Loan Guaranty: Revisions to VA-Guaranteed or Insured Interest Rate Reduction Refinancing Loans, 16491-16496 [2024-04884]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 89, Number 46 (Thursday, March 7, 2024)]
[Proposed Rules]
[Pages 16491-16496]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-04884]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 36

RIN 2900-AR58


Loan Guaranty: Revisions to VA-Guaranteed or Insured Interest 
Rate Reduction Refinancing Loans

AGENCY: Department of Veterans Affairs.

ACTION: Supplemental Notice of Proposed Rulemaking.

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SUMMARY: On November 1, 2022, the Department of Veterans Affairs (VA) 
published a proposed rulemaking to amend its regulations on VA-backed 
interest rate reduction refinancing loans (IRRRLs). This supplemental 
notice of proposed rulemaking (SNPRM) proposes a change to the 
recoupment standard published in the proposed rule and seeks public 
comments on that change.

DATES: Comments must be received on or before May 6, 2024.

ADDRESSES: Comments must be submitted through www.regulations.gov. 
Except as provided below, comments received before the close of the 
comment period will be available at www.regulations.gov for public 
viewing,

[[Page 16492]]

inspection, or copying, including any personally identifiable or 
confidential business information that is included in a comment. We 
post the comments received before the close of the comment period on 
www.regulations.gov as soon as possible after they have been received. 
VA will not post on Regulations.gov public comments that make threats 
to individuals or institutions or suggest that the commenter will take 
actions to harm an individual. VA encourages individuals not to submit 
duplicative comments; however, we will post comments from multiple 
unique commenters even if the content is identical or nearly identical 
to other comments. Any public comment received after the comment 
period's closing date is considered late and will not be considered in 
the final rulemaking. In accordance with the Providing Accountability 
Through Transparency Act of 2023, a 100 word Plain-Language Summary of 
this supplemental notice of proposed rulemaking (SNPRM) is available at 
Regulations.gov, under RIN 2900-AR58.

FOR FURTHER INFORMATION CONTACT: Stephanie Li, Assistant Director, 
Regulations, Legislation, Engagement, and Training, and Terry Rouch, 
Assistant Director, Loan Policy and Valuation, Loan Guaranty Service 
(26), Veterans Benefits Administration, Department of Veterans Affairs, 
810 Vermont Avenue NW, Washington, DC 20420, (202) 632-8862 (This is 
not a toll-free telephone number.)

SUPPLEMENTARY INFORMATION: On November 1, 2022, VA published a proposal 
to amend VA's existing IRRRL regulation at 38 CFR 36.4307 to reflect 
current statutory requirements set forth by section 309 of the Economic 
Growth, Regulatory Relief, and Consumer Protection Act, Public Law 115-
174, 132 Stat. 1296, and section 2 of the Protecting Affordable 
Mortgages for Veterans Act of 2019, Public Law 116-33, 133 Stat. 1038. 
See Loan Guaranty: Revisions to VA-Guaranteed or Insured Interest Rate 
Reduction Refinancing Loans, 87 FR 65700 (Nov. 1, 2022). That 
rulemaking notice proposed that the lender of an IRRRL must provide the 
Secretary with a certification that the Veteran would recoup all fees, 
closing costs, and expenses (other than taxes, amounts held in escrow, 
and fees paid under 38 U.S.C. chapter 37) on or before the date that is 
36 months after the IRRRL's note date. VA has determined that the due 
date of the first payment on the IRRRL, rather than the note date, 
would further more practical implementation of the statutory text than 
the initial proposal and that it would better fit with the expectations 
of key stakeholders, including Veterans, Congress, and the loan 
industry.
    With this SNPRM, VA seeks to clarify the effect of the recoupment 
standard and address important considerations and reasons for VA's 
proposed changes. To accomplish this, VA is proposing additional edits 
to 38 CFR 36.4307, as explained in more detail below. VA will address 
all of the comments received on the proposed rule and any comments VA 
receives on this SNPRM in our final rulemaking.

