As announced on our website, the VA published VA Circ. 26-19-22 (available at: https://www.benefits.va.gov/HOMELOANS/resources_circulars.asp), providing preliminary guidance concerning the correlation between Interest Rate Reduction Refinance Loans (“IRRRL”) and the “Economic Growth, Regulatory Reform, and Consumer Protection Act” (113 Stat. 1038 [2019]). We have provided two previous announcements concerning the impacts of the new Circular, including 1) the revision to the VA IRRRL Comparison Statement (Cx14501) to match Exhibit C of the Circular, and 2) the new Data Integrity checks being put into place. This announcement will address the new and revised Lender certifications required by VA Circ. 26-19-22 and associated Exhibits.
Concerning the required Lender certifications, VA Circ. 26-19-22 says, in part:
(1) The lender, any broker or agent of the lender, and any servicer or issuer of an IRRRL, must ensure, and certify to VA, that:
(a) For an IRRRL that results in a lower monthly principal and interest (PI) payment, the recoupment period of fees, closing costs, and expenses (other than taxes, amounts held in escrow, and fees paid under chapter 37 (e.g., VA funding fee collected under 38 U.S.C. § 3729)), incurred by the Veteran, does not exceed 36 months from the date of the loan closing.
(b) For an IRRRL that results in the same or higher monthly PI payment, the Veteran has incurred no fees, closing costs, or expenses (other than taxes, amounts held in escrow, and fees paid under chapter 37 (e.g., VA funding fee collected under 38 U.S.C. § 3729)).
(2) Lenders must upload the following documentation during the Loan Guaranty Certificate (LGC) process to certify that fee recoupment has been met:
(a) If the recoupment period shown on the final loan disclosure outlined below in paragraph 3.d.(2) is 36 months or less, the lender may upload this disclosure.
(b) If the recoupment period shown on the final loan disclosure outlined below in paragraph 3.d.(2) is more than 36 months, the lender must provide documentation showing the recoupment calculation outlined in paragraph 3.a.(3).
(c) For an IRRRL that results in the same or higher monthly PI payment, the lender should submit to VA evidence that the Veteran has incurred no fees, closing costs, or expenses (other than taxes, amounts held in escrow, and fees paid under chapter 37).
This instruction yields three different types of certifications that must be made:
- For IRRRLs that results in a lower P&I payment, paragraph (2)(a) specifies that the Lender must provide “this disclosure” (i.e. the disclosure described in paragraph 3.d.(2), the Comparison Statement) to demonstrate that the recoupment period does not exceed 36 months from the date of closing.
- If, however, the recoupment period on the Comparison Statement is more than 36 months, the Lender must provide evidence that the recoupment period is 36 months or less using the statutory recoupment outlined in (a)(3) of the Circular.
- If an IRRRL results in the same or higher monthly P&I payment, the Lender must show evidence that the Veteran has incurred no fees, closing costs, or expenses (other than taxes, amounts held in escrow, and the VA Funding Fee).
We will address each of these in turn.
Lower P&I Payment 36 Months or Less
If an IRRRL results in a lower P&I payment that is recouped in 36 months or less on the IRRRL Comparison Statement (our Cx14501), then the Comparison Statement itself can be provided to the VA as evidence. In this case, our VA IRRRL Lender Certifications document (Cx14500) will print the following Lender certification when the number of months to recoup closing costs on the Comparison Statement is 36 months or less (Field # 134810 VA Comparison Statement CD Months to Recoup Total Closing Costs = 36 or less):
I, the undersigned, hereby certify under my authorized capacity, that the fees, expenses, and closing costs (FECC) to be recouped, as set forth in the final loan comparison statement provided to the borrower at loan closing, 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.
Lower P&I Payment That Is Not Recouped in 36 Months or Less
If an IRRRL with a lower P&I payment is not recouped in 36 months or less on the IRRRL Comparison Statement, the Lender must show that the recoupment period is 36 months or less using the statutory recoupment calculation as follows:
(3) Calculating Recoupment. Recoupment is calculated by dividing all fees, expenses, and closing costs, whether included in the loan or paid outside of closing (i.e., an appraisal fee), by the reduction of the monthly PI payment. The VA funding fee, escrow, and prepaid expenses, such as, insurance, taxes, special assessments, and homeowners’ association (HOA) fees, are excluded from the recoupment calculations. See Exhibit B for more specific instructions and examples including IRRRLs with Energy Efficient Mortgage (EEM) improvements.
