Real Estate Mortgage News

All Cash-Out Refinance Transactions

Topic

Summary of VA Change

Loan-to-Value (LTV)
Restriction

VA will no longer guaranty cash-out refinancing loans when the LTV exceeds 100 percent.

• New loan (including all financed fees, charges, and VAFF) must be = 100% LTV

• At loan closing, the Veteran must pay any amount exceeding 100% of the reasonable value of the property.
• Cash-Out Refinance LTV Calculation: Divide total loan amount (including VAFF, if applicable) by property value (as determined by the reasonable value on the Notice of Value).

Net Tangible Benefit
Test and Disclosure

• Lenders must ensure that all cash-out refinancing loans pass a net tangible benefit (NTB) test, and must provide the Veteran with the following information no later than the third business day after receiving the Veteran’s loan application, and again at loan closing:
• The refinancing loan satisfies at least one of the following eight NTB:

1. The new loan eliminates monthly mortgage insurance, whether public or private, or monthly guaranty insurance;
2. The term of the new loan is shorter than the term of the loan being refinanced;
3. The interest rate on the new loan is lower than the interest rate on the loan being refinanced;
4. The payment on the new loan is lower than the payment on the loan being refinanced;
5. The new loan results in an increase in the borrower’s monthly residual income;
6. The new loan refinances an interim loan to construct, alter, or repair the home;
7. The new loan amount is equal to or less than 90 percent of the reasonable value of the home, or;
8. The new loan refinances an adjustable rate loan to a fixed rate loan.

• The Veteran must sign and/or acknowledge receipt of both the initial and final disclosures.
• VA does not provide a model disclosure form, but disclosure must be provided in a standardized format.

Seven-Point
Comparison Disclosure

• Lenders must provide the Veteran with a 7-point comparison of key loan characteristics or terms for the existing and refinancing loan no later than the third business day after receiving the Veteran’s loan application, and again at loan closing:

1. Refinancing loan amount vs. the payoff amount of the loan being refinanced.
2. Loan type (i.e., fixed, adjustable) of the refinancing loan vs. the loan being refinanced.
3. Interest rate of the refinancing loan vs. the loan being refinanced.
4. Loan term of the refinancing loan vs. the loan being refinanced.
5. The total the Veteran will have paid after making all payments (principal and interest), and mortgage insurance, as scheduled, for both the refinancing loan and the loan being refinanced.
6. LTV of the refinancing loan vs. the loan being refinanced
7. An estimate of the home equity being removed from the home as a result of the refinance, and explain how the home equity may affect the Veteran.
8. The Veteran must sign and/or acknowledge receipt of both the initial and final disclosures.

• VA does not provide a model disclosure form, but disclosure must be provided in a standardized format.

Loan Seasoning

• If the loan being refinanced is an existing VA-guaranteed loan, a loan is considered to be seasoned on the later of the date that is:
• 210 days after the first monthly payment is made, and
• Six monthly payments have been made on the loan.
• Ginnie Mae requirements continue to apply, irrespective of whether the existing loan is VA guaranteed.

Construction-to- Permanent Refinancing

Refinancing of construction loans (construction-to-permanent) are considered Cash-Out Refinance transactions, irrespective of whether there is any change to the principal loan amount.

Type I Cash-Out Refinance Transactions – Additional Requirements

Topic

Summary of VA Change

Definition

Loan amount (including VAFF) does not exceed the payoff amount of the loan being refinanced.

Fee Recoupment (Refinance of an Existing VA-Guaranteed Loan)

• Loans to refinance an existing VA-guaranteed loan are subject to Fee Recoupment requirements:
• The recoupment period of all fees, closing costs, expenses (other than taxes, escrow, insurance, and like assessments), and incurred costs must not exceed 36 months from the date of loan closing.
• Fee Recoupment Calculation: Divide all fees, closing costs, expenses, and incurred costs by the reduction of the monthly P & I payment as a result of the refinance.
• Prepaid expenses such as homeowner’s insurance, taxes, special assessments, and HOA fees may be excluded from the calculation.
• If the loan being refinanced has been modified, the P & I reduction must be computed/compared to the modified P & I monthly payment.
• To receive a Loan Guaranty Certificate, lender must certify to VA that the fee recoupment requirement is met.

Interest Rate Basis Requirements
(Refinance of a Fixed-Rate, VA-Guaranteed Loan)

• Fixed rate-to-fixed rate: Interest rate of the refinancing loan may not be less than 0.5 percent (50 points) of the interest rate of the loan being refinanced.
• Fixed rate-to-adjustable rate: Interest rate of refinancing loan may not be less than 2 percent (200 basis points) of the interest rate on the loan being refinanced.
• Discount points >1%: If included in new loan amount, new loan LTV may not exceed 90%.
• Discount points <= 1%: If included in new loan amount, new loan LTV may not exceed 100%.

Type II Cash-Out Refinance Transactions

Topic

Summary of VA Change

Definition

Loan amount (including VAFF) exceeds the payoff amount of the loan being refinanced.

VA IRRRL

Topic

Summary of VA Change

Definition

Requirements and definition are unchanged: A refinancing loan made to refinance an existing VA-guaranteed home loan at a lower interest rate. See Circular 26-18-13.

All other refinancing, and all construction-to-permanent refinancing, fall into the category of Type I or Type II Cash-Out Refinance.