Veterans Affairs has established new policies regarding guaranteed cash-out refinancing loans, including refinancing of construction loans.

The policies determine when Veterans Affairs can guarantee a refinancing, as required under The Economic Growth, Regulatory Relief, and Consumer Protection Act. The new policies take effect Feb. 15.

For loans being refinanced within one year from the date of closing, lenders are required to obtain a payment history, or ledger, documenting payments, unless a credit bureau supplement identifies the payments made in that timeframe. If Veterans Affairs selects the loan for a regulatory audit, the lender will have to include the payment history, or provide a credit bureau supplement of the loan being refinanced in the loan file for review.

Starting on Feb.15, applications that don’t meet the following requirements may be subject to indemnification or the removal of the guaranty:

Loan-to-Value. Veterans Affairs won’t guaranty refinancing loans when the loan-to-value exceeds 100 percent. Inclusion of any funding fee that is financed, in part or whole, cannot cause the loan to exceed the reasonable value of the property.

LTV Calculation. Divide the total loan amount, including the Veterans Affairs funding fee, by the value of the property determined by the appraiser.

Net Tangible Benefit standard applies to all Veterans Affairs cash-out refinancing loans, and is satisfied when one of the following is met:

• The new loan eliminates monthly mortgage insurance.
• The loan term of the new loan is less than the loan term of the loan being refinanced.
• The interest rate of the new loan is less than the interest rate of the loan being refinanced
• The monthly (principal and interest) payment of the new loan is less than the monthly (principal and interest) payment of the loan being refinanced.
• The monthly residual income is higher as a result of the new loan.
• The new loan is used to pay-off the veteran’s interim construction loan.
• The new loan LTV is equal to or less than 90 percent of the reasonable value of the home.

Loan Comparison Disclosure: The lender is required to provide the veteran a comparison of the new loan to the existing loan being refinanced. Veterans Affairs requires lenders to generate two loan comparison disclosures, one within three business days from the initial date of the loan  application and at the closing.

The borrower must certify receipt of both disclosures--signature, e-signature, email from borrower certifying receipt, email read receipts, system time/date stamp where a borrow certified receipt. A failure to provide initial disclosures to the veteran within three business days from the initial application date and at closing could result in indemnification of the loan up to five years.