Loading...

Announcement 2019-009 VA Cash-Out Refinance Reminder

Announcement 2019-006 addressed the upcoming VA Cash-Out changes announced in VA Circular 26-18-30, effective with new applications on or after February 15, 2019. This announcement serves as a reminder and adds additional detail.

New Cash-Out Types - VA to VA and Non-VA to VA

TYPE I Cash-Out Refinance - Loan amount (including VA funding fee) does not exceed the payoff amount of the loan being refinanced. Closing costs are not rolled in.

  • Non-VA to VA
  • VA to VA
    • Fee recoupment required – all fees and costs incurred must be recouped on or before the date that is 36 months after the date of the loan
    • Fixed to ARM – requires a minimum 200 basis point reduction in rate
      • If discount points are included in the refinancing loan amount:
        • Discount points >1%: the loan amount may not exceed 90%LTV
  • Fixed to Fixed - requires a minimum 50 basis point reduction in rate

TYPE II Cash-Out Refinance - Loan amount (including VA funding fee) exceeds the payoff amount of the loan being refinanced. Rolling in any other costs besides the funding fee, debt consolidation or cash in hand is a Type II.

  • Non-VA to VA, or VA to VA

New LTV Calculation

VA Cash-Out requires a 100% maximum LTV including the funding fee, if applicable.

  •  LTV is no longer based on 100% base loan amount plus funding fee

New Net Tangible Benefit Test (NTB)

VA has outlined eight net tangible benefits, one of which must be met.

  • (i) The new loan eliminates monthly mortgage insurance, whether public or private, or monthly guaranty insurance;
  • (ii) The term of the new loan is shorter than the term of the loan being refinanced;
  • (iii) The interest rate on the new loan is lower than the interest rate on the loan being refinanced;
  • (iv) The payment on the new loan is lower than the payment on the loan being refinanced;
  • (v) The new loan results in an increase in the borrower’s monthly residual income;
  • (vi) The new loan refinances an interim loan to construct, alter, or repair the home;
  • (vii) The new loan amount is equal to or less than 90 percent of the reasonable value of the home, or;
  • (viii) The new loan refinances an adjustable rate loan to a fixed rate loan.

 

Updated Net Tangible Benefit Test (NTB) is required for all cash-out transactions. The more stringent of NewRez or VA requirements must be met. Please note that cash out of at least 1.25 times closing costs is no longer an available NTB.

  • Net Tangible Benefit Worksheet (Excel)
    • New VA Cash-Out tab is available and must be completed. The Generic NTB Test tab is no longer used.
    • Incorporates VA’s eight net tangible benefits for cash-out, Type I VA to VA Cash-Out rate reduction requirements specific to Fixed to Fixed and Fixed to ARM, and seasoning requirements (no change to seasoning)

 

New Disclosure

The VA Cash-Out Refinance Net Tangible Benefit Disclosure and Certification, signed by the veteran, is required within three (3) days of the loan application, and again at closing. Fields are available systematically to capture the information needed to populate the disclosure.

  •  This disclosure includes:
    • Net Tangible Benefit
    • Comparison of key loan characteristics or terms for the existing and refinancing loan
    • An estimate of the dollar amount of home equity being removed from the loan
    • Lender certification of fee recoupment, specific to Type I VA to VA Cash-Out

DU/LPA

DU will be updated the weekend of February 16, 2019 to accommodate the new LTV calculation. FHLMC is issuing an announcement tomorrow regarding the timeline for the update to LPA.