Accordingly, VA is interpreting section 309’s net tangible benefit test as one that must be passed. VA believes that, by selecting the word “test”, Congress has imposed a requirement to establish the fitness of the loan, as opposed to a requirement only to disclose the characteristics of the loan for the veteran’s understanding.
In this rule, VA is defining the parameters of the net tangible benefit test for Type I Cash-Outs. VA is also establishing a net tangible benefit test for Type II Cash-Outs to comply with section 3709(d). The net tangible benefit test for both types of cash-outs overlaps in some ways, but also differs in a few major respects. The full explanation is provided later in this preamble. VA will address the net tangible benefit test for IRRRLs in a future rulemaking.
A. Section (a)
For ease of reading, VA is revising § (a) to discuss the criteria that will apply to both types of cash-out refinance loans. In § (a), online payday loans Maryland VA will provide that a refinancing loan made pursuant to 38 U.S.C. 3710(a)(5) qualifies for guaranty in an amount as computed under 38 U.S.C. 3703, provided five conditions are met.
1. Reasonable Value
VA will require that the amount of the new loan must not exceed an amount equal to 100 percent of the reasonable value, as determined by the Secretary, of the dwelling or farm residence which will secure the loan. The Secretary makes determinations of reasonable value pursuant to requirements found in 38 U.S.C. 3731. VA’s implementing regulations are found at 38 CFR and , and VA’s website provides additional resources for fee appraisers. See The current § (a) authorizes a loan in an amount that does not exceed 90 percent of the reasonable value of the dwelling securing the VA-guaranteed loan. 38 CFR (a)(1). In 1989, Congress established a 90 percent loan-to-value ratio limit for cash-outs. See Public Law 101-237 sec. 309(b)(3), 103 Stat. 2062. In 2008, Congress enacted Public Law 110-389, which increased the loan-to-value ratio limit for cash-outs to 100 percent. See Public Law 110-389 sec. 504(b); 122 Stat. 4145. The 100-percent loan-to-value ratio remains intact in the statute, and VA has been complying with this amendment. Yet VA has not changed its rule to reflect the 2008 change. VA is, therefore, aligning its rule with the statutory text to ensure that veterans have full access to their home loan benefits as authorized by Congress. This regulatory change has no substantive impact as VA has applied the statutory 100 percent ratio via its policy and procedural guidance to lenders since Congress enacted section 504 of Public Law 110-389, the Veterans’ Benefits Improvement Act of 2008, 122 Stat. 4145. See also Lenders Handbook, VA Pamphlet 26-7, Chapter 3, Topic 3, Page 3-8.
2. Funding Fee
VA will require that the funding fee as prescribed by 38 U.S.C. 37ount, except that any portion of the funding fee that would cause the new loan amount to exceed 100 percent of the reasonable value of the property must be paid in cash at the loan closing. The statute at 38 U.S.C. 3729(a)(2) authorizes borrowers to finance the funding fee. However, as stated in connection with the reasonable value requirement, 38 U.S.C. 3710 requires that cash-out refinance loan amounts not exceed 100 percent of the reasonable value of the property securing the loan. 38 U.S.C. 3710(b)(7)-(8). Therefore, VA is clarifying that, while a funding fee may be financed, it must not increase the loan to value ratio such that the loan would violate 38 U.S.C. 3710. For any overage, a veteran must bring the funds to pay at loan closing.