Background on VA's Proposed Rule

    Section 3709(a), title 38, United States Code, requires that the 
issuer of an IRRRL certify to the Secretary as to the recoupment period 
for certain fees, closing costs, and expenses. See 38 U.S.C. 3709(a). 
The term ``issuer'' is not a term used in VA's program elsewhere, but 
VA has interpreted it to mean a lender. The statute also provides a 
broad methodology for calculating the recoupment period. For a loan to 
meet the statutory recoupment requirements, the certification must show 
that all fees and incurred costs are (i) scheduled to be recouped on or 
before the date that is 36 months after the date of loan issuance; and 
(ii) the recoupment is calculated through lower regular monthly 
payments (minus certain enumerated items) as a result of the refinanced 
loan.
    Several statutory provisions introduced a number of new terms and 
ambiguous phrasings. As VA has pointed out in both its interim final 
cash-out refinance rule and proposed IRRRL rule notices, the text of 
section 3709 can reasonably lead to multiple interpretations. See Loan 
Guaranty: Revisions to VA-Guaranteed or Insured Cash-Out Home Refinance 
Loans, 83 FR 64459, 64460-64461 (Dec. 17, 2018); 87 FR 65700, 65701-
65706 (Nov. 1, 2022). VA also pointed out in both notices that VA would 
attempt to situate the provisions within the coherent and consistent 
framework of the newly enacted statute, as well as the whole of chapter 
37, title 38, U.S.C. See 83 FR at 64461-64462; 87 FR at 65702, 65707.
    Before 38 U.S.C. 3709 was signed into law, the term ``loan 
issuance'' was not mentioned within chapter 37 or commonly used by VA 
in the VA home loan program. The legislative history of Public Law 115-
174 does not include a definition of the term or provide sufficient 
context from which to infer the intended meaning.
    The term could derive from the Government National Mortgage 
Association (Ginnie Mae) mortgage-backed securities (MBS) program. The 
Ginnie Mae MBS program is the primary source of liquidity for lenders 
that participate in VA's program. An eligible issuer ``creates pools of 
mortgages, loan packages of mortgages,'' and is responsible for 
servicing the pooled mortgages until maturity or termination. See 
Ginnie Mae MBS Guide, Chap. 1, Part 10, available at  https://www.ginniemae.gov/issuers/program_guidelines/MBSGuideLib/Chapter_01.pdf. Although the Ginnie Mae MBS program can include 
mortgages purchased from multiple originators and serviced by third 
parties, Ginnie Mae looks only to the eligible issuer of the MBS to 
ensure that the servicing meets Ginnie Mae's standards. See Ginnie Mae: 
How Does it Work and What Does it Do?, Bipartisan Policy Center, 
available at https://bipartisanpolicy.org/download/?file=/wp-content/
uploads/sites/default/files/GinnieMae-final.pdf#:~:text=The Government 
National Mortgage Association%28or Ginnie Mae%29.
    In the proposed rule notice, VA settled on proposing the note date 
as ``the date of loan issuance,'' which means that if VA were to adopt 
the standard as proposed, the note date would serve as the point at 
which the calculation of the 36-month recoupment period would begin. 
See 87 FR at 65701. Although VA did not explain the rationale in-depth, 
VA's proposal was consistent with the terms ``to issue'' and ``date of 
issue/issue date,'' as used in other related contexts (e.g., the Ginnie 
Mae MBS Guide, insurance policies, bonds, and a regulatory definition 
relating to the Thrift Savings Plan).\1\ VA also believed the note date 
would be a date all stakeholders could easily track.
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    \1\ See, e.g., Ginnie Mae MBS Guide, Chap. 1, Part 9, available 
at https://www.ginniemae.gov/issuers/program_guidelines/MBSGuideLib/Chapter_01.pdf; 5 CFR 1655.1 (defining ``Loan issue date'' as ``the 
date on which the TSP record keeper disburses funds from the 
participant's account for the loan amount'').
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Reconsidering the ``Date of Loan Issuance''

    VA did not receive public comments specific to what ``date of loan 
issuance'' means. In preparation for the final rule, however, VA re-
examined the text of section 3709, VA's proposed recoupment formula, 
comments of internal VA staff, potential outcomes for Veterans, ongoing 
industry implementation of the statutory recoupment standard, and a 
range of other sources,\2\ and identified reasons why the initial 
proposal may not have reflected the best interpretation.

