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I. VA’s Refinance Program and New Section 3709

I. VA’s Refinance Program and New Section 3709

A. Two Types of Cash-Out Refinance Loans Under Section 3709

Refinancing loans guaranteed or insured by VA have historically fallen into two broad categories: (i) Cash-out refinance loans (cash-outs) offered under 38 U.S.C. 3710(a)(5) and (a)(9) and (ii) interest rate reduction refinancing loans (IRRRLs) authorized under 38 U.S.C. 3710(a)(8) and (a)(11). VA has not, until the enactment of the Act, seen any reason to delineate in VA’s cash-out refinance rule, 38 CFR , between cash-out refinance loans where the principal amount of the new loan is either: (a) Higher than, or (b) less than or equal to, the payoff amount of the loan being refinanced. The Act, however, bifurcates cash-out refinance loans relative to payoff amounts of the loan being refinanced, effectively requiring VA to treat the cash-out refinance loans differently, notwithstanding the fact that they are both authorized under the same statutory authority.

Subsections (a), (b), and (c) of 38 U.S.C. 3709 set forth standards for fee recoupment, net tangible benefits, and loan seasoning, respectively, related to the refinancing of loans guaranteed or insured by VA. Subsections (a) through (c) all contain similar introductory text, providing that when a borrower refinances a loan initially made for a purpose under VA’s enabling statute in 38 U.S.C. 3710, the new refinance loan must meet the respective requirements of subsections (a), (b), and (c).

Subsections (a) through (c) do not expressly distinguish among the statutory types of refinancing loans that VA can guarantee or insure. While subsections (a) through (c) of section 3709 do not refer specifically to IRRRLs or cash-out refinance loans, subsection (d), which is identified under the statutory heading of “Cash-out refinances”, explicitly states that subsections (a) through (c) do not apply to refinancing loans where the amount of the new loan is larger than the payoff amount of the loan being refinanced.