View Rule

The Economic Growth, Regulatory Relief, and Consumer Protection Act requires VA to promulgate regulations governing cash-out home loans. The Department of Veterans Affairs (VA) is amending its rules on VA-guaranteed or insured cash-out home loans. The This rule defines the parameters of VA cash-out home loans, to include defining net tangible benefits, recoupment, and seasoning requirements.

Overall Description of Deadline: This law has a statutory deadline and requires the SECVA to publish a regulation in the Federal Register not later than 180 days after the date of the enactment of this law.

Statement of Need:

Section 309 of this law, the SECVA shall promulgate a Loan Guarantee rulemaking (regulation) to ensure that such refinancing is in the financial interest of the borrower, including rules relating to recoupment, seasoning, and net tangible benefits.

Summary of the Legal Basis:

Pub. L. 115-174, sec. 309 requires VA to publish these regulations. 

Alternatives:

Section 309 of this law requires that SECVA shall promulgate a Loan Guarantee rulemaking (regulation) to ensure that such refinancing is in the financial interest of the borrower, including rules relating to recoupment, seasoning, and net tangible benefits. There are no other alternatives to promulgate such regulation.  However, VA did consider alternatives when developing new cash-out refinance policies, the guaranty and insurance of Type I and Type II case outs and different alternatives for establishing provisions regarding seasoning, recoupment and interest rate reduction that apply to Type I Cash-Outs. 

Anticipated Costs and Benefits:

VA’s Office of Financial Management (OFM) scored the rulemaking as a loss in funding revenue of $33.1 million in FY2019 and $91.3 million over a three-year period (FY2019 through FY2021), using the 2019 President’s budget (PB) baseline.  There are no FTE or GOE costs associated with this rulemaking. The impact is due to reduced funding fees generated related to the decrease in total cash-out refinance loan amount.

Risks:

If VA decided not to regulate, mortgage lenders may seek to find loopholes in the Act and continue to aggressively market and offer refinance loans to veterans that may not be in their financial interest.  This regulation is necessary to inform all parties of the requirements to originate future loans for VA loan guaranty.  It is urgent and compelling to issue this rule to provide clarity so that market disruption is minimized.  While VA is required to issue this rule by statute, by not promulgating a rule industry uncertainty may lead to less access to mortgage capital for veterans.