[[Page 16493]]

Because VA now sees that ``date of loan issuance'' is subject to 
various reasonable interpretations, VA believes that it is prudent to 
reopen the public comment period for this specific issue. This will 
allow all stakeholders to provide input on whether the first payment 
due date better reflects the coherent and consistent statutory scheme 
and provides a more workable standard for Veterans, VA, and the loan 
industry.
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    \2\ VA conducted a broad sweep of electronic search engines and 
databases using the term ``issuance date'' and ``date of issuance''.
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    Section 3709 provides that ``recoupment is calculated through lower 
regular monthly payments.'' See 38 U.S.C. 3709(a)(3). VA's proposed 
formula reflected this, in that it presented a comparison between that 
which the Veteran would pay for principal and interest under the loan 
being refinanced and that which the Veteran would pay for principal and 
interest under the IRRRL. See 87 FR at 65701.
    Using the IRRRL's note date, however, may not give full meaning to 
Congress's emphasis on the way ``costs are scheduled to be recouped . . 
. through lower regular monthly payments.'' See 38 U.S.C. 3709(a). The 
loan closing and servicing processes generally result in a borrower 
missing one or two of the payments that would normally have been made 
under the loan being refinanced. Generally, the borrower must pay for 
the principal and interest corresponding to the missed loan payments 
up-front during the IRRRL closing or include the amounts in the balance 
of the IRRRL. If VA were to use the note date as the start of the 
recoupment period, there could consistently be one or two months where 
VA could not make a direct comparison of monthly payments to determine 
the borrower's costs and savings.
    The missed payments highlight two outcomes that could harm Veterans 
and contradict section 3709. First, a lender could try to count those 
one or two missed payments toward the IRRRL savings (Note: VA refers to 
``missed payments'' here solely to mean they are not due and payable 
when they would have been scheduled as such under the loan being 
refinanced). For example, if a Veteran's next two scheduled payments of 
$2,000 would be $0.00 under the IRRRL, the lender could try to assert 
the $4,000 as a complete savings, thereby reducing the recoupment 
period. Two scenarios where this could harm the Veteran are: (i) the 
missed payments would go toward recoupment even though the Veteran 
would be responsible for the amounts (at closing or in the loan 
balance), and (ii) a predatory lender could profit by exploiting ``the 
savings'' and justifying new, unnecessary charges to the Veteran.
    Second, if VA were to exclude from the recoupment period the two 
months when payments were not due, the Veteran would be limited to 34 
monthly payments to meet the recoupment, rather than the full 36, to 
offset the IRRRL's transaction costs. See 38 U.S.C. 3709(a)(2) (``all 
of the fees and incurred costs . . . [must be] scheduled to be recouped 
on or before the date that is 36 months after the date of loan 
issuance''). Because VA must adhere to the 36-month statutory 
requirement, VA is concerned a de facto 34-month requirement would not 
meet the statute's terms.
    In addition, it is VA's understanding that the concerns that led to 
the enactment of section 3709--whether concerns of VA or those of 
consumer advocates--were not necessarily about missed payments in and 
of themselves. Few Veterans would argue that being able to retain one 
or two months of mortgage payments is intrinsically predatory or more 
costly. The main concern was the way certain lenders marketed the 
missed payments, misleading Veterans to believe as if they were no 
longer responsible for those payments. However, the Veteran was still 
responsible for paying them, albeit in different ways, as discussed 
above.
    Because the payment structure could reduce the recoupment period 
from 36 months to 34, VA must confront another potential area for 
concern. If the recoupment period is conditioned upon making up the 
missed payments, VA seemingly characterizes the missed payments as a 
new charge to the Veteran, something the Veteran would not have been 
responsible for paying had the loan not been refinanced. In short, it 
could be asserted that VA's decision about the note date is tantamount 
to VA defining a missed payment as a ``fee, closing cost, or expense,'' 
that must be recouped. See 38 U.S.C. 3709(a)(1).
    One way to address these issues would be to keep the note date as 
``the date of loan issuance'' but substantively change or introduce a 
new, more complex formula that accounts for the missed payments. But VA 
is concerned that adding complexity and substantive change to the 
proposed calculation would make the refinance process frustrating to 
Veterans and lenders alike, as well as lead to unnecessary errors in 
origination and oversight. Thus, VA believes the best approach is to 
keep the straightforward formula, as proposed in the November 2022 
notice, and simply change the start date of the recoupment period, as 
described above. See 87 FR at 65701. The formula would continue to 
appear as follows:
[GRAPHIC] [TIFF OMITTED] TP07MR24.012

