B. The Structure of Section 3709(b) and (d) and How It Affects Type I and Type II Cash-Outs

B. The Structure of Section 3709(b) and (d) and How It Affects Type I and Type II Cash-Outs

As explained, section 3709 bifurcates cash-out refinance loans into two types. Type I Cash-Outs are subject to 38 U.S.C. 3709(a) through (c). Type II Cash-Outs are subject to subsection (d). Subsections (a) through (c) provide specific criteria before a Type I Cash-Out may be guaranteed or insured.

Subsection (a) imposes requirements related to recoupment of fees and expenses when refinancing a VA-guaranteed or insured loan into a Type I Cash-Out. In this rule, VA is simply restating the statutory criteria Congress prescribed in 38 U.S.C. 3709(a). To the extent any changes are made, they are solely for ease of reading and should not imply a substantive effect. VA is required to follow the statute.

Subsection (b) requires that a refinance loan provide a net tangible benefit to a veteran. To that end, the lender must provide a veteran with a net tangible benefit test to ensure that the refinance is in the financial interests of the veteran. Congress required the test, https://onedayloan.net/payday-loans-me/ but did not define its parameters. To clarify statutory ambiguity, VA is, therefore, providing the parameters, as described later in this preamble.

VA considered various interpretations in dealing with section 3709(b). As discussed above, one question was whether the section applies only to IRRRLs, excluding Type I Cash-Outs altogether. The reading also would not make sense in application, as it would create a loophole for Type I Cash-Outs, making it easy for unscrupulous lenders to exploit veterans by inflating interest rates and discount points, without regard to net tangible benefits or the recoupment of fees and expenses. Such a loophole is inconsistent with the statute, as such lenders could render the whole of (a) through (c) meaningless. Continue reading “B. The Structure of Section 3709(b) and (d) and How It Affects Type I and Type II Cash-Outs”