VA: Circular 26-19-22: Clarification and Updates to Policy Guidance for VA Interest Rate Reduction Refinance Loans (IRRRLs)
August 8, 2019
1. Purpose. The purpose of this Circular is to consolidate and clarify guidance regarding how section 309 of Public Law 115-174, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), affects IRRRLs. This Circular discusses how the standards imposed by the Act, i.e. fee recoupment, net tangible benefit, loan seasoning, and disclosure standards, affect whether the Department of Veterans Affairs (VA) can guarantee such refinance loans. Section 309 of the Act, in relevant part, is codified at 38 U.S.C. § 3709. This Circular also updates guidance regarding loan seasoning based on the recently enacted Public Law 116-33, Protecting Affordable Mortgages for Veterans Act of 2019 (formerly S.1749).
a. Department of Veterans Affairs (VA) previously issued policy guidance (VA Circular 26-18-13) regarding compliance with section 309 (Protecting Veterans from predatory lending) of the Act. This guidance applied to all VA refinance loans (e.g. IRRRLs and cash-outs). VA has not yet issued new regulations implementing section 309 changes for IRRRLs. It is important for lenders to not confuse cash-out refinance regulatory and policy guidance with IRRRL policy guidance. Previously, VA had issued VA Circular 26-18-1 (and Change 1 and Exhibit A) and VA Circular 26-18-13 (and Exhibit A) to ensure compliance with the Act. This Circular consolidates policy guidance for IRRRLs into one document and, per paragraph 5 below, will supersede the previous policy.
b. Generally, in addition to this Circular, lenders should continue to follow all applicable VA regulations. However, as discussed above, VA has not yet updated its IRRRL regulations. Therefore, until VA publishes a final rule updating its IRRRL regulations, in instances where regulatory provisions unequivocally conflict with this Circular, this Circular constitutes VA’s interpretation of current policy.
3. Action. To receive and retain the full amount of VA’s guaranty, an IRRRL must meet the requirements of the Act. See generally 38 U.S.C. § 3709. In cases of IRRRLs where the application was initiated on or after May 25, 2018, and before the date of this Circular, and such loans did not meet the recoupment or net tangible benefit standards recited below, lenders may take steps to cure the noncompliance without VA’s prior approval, provided that such action results in no costs to the Veteran. In such cases, lenders should keep detailed records of these actions, allowing for VA’s examination, e.g. in cases where VA conducts loan reviews or lender site inspections. VA has identified certain IRRRLs that did not meet the statutory standards and will be contacting the relevant lenders to inquire about their efforts to cure the noncompliance. VA is also considering whether other actions are appropriate, e.g. withdrawal of authority to close loans on the automatic basis. Due to the nature of the loan seasoning requirement, remedial action is not possible in cases where the loan that was refinanced was not properly seasoned. The authority for lenders to take the remedial action described above without VA’s prior approval does not apply in cases of loans for which applications were initiated on or after the date of this Circular.
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