On March 7, 2024, the Department of Veterans Affairs (“VA”) issued a supplemental notice of proposed rulemaking (“SNPR”) that adds an additional change to the proposed rule previously issued in November 2022 regarding updates to VA-backed interest rate reduction refinancing loans (“IRRRLs”).
In November 2022, the VA issued a notice of proposed rulemaking to amend regulations for IRRRLs to better conform with VA loan refinance provisions in Section 309 of the Economic Growth, Regulatory Relief, and Consumer Protection Act and Section 2 of the Protecting Affordable Mortgages for Veterans Act of 2019. That proposed rulemaking stated that the lender of an IRRRL must certify that a veteran will recoup all fees, closing costs and expenses (other than taxes, amounts held in escrow, and fees paid under 38 U.S.C. chapter 37) on or before the date that is 36 months after the note date. The SNPR changes the start time of the 36-month recoupment period, to be measured from the first payment date instead of the note date.
The SNPR states that using the first payment date instead of the note date is a “more practical implementation of the statutory text than the initial proposal and this would better fit the expectations of key stakeholders, including veterans, Congress, and the loan industry.” Under 38 U.S.C 3709, the requirements for refinancing provide that “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.” However, the statute does not define “date of loan issuance,” and it is not found in previous legislation or commonly used by the VA.
In preparation for issuing a final rule, the VA re-examined the text of 38 U.S.C. 3709, and concluded that using the note date was not the best interpretation for the “date of loan issuance,” as the section provides that “recoupment is calculated through lower regular monthly payments.” The SNPR also looks at possible problems that could arise from using the note date, such as missing one or two months from the time of the loan closing in the recoupment calculation. Also, using the note date would not capture the recoupment cost of any advance interest that a veteran may pay at closing of a loan.
DocMagic will continue to provide updates regarding the final rule when it is available and will adjust form and audit settings to reflect any changes to the recoupment calculation.
To view the SNPR, click here. The VA is accepting comments on the proposed change until May 6, 2024.