    To sum up the options VA considered with respect to the recoupment 
standard, VA could--
    1. Finalize the rule using the note date as ``the date of loan 
issuance,'' which could be seen as tantamount to defining missed 
payments as ``a fee, closing cost, or expense,'' that must be recouped;
    2. Propose a different definition of ``the date of loan issuance,'' 
where such date is the date that the first payment under the IRRRL is 
due; or
    3. Propose a new formula to account for the missed payments in a 
meaningful, accurate way, regardless of additional complexity, 
potential for error, and potential for stakeholder frustration.
    VA does not believe a fourth option, one where a lender could count 
the missed payments as savings, would be consistent with the purpose of 
section 3709, which is to protect Veterans from predatory lending. See 
87 FR at 65702.

Updated Revision to Proposed Sec.  36.4307

    Based on VA's additional analysis (discussed above), VA now 
proposes an updated revision to the language of Sec.  36.4307(a)(8). 
Specifically, VA proposes a different definition for ``the date of loan 
issuance,'' one that would be specific to IRRRLs and section 3709. VA 
proposes to begin the 36-month recoupment period on the date that is 
the first payment due date of the IRRRL.

[[Page 16494]]

In other words, VA proposes to interpret the date the Veteran is 
required to make the first regular payment under the IRRRL--regardless 
of whether the Veteran actually makes the payment--as ``the date of 
loan issuance'' set by section 3709(a)(2). To illustrate the difference 
between VA's definition as described by the November 2022 notice and 
this updated proposal: if a Veteran signs a note on April 10, 2025, and 
the first payment due date of the IRRRL is June 1, 2025, the recoupment 
period under VA's proposed rule would begin April 10, 2025. Under this 
SNPRM, the recoupment period would begin June 1, 2025. VA believes 
that, for the reasons described above, this new approach would be 
consistent with the text and context of section 3709, result in more 
advantageous outcomes for Veterans, and be an easy standard for lenders 
to compute and follow.
    With respect to the formula provided in the preamble of the 
proposed rule, VA is clarifying that provided the result of the 
formula, i.e., the months to recoup, is less than or equal to 36, the 
IRRRL would meet recoupment. VA would maintain the proposed rule's 
formula, but clarify that when the result of the calculation, i.e., the 
``months to recoup costs'' in the figure above, is less than or equal 
to 36, the recoupment requirement for the IRRRL would be met. In other 
words, VA proposes that the statutory recoupment requirement would be 
met when:
[GRAPHIC] [TIFF OMITTED] TP07MR24.013

    In revised proposed Sec.  36.4307(a)(8)(i), VA would require that 
the lender of the refinancing loan provide the Secretary with a 
certification that all fees, closing costs, and expenses (other than 
taxes, amounts held in escrow, and fees paid under 38 U.S.C. chapter 
37) that would be incurred by the Veteran as a result of the refinance 
are scheduled to be recouped on or before the date that is 36 months 
after the date that is the first payment due date of the refinancing 
loan.
    To reiterate, VA is seeking comments on this issue only. VA will 
not review new comments on any another aspect of the proposed 
rulemaking.

