In a move to align with legislative mandates, the Department of Veterans Affairs has put forth a VA supplemental loan proposal regarding its rules for interest rate reduction refinancing loans (IRRRLs). This initiative aims to ensure conformity with provisions outlined in the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, along with the Protecting Affordable Mortgages for Veterans Act of 2019.
The focus of this proposal centers on adjusting the start date of the maximum 36-month period for veterans to recoup the costs of refinancing. Currently, the U.S. Code section 38 USC § 3709(a)(2) mandates that all fees and incurred costs must be recouped within 36 months from the "date of loan issuance." However, the term "date of loan issuance" lacks a specific definition within the statute, leaving room for interpretation.
Initially, the VA proposed using the note date as the point of loan issuance. However, the recent VA supplemental loan proposal suggests a shift: the date of loan issuance would now be considered the first payment due date of the refinance loan. This adjustment, the VA asserts, better aligns with the legislative intent and mitigates potential adverse consequences.
One notable concern addressed by the VA involves the calculation of recoupment through lower monthly payments. Using the note date as the issuance date could result in a shortfall if a VA borrower misses one or two payments post-refinance. Additionally, the proposal underscores that any interest in advance payments made by veterans at closing due to missed payments could pose an additional recoupment challenge.
Crucially, the VA clarifies that the date of the first payment due on the note would serve as the date of issuance, regardless of whether the veteran makes the payment. The proposed recoupment calculation remains unchanged: dividing the sum of refinancing costs by the reduction in the monthly principal and interest payment, yielding the number of months needed to recoup the costs.
Notably excluded from the refinancing costs are the VA funding fee, prepaid interest, amounts held in escrow, and taxes and assessments not solely incurred due to the refinance transaction.
Interested parties have until May 6, 2024, to submit comments on the proposed changes, as the VA moves towards finalizing its rule. This proposal underscores the VA's commitment to ensuring clarity and fairness in its loan programs for veterans, reflecting ongoing efforts to uphold their financial well-being.