On February 1st, 2018, the Veterans Benefits Administration released Circular 26-18-1, Policy Guidance for VA Interest Rate Reduction Refinance Loans (IRRRL), which affects VA loans closing on or after April 1, 2018. In response, we have made changes to our VA Interest Rate Reduction Refinancing Loan Comparison (Cx14501).
The Circular specifies the following to arrive at the closing costs for the recoupment calculation:
“For the initial Statement, add the following categories from the Loan Estimate (this is the total costs plus the VA funding fee):
(1) Origination charges [Section A], Services You Cannot Shop For [Section B], Services You Can Shop For [Section C], Taxes and Other Government Fees [Section E], Other [Section H], or VA funding fee.
(2) For the initial Statement, VA would subtract any lender credits listed in Section J.
(3) The remainder is the closing costs for the recoupment calculation.
(4) Divide the closing costs in (3) above by the decrease in monthly principal and interest payment for the number of months to recoup.
For the final Statement, add the following categories from the Closing Disclosure:
(1) Origination charges [Section A], Services You Cannot Shop For [Section B], Services You Can Shop For [Section C], Taxes and Other Government Fees [Section E], Other [Section H], or VA funding fee.
(2) For the final Statement, subtract any lender credits from section J.
(3) The remainder is the closing costs for the final recoupment calculation.
(4) Divide the closing costs in (3) above by the decrease in monthly principal and interest payment for the number of months to recoup.”
In order to accommodate these instructions, we have created two new “Veteran’s total closing costs” fields to use by default on Cx14501:
- Loan Estimate Veterans Total Closing Costs (119585)
- Closing Disclosure Veterans Total Closing Costs (119586)
Each of these fields utilizes existing data from the Loan Estimate and Closing Disclosure to arrive at the correct closing cost totals, as specified by the VA Circular. Since the closing costs fields have changed, it was also necessary to create two corresponding fields to calculate the correct number of closing cost recoupment months: “VA IRRRL Loan Estimate Months to Recoup Closing Costs” (119587) and “VA IRRRL Closing Disclosure Months to Recoup Closing Costs” (119588). Since these fields all use data derived from the Loan Estimate and Closing Disclosure, clients should not need to send any new fields to implement the changes mandated by the VA Circular. Note that custom fields and calculations have not been modified.
The calculation described for the initial Statement (using data from the Loan Estimate) will be utilized for our Initial and Re-Disclosure Packages, while the calculation described for the final Statement (using data from the Closing Disclosure) will be used for all other document packages.
While making these computational changes, we took the opportunity to make the following cosmetic changes:
- The Previous Loan and Proposed Loan data will be presented in a table for ease of comparison.
- The Lender Name and Property Address will now appear under the Date on the upper left side of the document.
- The Origination Date of the Previous Loan, and Discount Points on the Proposed Loan, have both been removed, as VA Pamphlet 26-7, Lenders Handbook, Chapter 6, Refinancing Loans, does not require this information.
- The Sample Calculation from the “TIME TO RECOUP CLOSING COSTS” section has been removed, as it is also not required by the Handbook.
When the calculation results in an increase in the veteran’s monthly payment, the “TIME TO RECOUP CLOSING COSTS” section will be removed in its entirety and replaced with the following language from VA Pamphlet 26-7, Lenders Handbook, Chapter 6, Refinancing Loans, Section 1(c):
“The principal and interest payment on an IRRRL must be less than the principal and interest payment on the loan being refinanced unless one of the following exceptions applies:
- the IRRRL is refinancing an ARM,
- term of the IRRRL is shorter than the term of the loan being refinanced, or
- energy efficiency improvements are included in the IRRRL.”
The changes mandated by VA Circular 26-18-1 do not affect the requirement that a lender include a certification if the monthly payment (PITI) increases by 20% or more. This language will dynamically print on Cx14501 based on the data provided for the previous and proposed loans.
The Circular provides a delivery timing requirement for the Veteran’s statement and lender’s certification. As “early disclosure in the application process affords Veterans the opportunity to make informed decisions and determine if the proposed IRRRL is in their best interest,” the lender is directed to provide the Veteran’s statement and lender certification no later than the third business day after receiving the Veteran’s application.
These document changes are currently available to test on Stage servers, and will be in effect on Production servers on March 7, 2018. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.
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