Executive Orders 12866, 13563 and 14094

    Executive Order 12866 (Regulatory Planning and Review) directs 
agencies to assess the costs and benefits of available regulatory 
alternatives and, when regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, and other advantages; 
distributive impacts; and equity). Executive Order 13563 (Improving 
Regulation and Regulatory Review) emphasizes the importance of 
quantifying both costs and benefits, reducing costs, harmonizing rules, 
and promoting flexibility. Executive Order 14094 (Modernizing 
Regulatory Review) supplements and reaffirms the principles, 
structures, and definitions governing contemporary regulatory review 
established in Executive Order 12866 of September 30, 1993 (Regulatory 
Planning and Review), and Executive Order 13563 of January 18, 2011 
(Improving Regulation and Regulatory Review). The Office of Information 
and Regulatory Affairs has determined that this rulemaking is not a 
significant regulatory action under Executive Order 12866, as amended 
by Executive Order 14094. The Regulatory Impact Analysis associated 
with this rulemaking can be found as a supporting document at 
www.regulations.gov.

Regulatory Flexibility Act

    VA believes that the discrete change in recoupment start date 
contained in this SNPRM would not affect the way lenders have, in 
practice, calculated recoupment of applicable fees, closing costs, and 
expenses over 36 monthly payments. On this basis, the Secretary hereby 
certifies that this SNPRM would not have a significant economic impact 
on a substantial number of small entities as they are defined in the 
Regulatory Flexibility Act (5 U.S.C. 601-612). Therefore, pursuant to 5 
U.S.C. 605(b), the initial and final regulatory flexibility analysis 
requirements of 5 U.S.C. 603 and 604 do not apply.

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year. This rule would have no such effect on 
State, local, and tribal governments, or on the private sector.

Paperwork Reduction Act

    This SNPRM contains no provisions constituting a collection of 
information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3521).

List of Subjects in 38 CFR Part 36

    Condominiums, Housing, Individuals with disabilities, Loan 
programs--housing and community development, Loan programs--Veterans, 
Manufactured homes, Mortgage insurance, Reporting and recordkeeping 
requirements, Veterans.

Signing Authority

    Denis McDonough, Secretary of Veterans Affairs, signed and approved 
this document on March 1, 2024, and authorized the undersigned to sign 
and submit the document to the Office of the Federal Register for 
publication electronically as an official document of the Department of 
Veterans Affairs.

Michael P. Shores,
Director, Office of Regulation Policy & Management, Office of General 
Counsel, Department of Veterans Affairs.

    For the reasons stated in the preamble, the Department of Veterans 
Affairs proposes to amend 38 CFR part 36 as set forth below:

PART 36--LOAN GUARANTY

0
1. The authority citation for part 36 continues to read as follows:

    Authority: 38 U.S.C. 501 and 3720.

0
2. Amend Sec.  36.4307 by:
0
a. In paragraph (a)(4)(ii), removing the cross-reference to ``Sec.  
36.4339(a)(4)'' and adding, in its place, the cross-reference ``Sec.  
36.4339(b)'';
0
b. In paragraphs (a)(4), (5), (6), and (7), adding paragraph headings;
0
c. Adding new paragraphs (a)(8), (9), (10), and (11); and
0
d. Revising the authority citation at the end of the section.

