VA will require that the dollar amount of discount, if any, to be paid by the borrower must be reasonable in amount as determined by the Secretary in accordance with § (d)(7)(i). This requirement is found in current Start Printed Page 64464 § (a) and is revised for clarity only.
VA is revising § (b) to discuss the additional criteria the Act provided for Type I Cash-Outs. Again, Type I Cash-Outs are cash-out refinance loans where the loan being refinanced is already guaranteed or insured by VA and the new loan amount is equal to or less than the payoff amount of the loan being refinanced. Section 3709 set out specific criteria for recoupment and seasoning for these types of loans. VA is adopting those criteria.
For recoupment, there are three criteria. First, the lender of the refinanced loan must provide the Secretary 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. Second, all the fees and incurred costs must be scheduled to be recouped on or before the date that is 36 months after the date of loan issuance. Finally, the recoupment must be calculated through lower regular monthly payments (other than taxes, amounts held in escrow, and fees paid under 38 U.S.C. chapter 37) as a result of the refinancing loan.
In addition to requiring that the lender of the refinanced loan provide the borrower with a net tangible benefit test, section 3709 also prescribes three net tangible benefit criteria for Type I Cash-Outs. VA is adopting those criteria. First, in a case in which the loan being refinanced has a fixed interest rate and the new loan will also have a fixed interest rate, the interest rate on the new loan must not be less than 50 basis points less than the loan being refinanced. Second, in a case in which the loan being refinanced has a fixed interest rate and the new loan will have an adjustable rate, the interest rate on the new loan must not be less than 200 basis points less than the previous loan. Also, when a borrower is refinancing from a fixed interest rate loan to an adjustable rate loan, the lower interest rate must not be produced solely from discount points, unless such points are paid at closing and such points are not added to the principal loan amount. Such points ount, however, when they are paid at closing and: (i) The discount point amounts are less than or equal to one discount point, and the resulting loan balance after any fees and expenses allows the property with respect to which the loan was issued to maintain a loan to value ratio of 100 percent or less, and (ii) the discount point amounts are greater than one discount point, and the resulting loan balance after any fees and expenses allows the property with respect to which the loan was issued to maintain a loan to value ratio of 90 percent or less.
VA is payday loans in RI redesignating § (c) and (d) as § (d) and (e) and adding a new § (c). In new § (c), VA is adding the criteria for Type II Cash-Outs, meaning those cash-out refinance loans where the new loan amount is greater than the payoff amount of the loan being refinanced. For recoupment, VA is stating that meeting the requirements of paragraph (a) is sufficient. This is because it is impossible for VA to determine how to quantify recoupment for veterans who obtain this type of refinance. For example, a veteran may choose to refinance so that the veteran may use home equity to pay for a child’s college tuition or help pay for nursing services for a loved one. The reasons veterans may choose to tap into their home equity are countless. VA is concerned that, if VA attempted to establish a recoupment period for this type of loan, VA would put a veteran in a worse financial position than a non-veteran, and that is not VA’s intention.