Exhibit B includes a table of the Fees, Expenses, and Closing Costs (FECC) that are included and excluded in the costs to be recouped within 36 months or less. Excluded costs listed are:
- VA funding fee
- Per diem interest
- Escrow
- Prepaid expenses, including but not limited to:
- Insurance
- Taxes (including delinquent taxes)
- Special assessments
- Homeowners’ association (HOA) fees
Also provided in Exhibit B are tables that demonstrate various recoupment calculations for different types of IRRRL loans. For IRRRLs like these that have a lower P&I payment, but fail the Comparison Statement recoupment, Cx14500 will print the following Lender certification when field # 134810 “VA Comparison Statement CD Months to Recoup Total Closing Costs” is greater than 36:
I, the undersigned, hereby certify under my authorized capacity, that the fees, expenses, and closing costs (FECC) to be recouped, as set forth in this document below, 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.
The FECC recoupment “set forth in this document below” include the addition of a dynamic table that prints with the above statement. This dynamic table is taken from the examples given in Exhibit B, and will print a comparison between certain amounts on the original (existing) loan and the new (proposed) loan. Amounts compared include the following (when applicable):
- Total Loan Amount
- Funding Fee Added to Loan
- Energy Efficient Mortgage (EEM) Amount
- New Base Loan Amount (Loan Amount minus the Funding Fee and/or EEM)
- Fees, Expenses, and Closing Costs (FECC) to be Recouped
- Monthly P&I
- Monthly P&I when using New Base Loan Amount above
- Loan Type (ARM, Fixed)
- Loan Term
- Interest Rate
Similar to the Exhibit B examples, below the dynamic table is a statement that reads:
Recoupment calculated without EEM amount, funding fee and prepaid expenses in Monthly PI:
$ [Field 136798] (fees/expenses/closing costs) ÷ $[Field 136795] (PI reduction) = [Field 136799] months ([Field 136800] months rounded up to the nearest month)
Fields referenced are:
- # 136798 VA Statutory Recoupment Fees, Expenses, and Closing Costs Total
- # 136795 Stated Previous Monthly Payment Minus Stated VA Statutory Recoupment Monthly P&I
- # 136799 VA Statutory Recoupment Months to Recoup Fees, Expenses, and Closing Costs Rounded
- # 136800 VA Statutory Recoupment Months to Recoup Fees, Expenses, and Closing Costs Unrounded
Below this statement, an underlined declaration will appear if field # 136799 VA Statutory Recoupment Months to Recoup Fees, Expenses, and Closing Costs Rounded is 36 months or less:
Meets 36-month recoupment requirement.
If the statutory recoupment is not met, this statement will not print.
P&I Payment That Is the Same or Higher
If the IRRRL results in a P&I payment that is the same or higher than the previous loan, the closing costs cannot be recouped. In such cases, Cx14501 will print the following Lender certification:
I, the undersigned, hereby certify under my authorized capacity, that the Veteran has incurred no fees, closing costs, or expenses other than insurance, taxes, per diem interest, special assessments, Homeowners’ association fees, or amounts held in escrow.
This certification triggers when field # 136798 VA Statutory Recoupment Fees, Expenses, and Closing Costs Total is less than or equal to $0, and field # 134808 VA Statutory Recoupment Monthly Principal and Interest is greater than or equal to field # 6682 Previous Loan Monthly Principal and Interest.
VA IRRRL Statutory Recoupment Stated Values Functionality
As with the Comparison Statement calculation, we have created fields that allow clients to determine the amounts used for the statutory recoupment, if they don’t wish to use the default calculations. The fields that need to be populated to utilize this functionality on Cx14500 are:
- # 120367 Use Stated Values for VA Refinance Comparison
- # 120368 VA IRRRL – Stated Previous Monthly Payment
- # 134806 VA Statutory Recoupment Loan Amount
- # 136790 Stated VA Statutory Recoupment Fees, Expenses, and Closing Costs Total
- # 136791 Stated VA Statutory Recoupment Monthly P&I
- # 136792 Use Stated Values for VA Statutory Recoupment
Certification Required if New PITI Monthly Amount Exceeds Current Monthly Amount by 20% or More
Since VA Circ. 26-19-22 clarified that monthly payment amounts can increase for new IRRRL loans, it is necessary to resurrect the Lender certification that states:
This is to certify that the borrower(s) [Field # 52506 Borrower List] qualifies (qualify) for the new monthly mortgage payment as shown above, which exceeds the previous payment by 20% or more.
This certification, plus the accompanying signature, was previously given on the VA IRRRL Comparison Statement (Cx14501), but is being moved to our VA IRRRL Lender Certifications (Cx14500). It will print when field # 15412 Total Monthly Amount plus MPI is greater than field # 109181 120% of Previous Loan Payment plus Total Monthly Escrows Amount.
These new fields and changes to Cx14500 are on Stage servers for testing. These changes will be in effect on August 24, 2019. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.
DR 297668