01.17.19   •   Document Updates

Document Updates: VA Refinance Loan Comparison (Cx14501)

As previously announced, the VA have posted new regulations applicable to all VA refinance loans other than an interest-rate reduction refinance loan (“IRRRL”). The VA is informally classifying these refinance loans as:

  • “Type I Cash-Outs”, which are “cash-outs in which the amount of the principal for the new loan is equal to or less than the payoff amount on the refinanced loan” (i.e. a rate-and-term refinance); and
  • “Type II Cash-Outs”, which are “cash-outs in which the amount of the principal for the new loan is larger than the payoff amount of the refinanced loan” (83 FR 64459 [2018])

VA’s new regulations amend (inter alia) current 38 C.F.R. § 36.4306 to implement the “net tangible benefit” requirements of the EGRRCPA (particularly those promulgated in 38 U.S.C.A. § 3709). Under these amendments, and applicable to both Types I and II Cash-Outs, a lender must provide to the borrower a disclosure outlining the following:

  • That the new refinance loan meets at least one of eight criteria establishing that the borrower is obtaining some type of benefit in the refinance (e.g. a shorter loan term, lower interest rate, etc.);
  • A comparison of six features between the new refinance loan and the old loan being refinanced (e.g. payoff amounts, interest rates, etc.); and
  • A statement of the amount of home equity the borrower will lose due to refinancing the old loan and that a loss in home equity may affect the borrower’s ability to sell the subject property in the future; and
  • A certification from the borrower that they received this disclosure “on two separate occasions: Not later than 3 business days from the date of the loan application and again at loan closing.” (Supra § 36.4306[a][4][iv])

In addition to this, Supra § 36.4306(b)(1)(i) requires, in connection with a Type I Cash-Out which refinances a previous VA-guaranteed loan, that “the lender of the refinanced loan must provide the [VA] with a certification of the recoupment period for fees, closing costs, and any expenses (other than taxes, amounts held in escrow, and fees paid under 38 U.S.C. chapter 37) that would be incurred by the borrower in the refinancing of the loan.”

Since these requirements are fairly similar to the recoupment disclosure requirements for which we provide Cx14501 for IRRRLs, we will be using this document to disclose the new cash-out net tangible benefit disclosures; essentially creating two different versions of Cx14501 within the same document: one for IRRRLs, the other for Types I and II loans. The IRRRL-version of Cx14501 will continue to print under the current print conditions:

  • Base Type = VA
  • Document Package Type = Initial Disclosure
  • Document Package Type = Closing
  • VA Interest Rate Reduction Refinancing Loan (IRRRL) = Yes

The cash-out refinance-version of Cx14501 will print under the following conditions:

  • Application Date On or After 02/15/2019 = Yes
  • Base Type = VA
  • Document Package Type = Initial Disclosure
  • Document Package Type = Closing
  • Loan Purpose = CashOutOther
  • Loan Purpose = NoCashOutOther

The cash-out refinance-version is essentially comprised of the following five sections:

