(4) The amount of the loan ount equal to the sum of the balance of the loan being refinanced; the purchase price, not to exceed the reasonable value of the lot; the costs of the necessary site preparation of the lot as determined by the Secretary; a reasonable discount as authorized in § (d)(6) with respect to that portion of the loan used to refinance the existing purchase money lien on the manufactured home, and closing costs as authorized in § .
(5) If the loan being refinanced was guaranteed by VA, the portion of the payday loans in California loan made for the purpose of refinancing an existing purchase money manufactured home loan may be, guaranteed without regard to the outstanding guaranty entitlement available for use by the veteran, and the veteran's guaranty entitlement shall not be charged as a result of any guaranty provided for the refinancing portion of the loan. For the purposes enumerated in 38 U.S.C. 3702(b), the refinancing portion of the loan shall be considered to have been obtained with the guaranty entitlement used to obtain VA-guaranteed loan being refinanced. The total guaranty for the new loan shall be the sum of the guaranty entitlement used to obtain VA-guaranteed loan being refinanced and any additional guaranty entitlement available to the veteran. However, the total guaranty ount as calculated under § (a); and
(h) Any refinancing loan that might be guaranteed under this section, when Start Printed Page 64470 made or purchased by any financial institution subject to examination and supervision by any agency of the United States or of any State may, in lieu of such guaranty, be insured by the Secretary under an agreement whereby the Secretary will reimburse any such institution for losses incurred on such loan up to 15 percent of the aggregate of loans so made or purchased by it.
1. See VBA Lender Loan Volume Reports, “FY 2017,” VA first eliminated those whose total VA loan volume for FY2017 was greater than $38.5 million (425 lenders). Of those remaining, VA removed any lenders who were part of a depository institution (i.e., a bank) as they would not fall within SBA's definition of a small business for NAICS code 522292, which specifically applies to non-depository credit. See 13 CFR . Of those remaining, VA consulted financial information provided by lenders to VA in 2017 for purposes of qualifying for automatic closing authority. If no annual financial data was available, VA assumed the lender was a small business. Of all VA lenders, data showed 324 lenders (22%) met the small business definition. For lenders who made VA cash-out loans in FY2017, 238 (19.8%) met the small business definition.
VA's current regulation concerning cash-out refinance loans is found at 38 CFR . VA is revising § in this rulemaking, and planning additional rulemakings to implement other provisions of the Act.
VA is revising its cash-out refinance rule at 38 CFR to address the new statutory bifurcation. The rule will outline the common characteristics required for the guaranty or insurance of Type I and Type II Cash-Outs. It will also set apart each type of cash-out refinancing to address their unique aspects. VA is further making some technical changes for ease of reading. All the changes are explained in-depth, later in this preamble. VA is not addressing section 3709's impact on IRRRLs, but plans to do so in a separate rulemaking.
One rationale for departing from the generally accepted principle is when courts must reconcile the understanding between two mutually exclusive concepts. Id. The rationale applies here. The statutory use of the term “and” cannot apply as it generally would, because two of section 309(b)'s criteria are mutually exclusive. Of the four paragraphs in subsection (b), there is one that can apply in every case and two that cannot apply simultaneously. The fourth is dependent. Paragraph (1) provides that refinances of already-guaranteed loans cannot be guaranteed by VA unless “the issuer of the . . . loan provides the borrower with a net tangible benefit test . . .” This paragraph is broad enough to apply in the case of all covered loans. Paragraph (2) describes a case where the underlying loan and the refinancing loan both have a fixed interest rate. Paragraph (3) defines a case where the underlying loan has a fixed interest rate and the refinancing loan will have an adjustable interest rate. It follows that paragraph (2) can never apply in the case of a loan described in paragraph (3), and vice versa. They are mutually exclusive, which indicates that the “and” between paragraph (3) and (4) cannot mean that a single refinancing loan must meet all of subsection (b)'s requirements. Start Printed Page 64461
Before moving to the next point, it should be noted, as well, that linking paragraph (4) to both paragraphs (2) and (3) is a restrictive approach. It would result in VA establishing a larger regulatory footprint than if VA were to link paragraph (4) only to paragraph (3). VA is reluctant to take the more restrictive interpretation for this aspect of the rule. VA does not have data, at least at the moment, to demonstrate how linking the additional restrictions of paragraph (4) to paragraph (2) would provide veterans additional advantages. VA also cannot point to data showing a clear market-based reason to impose the larger regulatory footprint. VA does not have other evidence that the more restrictive approach reflects the meaning of the ambiguously structured statute. Nevertheless, VA specifically invites comments on its interpretation of subsection (b), as VA believes it would be helpful to receive public feedback on this important issue.
Furthermore, for additional context in interpreting the meaning of the term “test”, VA looked at other Government-backed lending programs: HUD, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Department of Agriculture's Rural Development program. The consensus approach is that, absent a net tangible benefit to a borrower, the loan should not be made.
3. Net Tangible Benefit
A new loan that refinances an interim loan to construct, alter, or repair the home will provide a financial benefit to the borrower by refinancing out of a loan that is costly to maintain, if it can be maintained at all. Generally, this criterion would apply to borrowers who have obtained a conventional interim construction loan (i.e., one not guaranteed by VA) and who plan to refinance into a permanent VA-guaranteed loan. Such refinancings enable veterans to avoid costly mortgage insurance. In addition, if the reasonable value of a completed construction project exceeds the amount of the original construction loan, a veteran could recoup certain out-of-pocket expenses the veteran incurred during construction. For example, if a veteran obtained an original construction loan in the amount of $200,000 and the reasonable value of the completed project was $210,000, the veteran could recoup, by refinancing into a new loan, up to $10,000 of any personal funds expended during the construction process.