The “Economic Growth, Regulatory Relief, and Consumer Protection Act” (132 Stat. 1296 ) implemented 38 U.S.C.A. § 3709(b) & (b)(1), which requires that a VA guaranteed-loan which is refinanced “may not be guaranteed or insured . . . unless the issuer of the refinanced loan provides the borrower with a net tangible benefit test.”
At the time of enactment, no clarification was given as to how a lender should “provide” a “net tangible benefit test” to the borrower (or even what the test entailed). Taking a conservative approach, we interpreted this provision to require a disclosure, and hence developed a “VA IRRRL Net Tangible Benefit Form” which informed the borrower of the criteria set forth in Ibid. § 3709(b)(2) through (b)(4) that their loan met (see https://compliance.docutech.com/2018/06/01/new-document-va-irrrl-net-tangible-benefit-form-cx22343-edits-to-va-irrrl-loan-comparison-cx14501/ for details).
Subsequent to this time, the VA provided some clarification on their interpretation of this statutory provision, albeit within the context of Type I Cash-Out Refinances:
“. . . VA considered whether a Type I Cash-Out would need to pass a net tangible benefit test to comply with the law or whether the net tangible benefit test is merely a disclosure for informational purposes. The meaning of a word must be ascertained in the context of achieving particular objectives. See Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 861 (1984). VA first reviewed the Act to determine whether another section could provide additional context. The term ‘net tangible benefit test’ is not used elsewhere in the Act. Neither is the term ‘test’. . . .
. . . [The] VA interprets the law within the coherent and consistent framework that Congress prescribed. At each step, in every provision in section 309, Congress identified an issue, imposed a requirement, and prohibited a VA guaranty as the consequence of noncompliance with one of the section’s requirements. It would be inconsistent with this coherent statutory scheme if the consequence of noncompliance with the net tangible benefit test of subsection (b)(1) would be wholly different. To infer the term ‘net tangible benefit disclosure’ within this context when Congress selected the term ‘net tangible benefit test,’ would not only fail to give the proper weight to the word selection, but would also require an inference, without evidence, that Congress had departed from the coherent framework it had designed. . . .
Accordingly, VA is interpreting section 309’s net tangible benefit test as one that must be passed. VA believes that, by selecting the word ‘test’, Congress has imposed a requirement to establish the fitness of the loan, as opposed to a requirement only to disclose the characteristics of the loan for the veteran’s understanding. . . .
. . . VA will address the net tangible benefit test for IRRRLs in a future rulemaking.” (83 FR 64461 – 64462 )
While not the “future rulemaking” that the VA referenced, VA Circ. 26-19-22 provides a “teaser” of such rulemaking and it appears that the VA will apply their interpretation of 38 U.S.C.A. § 3709(b)(1) in the same manner to IRRRLs as it applies to Type I Cash-Out Refinances. While the Circular provides details on providing “Loan Comparison” disclosures for IRRRLs, it does not require any other disclosures for the net tangible benefit test.
As a result, we are retiring Cx22343 as a generic document. We have configured it to print for those clients who have added custom configuration changes to it. This change will be in effect on August 29, 2019. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584.