In a little more than a year, there have been several new requirements or changes to guidelines in the VA Home Loan program. These have included both new restrictions on the making of VA home loans and making loans more available to veterans.
In 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) outlined new protections for veterans in recognition of an issue of “loan churning” of VA home loans. EGRRCPA authorized the Department of Veterans Affairs to create new policies to protect veterans from predatory lending by requiring among other things, a net tangible benefit test, seasoning of the original loan, and a recoupments period for fees and costs.
A joint VA and GNMA task force found that veterans were being improperly coerced to repeatedly refinance loans that added fees and lengthened repayment periods while receiving little or no benefit. Multiple lenders were issued warnings or suspended from new GNMA securities based on perceived rates of loan churning.
The VA has since created cash-out refinance rules and required Net Tangible Benefit Worksheets and Certification which provide veterans a more informed cost-benefit analysis. In addition, EGRRCPA included a seasoning requirement so that loans may not be refinanced until the later of (1) 210 days after the first payment is made on the existing loan and (2) the date on which the sixth monthly payment is made on the existing loan. For further information regarding updates to VA cash-out loan programs, please see our previous articles here and here.
EGRRCPA included an additional provision that applied the seasoning requirement to VA loans included in a GNMA securitization. Many existing VA loans that were not already included in a GNMA securitization became ineligible. Currently, there are bills in both the House of Representative and Senate that address this issue and would change the seasoning requirements.
Most recently, the Blue Water Navy Veterans Act (the “Act”) changed the loan limits that are available to a Veteran. As stated in our recent article, VA’s maximum guaranty amount was previously limited to 25% of the Freddie Mac standard loan limit for a single-family residence. This effectively limited the maximum loan amount available to veterans to the Freddie Mac limit. The new law removes the reference to Freddie Mac and makes the maximum guaranty 25% of the loan amount. These changes are effective January 1, 2020.
The Congressional report that accompanied the Act notes that the changes to the VA’s Home Loan Guaranty program allow more veterans to use their home loan benefit in high-cost areas. In areas where the Freddie Mac limit is too low for a zero-down payment loan program, a veteran may be forced to pay down the loan principal or not use the VA program.
If you should have questions about the information presented in this article, please contact DocMagic’s Compliance Department.
