New VA Policy Guidance for Interest Rate Reduction Refinance Loans

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On February 1, 2018, the Department of Veterans Affairs issued Circular 26-18-1, in which it announced a new policy regarding certain disclosures for the VA Interest Rate Reduction Refinance Loans (IRRRL). In general, for IRRRLs, the veteran must sign a statement acknowledging the effect of the refinancing on the veteran’s loan payments and interest rate. According to Circular 26-18-1, beginning with loans closed on and after April 1, 2018, lenders are instructed to provide the Veteran’s Statement and Lender Certification to the veteran with the initial disclosure documents no later than the third business day after receiving the veteran’s application. Prior to this guidance, the relevant section of the VA Lender’s Handbook did not inform lenders of when this document should be delivered to the veteran. Circular 26-18-1 also points out that, under the existing provisions, the lender certification is needed only for payment increases of 20% or more.

In addition, Circular 26-18-1 provides guidance on the categories of information that should be added to Statement and Certification. More specifically, there are certain additional categories of information from the Loan Estimate that are to be added to the initial Statement and certain categories of information that should be added to the final Statement from the Closing Disclosure.

Lenders are also required to confirm in the Loan Guaranty Certificate process that the Veteran was provided with these disclosures. In addition, for loans closed on and after April 1, 2018, lenders must provide to the VA the Statement and Certification, as well as VA Form 26-8923 (Interest Rate Reduction Refinancing Loan Worksheet) at the point of requesting the Loan Guaranty Certificate.

Circular 26-18-1 also states that in the case of an increased principal and interest payment due to a lower term, or from changing from an adjustable rate to a fixed rate, it is not necessary to show the recoupment in months, although lenders should show all other fields in the Statement.

The VA also indicated that more information about system enhancements will be provided in the future.

A copy of Circular 26-18-1 is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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