  • Benefit(s) Obtained. This section discloses which of the benefits described in 38 C.F.R. § 36.4301(a)(3)(i) the borrower will be obtaining through the refinance loan (formatted as a checklist). Each benefit will be marked as follows:
    • Elimination of mortgage or guaranty insurance. This will be checked when one of the following fields equals “Yes”:
      • Net Tangible Benefit – Mortgage Insurance Rate Significantly Reduced (FI 118657);
      • Net Tangible Benefit – Remove Mortgage Insurance by Lowering LTV (FI 41286);
      • Net Tangible Benefit – Eliminate Mortgage Insurance or Monthly Guarantee Insurance (FI 131832; NEW FIELD)
    • Shorter term. This will be checked when “Net Tangible Benefit – Shorten Loan Term” (FI 41277) equals “Yes”.
    • Lower interest rate. This will be checked when “Net Tangible Benefit – Lower Interest Rate” (FI 41275) equals “Yes”.
    • Lower monthly payment. This will be checked when “Net Tangible Benefit – Lower Monthly Payment” (FI 41276) equals “Yes”.
    • Increase in residual income. This will be checked when “Net Tangible Benefit – Increase in Monthly Residual Income” (FI 131833; NEW FIELD) equals “Yes”.
    • Refinance of an interim loan. This will be checked when “Net Tangible Benefit – Cashout Benefit – Home Improvement” (FI 41268) equals “Yes”.
    • Loan–to-Value (LTV). This will be checked when “Loan to Value Ratio” (FI 1075) is less than or equal to 90%.
    • Conversion to fixed interest rate. This will be checked when “Net Tangible Benefit – Convert from ARM to Fixed Rate” (FI 41284) equals “Yes”.
  • Comparison of Loan Features. This section compares certain terms of the new refinance loan against the old loan being refinanced, pursuant to Ibid. § 36.4301(a)(3)(ii). These terms are:
    • Remaining balance of the loan (aka payoff amount). The fields used for this comparison are:
      • Loan Amount (FI 1058)
      • Mortgage 1 – Unpaid Principal Balance (FI 6133)
    • Type of loan. This compares the amortization type of the two loans (fixed v. adjustable). The fields used for this are:
      • Amortization Type (FI 99)
      • Previous Loan Amortization (FI 6680)
    • Interest rate. The fields used for this comparison are:
      • Interest Rate (FI 1005)
      • Previous Loan Rate (FI 6681)
    • Remaining loan term. The fields used for this comparison are:
      • Loan Term in Months (FI 1977)
      • Previous Loan Term Remaining (FI 41291)
    • Total of borrower’s principal, interest, and insurance payments. The fields used for this comparison are:
      • Total of Payments (FI 18087)
      • Previous Loan Total of All Remaining P&I + MI (FI 131834; NEW FIELD)
    • LTV. The fields used for this comparison are:
      • Loan to Value Ratio (FI 1075)
      • Previous Loan to Value (FI 6684)
  • Home equity. 38 C.F.R. § 36.4301(a)(3)(iii) requires that “the lender must provide the borrower with an estimate of the dollar amount of home equity that, by refinancing into a new loan, is being removed from the reasonable value of the home, and explain that removal of this home equity may affect the borrower’s ability to sell the home at a later date.”

    We have included such a disclosure, using the new field “Loan Amount Minus Unpaid Balance” (FI 131835) to disclose the loss. Please note that in cases where there is no loss in the home equity (or even a potential gain), “$0” will be disclosed; we have worded our disclosure to be compatible with each scenario.
  • Time to recoup closing costs. VA Circ. 26-18-30 promulgates the recoupment calculation as follows:

    “Divide all fees, closing costs, expenses, and incurred costs (excluding taxes, escrow, insurance, and like assessments), by the reduction of the monthly principal and interest payment as a result of the refinance. If the loan being refinanced has been modified, the principal and interest reduction must be computed/compared to the modified principal and interest monthly payment.”

    We will be using similar text as that used for IRRRLs on Cx14501, with the following fields:

    • Previous Loan Payment Minus Monthly P&I (FI 41113). This will disclose the monthly amount of the differences between the old and new principal and interest payments.
    • For the amount of the total of fees, closing costs, and other expenses (with notable exclusions), we will use either:
      • Loan Estimate Veterans Total Closing Costs (FI 119585), if “Document Package Type” (FI 18215) equals either “Initial Disclosure” or “Redisclosure”; or
      • Closing Disclosure Veterans Total Closing Costs (FI 119586).
    • The end result of the calculation will be disclosed as one of the following two fields:
      • VA IRRRL Loan Estimate Months to Recoup Closing Costs (FI 119587), when “Document Package Type” (FI 18215) equals either “Initial Disclosure” or “Redisclosure”; or
      • VA IRRRL Closing Disclosure Months to Recoup Closing Costs (FI 119588).

    In addition to this, we will print a “Lender Certification” section, with language stating the following (followed by a signature line):

    “I, the undersigned, hereby certify under my authorized capacity, that all fees and incurred costs, as set forth in this document, will be recouped by the Borrower(s) on or before the date that is 36 months after the date of the promissory note, if the borrower(s) payments are made in good standing.”

