The U.S. House of Representatives recently passed H.R. 6737 to amend the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) to address a technical issue that prevented mortgage lenders from including certain VA refinance loans in Ginnie Mae securitizations.
As we previously reported, the Act includes provisions designed to protect veterans when refinancing a VA loan. Specifically, the Act prohibits the VA from guaranteeing or insuring a loan unless:
- The veteran will recoup the fees to refinance within 36 months of the date of the loan.
- There is a net tangible benefit to the veteran in the form of an interest rate reduction. If a fixed rate loan is being refinanced with another fixed rate loan, the rate reduction must be at least 50 basis points. If a fixed rate loan is being refinanced with an adjustable rate loan, the rate reduction must be at least 200 basis points. The rate reduction may be achieved through the payment of discount points, subject to limitations.
- The refinance loan is made the later of (1) the date that is 210 days after the date on which the first monthly payment is made on the existing loan, and (2) the date on which the sixth monthly payment is made on the existing loan. The seasoning requirement does not apply to a cash-out refinance loan when the principal amount of the new loan exceeds the amount of the loan being refinanced.
The Act includes a corresponding provision under which a VA refinance loan may not be included in a Ginnie Mae securitization unless the loan seasoning requirement in the third bullet point is satisfied. The Act did not provide for a specific effective date for the Ginnie Mae provision and as a result the requirement became effective upon the Act being signed into law on May 24, 2018, and applied to existing refinance loans that were not already included in a Ginnie Mae securitization. This meant that lenders were unable to include in a Ginnie Mae securitization any of such existing loans if the loans did not satisfy the seasoning requirement.
H.R. 6737, entitled the Protect Affordable Mortgages for Veterans Act of 2018, would amend the Act to replace the sentence that added the seasoning requirement for Ginnie Mae securitizations with the following sentence: “The Association is authorized to take actions to protect the integrity of its securities from practices that it deems in good faith to represent abusive refinancing activities and nothing in the Protect Affordable Mortgages for Veterans Act of 2018, the amendment made by such Act, or this title may be construed to limit such authority.”
The Mortgage Bankers Association applauded the action by the House and urged the Senate to swiftly pass the legislation.