[[Page 16495]]

    The revisions and additions read as follows:


36.4307  Interest rate reduction refinancing loan.

    (a) * * *
* * * * *
    (4) Maximum amount of refinancing loan. * * *
    (5) Cases of delinquency. * * *
    (6) Guaranty amount. * * *
    (7) Loan term. * * *
    (8) Recoupment. (i) The lender of the refinancing loan must provide 
the Secretary with a certification that all fees, closing costs, and 
expenses (other than taxes, amounts held in escrow, and fees paid under 
38 U.S.C. chapter 37) that would be incurred by the veteran as a result 
of the refinance are scheduled to be recouped on or before the date 
that is 36 months after the date that is the first payment due date of 
the refinancing loan.
    (ii) The recoupment period is calculated by dividing the dollar 
amount equating to the sum of all fees, closing costs, and expenses, 
whether included in the loan or paid at or outside of closing, minus 
lender credits (the numerator), by the dollar amount by which the 
veteran's monthly payment for principal and interest is reduced as a 
result of the refinance (the denominator).
    (iii) Numerator. The numerator described by paragraph (a)(8)(ii) of 
this section is the dollar amount equating to the sum of all fees, 
closing costs, and expenses that would be incurred by the veteran as a 
result of the refinance. Except as provided in this paragraph 
(a)(8)(iii), such sum includes any charge that is incurred by the 
veteran as a result of the refinance, including taxes that are not 
described in paragraph (a)(8)(iii)(C) of this section. Lender credits 
may be subtracted from other amounts in the numerator. The following 
items do not constitute fees, closing costs, or expenses for the 
purposes of this paragraph (a)(8)(iii) and are excluded from the 
numerator:
    (A) The loan fee as prescribed by 38 U.S.C. 3729;
    (B) Prepaid interest and amounts held in escrow (for example, 
amounts for hazard insurance); and
    (C) Taxes and assessments on the property, even when paid outside 
of their normal schedule, that are not incurred solely due to the 
refinance transaction (for example, property taxes and special 
assessments).
    (iv) Denominator. The denominator described by paragraph (a)(8)(ii) 
of this section is the dollar amount by which the veteran's monthly 
payment for principal and interest is reduced as a result of the 
refinance. The reduction is calculated by subtracting the veteran's 
monthly payment for principal and interest under the refinancing loan 
from the veteran's monthly payment for principal and interest under the 
loan being refinanced. When calculating monthly payments for principal 
and interest, the lender must use the full payment, without omitting 
any amounts to be repaid monthly by the veteran and attributable to, 
for example, financed fees, financed loan fees prescribed by 38 U.S.C. 
3729, financed closing costs, and financed expenses.
    (v) If the dollar amount of the veteran's monthly payment for 
principal and interest under the refinancing loan is equal to or 
greater than the dollar amount of the veteran's monthly payment for 
principal and interest under the loan being refinanced, meaning there 
is no reduction in the monthly payment for principal and interest as a 
result of the refinancing loan, the lender must not charge any fees, 
closing costs, or expenses, except for those enumerated by paragraphs 
(a)(8)(iii)(A), (B), and (C) of this section.
    (9) Loan seasoning. (i) The refinancing loan must meet both of the 
following requirements:
    (A) On or before the note date of the refinancing loan, the veteran 
must have made at least six consecutive monthly payments on the loan 
