VA Thought of the Week: What general terms did the VA change with the new Cash Out Refinance regulation?
Posted On May 27, 2019
Over the coming weeks, we will review a number of issues on VA Cash Out Refinance loans.
First, we will cover the general terms that the VA changed with the new Cash Out Refinance regulation.
For all of you technical folks, the new VA regulatory update to 38 CFR 36.4306 was issued last December as a result of changes to the law in May 2018. It is still an interim regulation but has the same scope and effect as if it was the final.
When the same rule changes on the Interest Rate Reduction Refinance Loan (IRRRL) program came into play in before the new law, a number of lenders suspended making IRRRLs and started using the loose rules for Cash Out refinance loans that would allow them to refinance borrowers without the seasoning of their current loans. Much of the changes in the new law and regulation were a result of lenders taking advantage of the VA home loan program that were not consistent with its intent.
The new regulation created two types of Cash Out Refinance loans. The Type I and Type II. We’ll start with Type I.
The Type I loan is very simple, and it’s rare to find a situation where this loan works:
Because of the new requirements for a Type I loan, it will be nearly impossible for anyone to use this type of a loan to get around the issues that plagued the industry after the (IRRRL) rules were changed requiring recoupment, and rate improvements.
Next week, we will cover the details of Type II cash out refinance loans.