On August 8, 2019, the Department of Veterans Affairs (VA) published Circular 26-19-22 with additional policy guidance for compliance of Interest Rate Reduction Refinance Loans (IRRRLs) with section 309 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act).
Section 3d. of the Circular outlines the content for a comparison disclosure that the VA has determined the Act requires lenders to provide to Veterans when originating IRRRLs. The disclosure, which must be provided at the time of initial disclosures and at closing, is designed to give Veterans “up-front information about the overall cost of the refinance.”
Circular 26-19-22 provides instructions on how to disclose the loan comparison and calculate recoupment months:
“(a) Add the following items from the Loan Estimate (initial disclosure) or Closing Disclosure (final disclosure): origination charges, services you cannot shop for, services you can shop for, taxes, other government fees, and the VA funding fee.
(b) Subtract any lender credits
(c) Divide the amount by the decrease in monthly PI payments. Please note that the monthly PI payment is calculated using the total loan amount, including any financed VA funding fee and EEM improvements.
Note: If the IRRRL results in the same or increased monthly PI payments, the lender should still complete paragraphs (a) and (b) and present the Veteran with the total costs associated with the IRRRL.”
Effective August 22, 2019, DocMagic will release updates to the Veteran’s Statement Regarding Loan Refinance and Lender’s Certification (Form ID: VSRLRLC.VA). The disclosure is provided in initial and closing packages for IRRRLs to meet the requirements for loan comparison and recoupment calculation.
The form will include a Lender’s Certification as follows:
* If the proposed loan's monthly payment is lower than the previous loan's monthly payment and the recoupment months are 36 or less, the Lender's Certification will display:
"The lender hereby certifies that all fees, closing costs, and expenses will be recouped by the borrower(s) on or before that date that is 36 months after the date of the loan closing."
* If the proposed loan's monthly payment is lower than the previous loan's monthly payment and the recoupment months are higher than 36 months, the Lender's Certification will not display.
* If the proposed loan's monthly payment is greater than the previous loan's monthly payment, the Lender's Certification will display:
"The lender hereby certifies that the veteran has incurred no fees, closing costs, or expenses (other than taxes, amounts held in escrow, and fees paid under chapter 37 (e.g. VA funding fee collected under 38 U.S.C. § 3729))."
The Lender's Certification can also be removed from the disclosure upon request to Customer Service.
In addition, DocMagic is making updates to the VA Net Tangible Benefit Worksheet for Interest Rate Reduction Loans (Form ID: VATNBW.MSC), which includes interest rate requirements for Fixed-to-Fixed and Fixed-to-ARM IRRRLs. The updated form will be available from the Forms List and Underwriting package for IRRRLs on August 22, 2019.
To view VA Circular 26-19-22, click here.
If you should have questions about the information presented in this article, please contact DocMagic’s Compliance Department.