being refinanced. For the purposes of this paragraph (a)(9), ``monthly 
payment'' means the full monthly dollar amount owed under the note plus 
any additional monthly amounts agreed to between the veteran and the 
holder of the loan being refinanced, such as payments for taxes, hazard 
insurance, fees and charges related to late payments, and amounts owed 
as part of a repayment plan. A monthly payment will count toward the 
requisite six consecutive monthly payments only if made in or before 
the same calendar month for which it is due. A prepaid monthly payment 
will count toward the requisite six consecutive monthly payments, 
provided that the holder of the loan being refinanced applies such 
payment as satisfying the veteran's obligation of payment for a 
specific month, advances the due date of the veteran's next monthly 
payment, and does not apply the payment solely toward principal. When 
multiple partial payments sum to the amount owed for one monthly 
payment, they will count as a single monthly payment toward the 
requisite six consecutive monthly payments, but only if all partial 
payments are made in or before the same calendar month for which full 
payment is due.
    (B) The note date of the refinancing loan must be a date that is 
not less than 210 days after the first payment due date of the loan 
being refinanced, regardless of whether the loan being refinanced 
became delinquent. The first payment due date of the loan being 
refinanced is not included in the 210-day count. The note date of the 
refinancing loan is included in the 210-day count.
    (ii) Loan modifications. If the loan being refinanced has been 
modified, any payment made before the modification date does not count 
toward the requisite six consecutive monthly payments under paragraph 
(a)(9)(i)(A) of this section. The note date of the refinancing loan 
must be a date that is not less than 210 days after the first payment 
due date of the modified loan. The first payment due date of the 
modified loan is not included in the 210-day count. The note date of 
the refinancing loan is included in the 210-day count.
    (iii) Assumptions. If the loan being refinanced was assumed 
pursuant to 38 U.S.C. 3714, any payment made before the assumption date 
does not count toward the requisite six consecutive monthly payments 
under paragraph (a)(9)(i)(A) of this section. The note date of the 
refinancing loan must be a date that is not less than 210 days after 
the first payment due date of the assumed loan. The first payment due 
date of the assumed loan is not included in the 210-day count. The note 
date of the refinancing loan is included in the 210-day count.
    (10) Interest rate. (i) In a case in which the loan being 
refinanced has a fixed interest rate and the refinancing loan will also 
have a fixed interest rate, the interest rate on the refinancing loan 
must not be less than 50 basis points less than the interest rate on 
the loan being refinanced.
    (ii) In a case in which the loan being refinanced has a fixed 
interest rate and the refinancing loan will have an adjustable rate, 
the interest rate on the refinancing loan must not be less than 200 
basis points less than the interest rate on the loan being refinanced. 
In addition, discount points may be included in the loan amount only 
if--
    (A) The lower interest rate is not produced solely from discount 
points;
    (B) The lower interest rate is produced solely from discount 
points, discount points equal to or less than one discount point are 
added to the loan amount, and the resulting loan balance (inclusive of 
all fees, closing costs, and expenses that have been financed) 
maintains a loan to value ratio of 100 percent or less; or