    Because this requirement only applies to Type I Cash-Outs which refinance a previous VA loan, all of these parts of the document will only print under the following conditions:

    • Loan Purpose (MISMO) (FI 1063) = NoCashOutOther
    • VA Prior Loan Type (FI 42408) = VA – Fixed OR VA – ARM/HARM
  • Borrower’s certification. Under 38 C.F.R. § 36.4301(a)(3)(iv), a lender must provide most of the disclosures listed above “not later than 3 business days from the date of the loan application and again at loan closing. The borrower must certify that the borrower received [this] information . . . on both occasions.”

    We will be including a certification to the document for this purpose. The text of the certification will be as follows when Cx14501 print in Initial Disclosure packages:

    “I/We, the Borrower(s), hereby certify that we received this Disclosure no later than three (3) business days from the Application Date identified above.”

    The text will be slightly different when the document prints in Closing packages:

    “I/We, the Borrower(s), hereby certify that we received this Disclosure at the time of the closing of my/our loan.”

    If the document happens to print in any other package (due to a customization to the documents print configurations), the default text will be as follows:

    “I/We, the Borrower(s), hereby certify that we received this Disclosure.”

Clients are encouraged to review these fields to ensure that they are setting them properly for this document.

Data Integrity Checks

In addition to the changes to Cx14501, we are adding new (and modifying existing) errors and warnings within our system to help ensure that a VA refinance loan meets the “net tangible benefit” requirements of Federal law. These changes include the following:

  • NEW Global Warning regarding LTV. A warning will appear if the following conditions are met:
    • Loan Type = VA
    • Loan Purpose = CashOutOther OR NoCashOutOther
    • Application Date On or After 02/15/2019 = Yes
    • VA Interest Rate Reduction Refinancing Loan (does not equal) Yes
    • Enable VA Refinance Data Integrity Checks (does not equal) No
    • Loan to Value Ratio Greater Than 100 = Yes

    The text of this warning is as follows:

    “Loan-to-Value must be 100% or less for non-IRRRL VA refinance loans. The LTV on this loan is [FI 1075]%. (See 38 C.F.R. § 36.4306[a][1], and VA Circ. 26-18-30.)”

  • NEW Global Warning regarding net tangible benefits. A warning will appear if the following conditions are met:
    • Loan Type = VA
    • Loan Purpose = CashOutOther OR NoCashOutOther
    • Application Date On or After 02/15/2019 = Yes
    • VA Interest Rate Reduction Refinancing Loan (IRRRL) (does not equal) Yes
    • Enable VA Refinance Data Integrity Check (does not equal) No
    • All of the following:
      • Net Tangible Benefit – Mortgage Insurance Rate Significantly Reduced (does not equal) Yes
      • Net Tangible Benefit – Remove Mortgage Insurance by Lowering LTV (does not equal) Yes
      • Net Tangible Benefit – Eliminate Mortgage Insurance or Monthly Guarantee Insurance (does not equal) Yes
    • Net Tangible Benefit – Shorten Loan Term (does not equal) Yes
    • Net Tangible Benefit – Lower Interest Rate (does not equal) Yes
    • Net Tangible Benefit – Lower Monthly Payment (does not equal) Yes
    • Net Tangible Benefit – Increase in Monthly Residual Income (does not equal) Yes
    • Net Tangible Benefit – Cashout Benefit – Home Improvement (does not equal) Yes
    • Is CLTV/LTV Greater Than 90% (does not equal) No
    • Net Tangible Benefit – Convert from ARM to Fixed Rate (does not equal) Yes

    The text of this warning is as follows:

    “Non-IRRRL VA Refinances must satisfy at least one of the following net tangible benefits:
    (A) Eliminates monthly mortgage insurance, whether public or private, or monthly guaranty insurance;
    (B) Term of the new loan is shorter than the term of the loan being refinanced;
    (C) Interest rate is lower than the interest rate on the loan being refinanced;
    (D) Payment is lower than the payment on the loan being refinanced;
    (E) The new loan results in an increase in the borrower’s monthly residual income as explained by § 36.4340(e);
    (F) Refinances an interim loan to construct, alter, or repair the primary home;
    (G) Loan amount is equal to or less than 90 percent of the reasonable value of the home;
    (H) Refinances an adjustable rate mortgage to a fixed rate loan.”
    • NEW Global Warning regarding closing cost recoupment. A warning will appear if the following conditions are met:
        • Document Package Type (does not equal) Closing
        • Loan Type = VA
        • Loan Purpose = NoCashOutOther
        • Application Date On or After 02/15/2019 = Yes
        • VA Interest Rate Reduction Refinancing Loan (IRRRL) (does not equal) Yes
        • Enable VA Refinance Data Integrity Check (does not equal) No
        • One of the following sets of conditions are true:
          • Use Stated Values for VA IRRRL Comparison is Yes AND VA IRRRL – Stated Total Closing Costs is Greater Than 0 AND VA IRRRL – Months To Recoup Based on Stated Closing Costs and Stated Monthly Payments is Less Than 0 OR Greater Than 36
          • Use Stated Values for VA IRRRL Comparison is NOT Yes AND Loan Estimate Veterans Total Closing Costs is Greater Than 0 AND VA IRRRL Loan Estimate Months to Recoup Closing Costs is Less Than 0 OR Greater Than 36
  • The text of this warning states:

    “The P&I portion of the mortgage payment is equal to or higher than the loan being refinanced, or the number of months to recoup closing costs is more than 36 months. VA requires that all fees and incurred costs to be recouped within 36 months after closing for all Type I loans (a no-cash-out refinance) which refinance a previous VA loan. (See 38 U.S.C.A. § 3709, 38 C.F.R. § 36.4306[b][1], and VA Circ. 26-18-13 & 26-18-30.)”

    If the Document Package Type = Closing, this warning will instead be a full-stop error, with the additional condition of using Closing Disclosure Veterans Total Closing Costs and VA IRRRL Closing Disclosure Months to Recoup Closing Costs instead of Loan Estimate Veterans Total Closing Costs and VA IRRRL Loan Estimate Months to Recoup Closing Costs.

  • Error Rule Indices 133189 & 133190. We are revising both the text and triggering conditions for these errors (which are currently used exclusively for IRRRLs). We are adding the following to the triggering conditions:
    • Either:
      • VA Interest Rate Reduction Refinancing Loan (IRRRL) = Yes; or
      • Both of the following:
        • Loan Purpose = CashOutOther OR NoCashOutOther
        • Application Date On or After 02/15/2019 = Yes

    The text of these errors is being revised to state the following:

    “The loan being refinanced and the proposed loan are both fixed rate loans. New interest rate must be at least 0.5% lower than the old rate. Previous Loan Rate is [FI 6681]% and new Interest Rate is [FI 1005]%. (See 38 U.S.C.A. § 3709, 38 C.F.R. § 36.4306[b][1], and VA Circ. 26-18-13 & 26-18-30.)”

  • Error Rule Indices 133191 & 133192. We are revising both the text and triggering conditions for these errors (which are currently used exclusively for IRRRLs). We are adding the following to the triggering conditions:
    • Either:
      • VA Interest Rate Reduction Refinancing Loan (IRRRL) = Yes; or
      • Both of the following:
        • Loan Purpose = CashOutOther OR NoCashOutOther
        • Application Date On or After 02/15/2019 = Yes

    The text of these errors is being revised to state the following:

    “The loan being refinanced is a fixed rate loan, while the proposed loan is an adjustable rate loan. New Interest rate must be at least 2.0% lower than the old rate. Previous Loan Rate is [FI 6681]% and new Interest Rate is [FI 1005]%. (See 38 U.S.C.A. § 3709, 38 C.F.R. § 36.4306[b][1], and VA Circ. 26-18-13 & 26-18-30.)”

Effective Date 

These changes will in place on January 24, 2019, but won’t take effect for anything but loans with Application Dates on or after February 15, 2019. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584.

DR 280818