VA is applying the same seasoning standards for Type II Cash-Outs that Congress explicitly set forth for IRRRLs and Type I Cash-Outs because the 210-day/6-monthly payment seasoning requirement is consistent with other federal seasoning requirements for cash-outs and is a viable standard in protecting veterans from predatory lending and safeguarding the financial interest of the United States. For example, housing loans insured by the Federal Housing Administration (FHA) with fewer than six months’ worth of payment history are not eligible for cash-out refinances. See U.S. Department of Housing and Urban Development (HUD), Mortgage Credit Analysis for Mortgage Insurance on One- to Four-Unit Mortgage Loans Handbook (4155.1), Chapter 3, Section B.2.b., available at (last visited ).
In completing its regulatory impact analysis for this Oklahoma payday loans interim final rule, VA reviewed Type II Cash-Outs closed in fiscal years 2016, 2017, and 2018 (through ). The vast majority of these refinance loans (96.8 percent) would have passed the 210-day seasoning requirement adopted in this rule, which indicates that VA’s Type II Cash-Out portfolio is already achieving the Type I Cash-Out statutory seasoning requirement, as well as those now fairly well-accepted as industry standard for refinances generally (as explained above). VA does not believe that extending the seasoning period would provide substantially more protection to the financial interests of veterans. Rather, VA’s analysis demonstrates that a net tangible benefit test would be more effective in preventing riskier Type II Cash-Outs.
D. Section (d)
VA is revising paragraph (d) to delimit the scope of the provision. The purpose of paragraph (d) is to explain the calculation of entitlement for non-streamlined refinances. It ensures that a veteran is not precluded from refinancing solely because entitlement has already been used on the loan being refinanced. Where the current rule states, “nothing shall preclude . . .” guaranty, however, VA is concerned that it might be easily misunderstood as superseding provisions related to seasoning, recoupment, etc. Therefore, VA is clarifying that paragraph (d) is for the limited purpose of calculating entitlement. No substantive change is intended. Start Printed Page 64465
E. Section (f)
Similarly, VA is revising paragraph (f) to clarify its scope of application. Paragraph (f) states that “[n]othing in this section shall preclude the refinancing . . .” of a land purchase related to new construction. The purpose of the rule is to ensure stakeholders understand that, if a loan was originally made for a land purchase only, refinancing for the home construction is acceptable under 38 U.S.C. 3710. The current rule, however, is overly broad, in that it could easily be misunderstood as an attempt to supersede other provisions of the section, including those sections that, as a matter of statutory law, could not be superseded by rule. Accordingly, VA is revising the paragraph to state that nothing in this section shall preclude the determination that a loan is being made for a purpose authorized under 38 U.S.C. 3710, if the purpose of such loan is the refinancing of the balance due for the purchase of land on which new construction is to be financed through the proceeds of the loan, or the refinancing of the balance due on an existing land sale contract relating to a borrower’s dwelling or farm residence. This is a technical change only, and VA intends no substantive impact.
F. Section (g)
As with paragraph (f), paragraph (g) is overly broad. It could be interpreted as the sole provision within § related to manufactured homes. VA does not intend for paragraph (g) to be deemed a standalone provision, rendering the remainder of § inapplicable to manufactured homes. Instead, VA intends for paragraph (g) to be subject to the other relevant requirements (e.g., seasoning, recoupment, etc.) set forth in the section. Therefore, VA is inserting a new subparagraph (6), along with making the necessary grammatical edits to accommodate this addition, as a catch-all, to ensure that stakeholders understand “[a]ll other requirements of this section are met . . .” before VA will guarantee or insure the refinance of a manufactured home loan. VA intends this revision as a clarifying amendment only, without substantive impact.