck out former pars. (1) and (2) which read as follows: “(1) the date that is 210 days after the date on which the first monthly payment is made on the loan; and “(2) the date on which the sixth monthly payment is made on the loan.”

Statutory Notes and Related Subsidiaries

Regulations

Pub. L. 115–174, title III, § 309(a)(2), May 24, 2018, 132 Stat. 1349, provided that: “(A) In general.—In prescribing any regulation to carry out section 3709 of title 38, United States Code, as added by paragraph (1), the Secretary of Veterans Affairs may waive the requirements of sections 551 through 559 of title 5, United States Code, if—“(i) the Secretary determines that urgent or compelling circumstances make compliance with such requirements impracticable or contrary to the public interest; “(ii) the Secretary submits to the Committee on Veterans’ Affairs of the Senate and the Committee on Veterans’ Affairs of the House of Representatives, and publishes in the Federal Register, notice of such waiver, including a description of the determination made under clause (i); and “(iii) a period of 10 days elapses following the notification under clause (ii). “(B) Public notice and comment.—If a regulation prescribed pursuant to a waiver made under subparagraph (A) is in effect for a period exceeding 1 year, the Secretary shall provide the public an opportunity for notice and comment regarding such regulation. “(C)

Effective Date

.—This paragraph shall take effect on the date of the enactment of this Act [May 24, 2018]. “(D) Termination date.—The authorities under this paragraph shall terminate on the date that is 1 year after the date of the enactment of this Act.”

Construction

of 2019 AmendmentAmendment by Pub. L. 116–33 not to be construed to restrict or otherwise modify the authorities of the Government National Mortgage Association, see section 2(c) of Pub. L. 116–33, set out as a note under section 1721 of Title 12, Banks and Banking.

§3709 Refinancing of Housing Loans