Congress Passes Legislation Addressing VA Refinance Loan Issues
The Economic Growth, Regulatory Relief, and Consumer Protection Act (Growth Act) enacted last year includes a provision to protect veterans from loan churning by providing, among other requirements, that a loan to a veteran that refinances an existing loan is not eligible for guaranty by the Department of Veterans Affairs (VA) until the date that is the later of (1) the date that is 210 days after the date that the first monthly payment is made on the existing loan and (2) the date on which the sixth monthly payment is made on the existing loan.
The House recently passed H.R. 1988 to amend the loan seasoning requirement to provide that a loan to a veteran that refinances an existing loan is not eligible for guaranty by the VA until the date that is the later of (1) the date on which the borrower has made at least six consecutive monthly payments on the existing loan and (2) the date that is 210 days after the first payment due date of the existing loan. By measuring the 210-day period from the due date of the first payment, and not the date that the first payment is actually made, the legislation provides for greater certainty in assessing if the seasoning requirement is satisfied. The Senate previously passed a companion bill in June 2019.
As previously reported, the Growth Act also includes a corresponding provision that prohibits the inclusion of a VA loan in a Ginnie Mae securitization unless the original loan seasoning requirement is satisfied. The requirement became effective upon the adoption of the Growth Act, which resulted in a number of VA loans that had already been made becoming ineligible for inclusion in a Ginnie Mae securitization. The recent legislation removes the loan seasoning requirement with regard to Ginnie Mae, thus removing the bar to the inclusion of the existing loans in a Ginnie Mae securitization.