Source: https://compliance.docutech.com/2019/08/20/data-integrity-checks-modified-va-irrrl-warnings-and-errors/
Timestamp: 2019-09-22 06:45:28
Document Index: 735093244

Matched Legal Cases: ['§ 3709', '§ 36', '§ 3709', '§ 36', '§ 36', '§ 3709', '§ 3709', '§ 3709', '§ 3729', '§ 3729', '§ 3709']

Data Integrity Checks: Modified VA IRRRL Warnings and Errors - Compliance
08.20.19 • Document Updates
Data Integrity Checks: Modified VA IRRRL Warnings and Errors
As announced on our website, the VA published VA Circ. 26-19-22 (available at: https://www.benefits.va.gov/HOMELOANS/resources_circulars.asp), providing preliminary guidance concerning the correlation between Interest Rate Reduction Refinance Loans (“IRRRL”) and the “Economic Growth, Regulatory Reform, and Consumer Protection Act” (113 Stat. 1038 [2019]). As with previous VA changes prompted by new Circulars, we will offer several Data Integrity checks as a courtesy to our clients, to assist them with providing accurate data which complies with the required changes. These DI checks can be turned off by selecting “No” for the System Setting “Enable VA Refinance Data Integrity Checks,” or they can be turned off for specific circumstances by mapping the associated Field # 121985.
VA Circular Reference Updates
Since the guidance in VA Circ. 26-19-22 replaces VA Circ. 26-18-13, the related references in the following Data Integrity checks are being updated:
The loan being refinanced and the proposed loan are both fixed rate loans. New interest rate must be at least 0.5% lower than the old rate. Previous Loan Rate is [VALUE IS DISPLAYED]% and new Interest Rate is [VALUE IS DISPLAYED]%. (See 38 U.S.C.A. § 3709[b][2], 38 C.F.R. § 36.4306[b][3], and VA Circ. 26-19-22.)
The loan being refinanced is a fixed rate loan, while the proposed loan is an adjustable rate loan. New interest rate must be at least 2.0% lower than the old rate. Previous Loan Rate is [VALUE IS DISPLAYED]% and new Interest Rate is [VALUE IS DISPLAYED]%. (See 38 U.S.C.A. § 3709[b][3], 38 C.F.R. § 36.4306[b][4], and VA Circ. 26-19-22.)
The conditions that trigger these messages did not need to be modified.
Only Check Discount Points for Fixed to ARM
VA Circ. 26-19-22 makes it clear that IRRRLs refinancing a fixed loan into an ARM must have an interest rate at least 2% lower than the fixed loan being refinanced. In addition, there are conditions related to how much of the lower rate can be due to discount points:
“(a) In Fixed-to-ARM cases, discount points may be added to the principal loan amount of a Fixed-to-ARM refinancing loan only if one of the following circumstances exist:
(i) The lower interest rate is not produced solely from discount points. In other words, the interest rate environment is such that some portion of the lower interest rate on the refinancing loan is the result of favorable changes in the market as compared to the Veteran’s current rate.
(ii) The lower interest rate is produced solely from discount points (i.e., the interest rate environment is such that a lower interest rate cannot be achieved without charging discount points); discount points equal to or less than one discount point are added to the loan amount, and; the resulting loan balance after any fees and expenses maintains a loan-to-value (LTV) ratio of 100 percent or less.
(iii) The lower interest rate is produced solely from discount points (i.e., the interest rate environment is such that a lower interest rate cannot be achieved without charging discount points); more than one discount point is added to the loan amount, and; the resulting loan balance after any fees and expenses maintains an LTV ratio of 90 percent or less. As a reminder, while the Veteran may pay any reasonable amount of discount points in cash, no more than two discount points can be included in the loan amount of an IRRRL. See 38 C.F.R. § 36.4307(a)(4)(i).”
Since the new VA Circular 26-19-22 makes it clear that the discount point restrictions are only for fixed-rate loans being refinanced into an ARM, the texts of our related Data Integrity Error (in Closing packages) and Warning (in all other packages) are being modified to the following:
Loan-to-Value must be 100% or less if discount points of 1% or less are charged on a Fixed-to-ARM IRRRL, per 38 U.S.C.A. § 3709(b)(4)(B)(i) and VA Circular 26-19-22. LTV on this loan is [VALUE IS DISPLAYED]% and Discount Points are [VALUE IS DISPLAYED]%.
Loan-to-Value must be 90% or less if discount points over 1% are charged on a Fixed-to-ARM IRRRL, per 38 U.S.C.A. § 3709(b)(4)(B)(ii) and VA Circular 26-19-22. LTV on this loan is [VALUE IS DISPLAYED]% and Discount Points are [VALUE IS DISPLAYED]%.