[[Page 16496]]

    (C) The lower interest rate is produced solely from discount 
points, more than one discount point is added to the loan amount, and 
the resulting loan balance (inclusive of all fees, closing costs, and 
expenses that have been financed) maintains a loan to value ratio of 90 
percent or less.
    (iii) Pursuant to paragraph (a)(4)(i) of this section, no more than 
two discount points may be added to the loan amount.
    (iv) In cases where the lower interest rate is not produced solely 
from discount points, as described by paragraph (a)(10)(ii)(A) of this 
section, lenders must provide to the Secretary evidence that the lower 
interest rate is not produced solely from discount points.
    (v) Lenders must use a property valuation from an appraisal report, 
completed no earlier than 180 days before the note date, as the dollar 
amount for the value in the loan to value ratio described by paragraph 
(a)(10)(ii) of this section. The appraisal report must be completed by 
a licensed appraiser and the appraiser's license must be active at the 
time the appraisal report is completed. A veteran may only be charged 
for one such appraisal report. A veteran may only be charged for such 
appraisal report as part of the flat charge not exceeding 1 percent of 
the amount of the loan, as described by Sec.  36.4313(d)(2). While a 
lender may use a VA-designated fee appraiser to complete the appraisal 
report, lenders should not request an appraisal through VA systems 
unless directed by the Secretary.
    (11) Net tangible benefit. The refinancing loan must provide a net 
tangible benefit to the veteran. For the purposes of this section, net 
tangible benefit means that the refinancing loan is in the financial 
interest of the veteran. The lender of the refinancing loan must 
provide the veteran with a net tangible benefit test. The net tangible 
benefit test must be satisfied. The net tangible benefit test is 
defined as follows:
    (i) The refinancing loan must meet the requirements prescribed by 
paragraphs (a)(8), (9), and (10) of this section.
    (ii) The lender must provide the veteran with an initial loan 
comparison disclosure and a final loan comparison disclosure of the 
following:
    (A) The loan payoff amount of the refinancing loan, with a 
comparison to the loan payoff amount of the loan being refinanced;
    (B) The type of the refinancing loan, whether a fixed-rate loan, 
traditional adjustable-rate loan, or hybrid adjustable-rate loan, with 
a comparison to the type of the loan being refinanced;
    (C) The interest rate of the refinancing loan, with a comparison to 
the current interest rate of the loan being refinanced;
    (D) The term of the refinancing loan, with a comparison to the term 
remaining on the loan being refinanced; and
    (E) The dollar amount of the veteran's monthly payment for 
principal and interest under the refinancing loan, with a comparison to 
the current dollar amount of the veteran's monthly payment for 
principal and interest under the loan being refinanced.
    (iii) The lender must provide the veteran with an initial loan 
comparison disclosure (in a format specified by the Secretary) on the 
date the lender provides the Loan Estimate, required under 12 CFR 
1026.19(e), to the veteran. If the lender is required to provide to the 
veteran a revised Loan Estimate under 12 CFR 1026.19(e) that includes 
any of the revisions described by paragraph (a)(11)(iv) of this 
section, the lender must provide to the veteran, on the same date the 
revised Loan Estimate must be provided, an updated loan comparison 
disclosure.
    (iv) The revisions described by this paragraph (a)(11)(iv) are:
    (A) A revision to any loan attribute that must be compared pursuant 
to paragraph (a)(11)(ii) of this section;
    (B) A revision that affects the recoupment under paragraph (a)(8) 
of this section; and
    (C) Any other revision that is a numeric, non-clerical change.
    (v) The lender must provide the veteran with a final loan 
comparison disclosure (in a format specified by the Secretary) on the 
date the lender provides to the veteran the Closing Disclosure required 
under 12 CFR 1026.19(f). The veteran must certify, following receipt of 
the final loan comparison disclosure, that the veteran received the 
initial and final loan comparison disclosures required by this 
paragraph.
    (vi) Regardless of whether the lender must provide the veteran with 
a Loan Estimate under 12 CFR 1026.19(e) or a Closing Disclosure under 
12 CFR 1026.19(f), the lender must provide the veteran with the initial 
and final loan comparison disclosures. Where the lender is not required 
to provide the veteran with a Loan Estimate or a Closing Disclosure 
because the refinancing loan is an exempt transaction under 12 CFR 
1026.3, the lender must provide the veteran with the initial and final 
loan comparison disclosures on the dates the lender would have been 
required to provide the veteran with the Loan Estimate under 12 CFR 
1026.19(e) and the Closing Disclosure under 12 CFR 1026.19(f), 
respectively, as if the refinancing loan was not an exempt transaction.

* * * * *
(Authority: 38 U.S.C. 3703, 3709, and 3710)

0
3. Amend Sec.  36.4313 by:
0
a. Revising paragraph (d)(1)(i); and
0
b. In paragraph (e)(1)(i), removing the word ``and'' and adding, in its 
place, the word ``or''.
    The revisions read as follows:


36.4313   Charges and fees.

* * * * *
    (d) * * *
    (1) * * *
    (i) Fees of Department of Veterans Affairs appraiser and of 
compliance inspectors designated by the Department of Veterans Affairs 
except the following:
    (A) Appraisal fees incurred for the predetermination of reasonable 
value requested by others than veteran or lender; and
    (B) Appraisal fees incurred for the purpose specified by Sec.  
36.4307(a)(10)(v) of this subpart.
* * * * *
[FR Doc. 2024-04884 Filed 3-6-24; 8:45 am]
BILLING CODE 8320-01-P