In conjunction with the text changes, the triggering logic is being modified to include the addition of:
#6680 Previous Loan Amortization is set to 0 “Fixed”
#99 Amortization Type is set to 1 “AdjustableRate”
This additional logic will ensure that these Data Integrity checks only trigger for fixed-rate loans being refinanced into an ARM.
36 Month Recoupment
VA Circ. 26-19-22 outlines how to meet the 38 U.S.C. § 3709(a) fee recoupment requirements for IRRRLs:
“a. Fee Recoupment. Recoupment describes the length of time it takes for a Veteran to pay for certain fees, closing costs, and expenses that were necessitated by the refinance loan. The recoupment standard applies to all IRRRLs. This includes, but is not limited to, IRRRLs where the principal balance is increasing, the term of the loan is decreasing, or where the loan being refinanced is an adjustable-rate mortgage (ARM).
(1) The lender, any broker or agent of the lender, and any servicer or issuer of an IRRRL, must ensure, and certify to VA, that:
(a) For an IRRRL that results in a lower monthly principal and interest (PI) payment, the recoupment period of fees, closing costs, and expenses (other than taxes, amounts held in escrow, and fees paid under chapter 37 (e.g., VA funding fee collected under 38 U.S.C. § 3729)), incurred by the Veteran, does not exceed 36 months from the date of the loan closing.
(b) For an IRRRL that results in the same or higher monthly PI payment, the Veteran has incurred no fees, closing costs, or expenses (other than taxes, amounts held in escrow, and fees paid under chapter 37 (e.g., VA funding fee collected under 38 U.S.C. § 3729)).”
Note that the statutory recoupment calculation (found in paragraph 3.a.[3] of the Circular and elaborated in Exhibit B) is not the same as the Comparison Statement recoupment calculation (found in paragraph 3.d.[2] of the Circular) contained on the VA IRRRL Comparison Statement (our Cx14501). Our modifications to the 36-month Data Integrity checks are based on the statutory recoupment requirements, since they are less stringent than the Comparison Statement recoupment requirements (i.e., if a loan passes the statutory recoupment requirements, it will also pass the Comparison Statement recoupment requirements).
For VA IRRRLs, where Field # 121985 “Enable VA Refinance Data Integrity Checks” is not set to “No”, the statutory recoupment calculation DI checks will be triggered based on one of two logic paths:
1) If 136792 “Use Stated Values for VA Statutory Recoupment” is set to “Yes”, then values imported or mapped from the client* will be used for the calculation:
If Field # 136790 “Stated VA Statutory Recoupment Fees, Expenses, and Closing Costs Total” is greater than 0
Field # 136796 “Stated VA Statutory Recoupment Months to Recoup Fees, Expenses, and Closing Costs Rounded” is less than 0 OR Field # 136796 Stated VA Statutory Recoupment Months to Recoup Fees, Expenses, and Closing Costs Rounded is greater than 36
The DI check will fire.
2) If 136792 “Use Stated Values for VA Statutory Recoupment” is NOT set to “Yes”, then values calculated by ConformX will be used for the calculation:
If Field # 136798 “VA Statutory Recoupment Fees, Expenses, and Closing Costs Total” is greater than 0
Field # 136799 “VA Statutory Recoupment Months to Recoup Fees, Expenses, and Closing Costs Rounded” is less than 0 OR Field # 136799 “VA Statutory Recoupment Months to Recoup Fees, Expenses, and Closing Costs Rounded” is greater than 36
The text of the new Data Integrity check, which will fire as a Warning in non-Closing packages and an Error in Closing packages, is as follows:
If there are fees, expenses, or closing costs (excluding funding fee and prepaid expenses) on an IRRRL, 38 U.S.C.A. § 3709(a) and VA Circ. 26-19-22 require the new P&I (calculated on the Base Loan Amount less any Energy Efficient Mortgage) to be lower than the P&I of the loan being refinanced, and those costs to be recouped 36 months or less after closing.
*Fields required to be imported or mapped for the “Stated Values” to function properly for the statutory recoupment include:
# 134805 Energy Efficient Mortgage (EEM) Amount
# 134806 VA Statutory Recoupment Loan Amount
# 136790 Stated VA Statutory Recoupment Fees, Expenses, and Closing Costs Total
# 136791 Stated VA Statutory Recoupment Monthly P&I
# 136792 Use Stated Values for VA Statutory Recoupment
Other fields needed will be calculated based on values presently used in loan files and the fields listed above.
All of these Data Integrity check modifications are available on Stage servers for testing, and will be in effect on Production servers August 24, 2019. If you have any questions or concerns about these DI check revisions, please contact Client Support at 1.800.497.3584.
TW 269804