Section 3709 mentions VA’s statutory authority to insure refinancing loans

VA’s cash-out refinance rule has not specified how insurance works for cash-out refinances. Although lenders almost always opt for guaranty, rather than insurance, the insurance of loans remains an option. Therefore, VA is adding § (h) explaining that any refinancing loan that might be guaranteed under this section, when made or purchased by any financial institution subject to examination and supervision by any agency of the United States or of any State may, in lieu of such guaranty, be insured by the Secretary under an agreement whereby the Secretary will reimburse any such institution for losses incurred on such loan up to 15 percent of the aggregate of loans so made or purchased by it. This provision is a restatement of the law at 38 U.S.C. 3703(a)(2)(A).

III. Defining Home Equity

In § , VA uses the term home equity and is therefore adding a definition of this term to § . VA will define home equity as the difference between the home’s reasonable value and the outstanding balance of all liens on the property. This definition is generally accepted in the financial industry and is modified to refer to VA’s specific program terminology. See Home Equity, Investopedia, (last visited ).

Administrative Procedure Act

Section 309(a)(2) of the Act provides express authority for the Secretary to waive the requirements of 5 U.S.C. 551 through 559, e.g., advance notice and public comment requirements, if the Secretary determines that urgent or compelling circumstances make compliance with such requirements impracticable or contrary to the public interest. See Public Law 115-174, section 309(a)(2)(A). VA believes that, for the reasons explained below, delaying implementation of this rule until after VA could provide advance notice, solicit comment, and address public comments would be contrary payday loans Kansas to the public interest. In short, VA has determined that urgent and compelling circumstances exist to warrant the implementation of these regulatory amendments through an interim final rule.

It is important to note that the Act establishes a new standard, specific to the implementation of section 309 of the Act, for dispensing with advance notice and comment. The standard Congress created is separate and apart from the more generally applicable “good cause” exception under the Administrative Procedure Act, 5 U.S.C. 553(b)(B).

VA believes there are several urgent and compelling circumstances that make advance notice and comment on this rule contrary to the public interest. First, VA is concerned about a small group of lenders who continue to exploit legislative and regulatory gaps related to seasoning, recoupment, and net tangible benefit standards, despite anti-predatory lending actions that VA and Congress have already taken. VA’s regulatory impact analysis for this rule indicates that perhaps more than 50 percent of Type II Cash-Out refinances remain vulnerable to predatory terms and conditions until this rule goes into effect. VA believes that VA must immediately seal these gaps to fulfill its obligation to veterans, responsible lenders, and investors.

VA is also gravely concerned about constraints in the availability of program liquidity if VA does not act quickly to address early pre-payment speeds for VA-guaranteed cash-out refinance loans. In large part, cash flows derived from investors in mortgage-backed securities (MBS) provide liquidity for lenders that originate VA-guaranteed refinance loans. When pricing MBS, investors rely on pre-payment models to estimate the level of pre-payments, and any resultant potential losses of revenue, expected to occur in a set period, given possible changes in interest rates. These pre-payment models tend to drive, at least in significant part, the valuation of such MBS. Buyers of VA-guaranteed loans, and other industry stakeholders have expressed serious concerns that early pre-payments of VA-guaranteed loans are devaluing these investments. See “Slowing Down VA Refi Churn Proving More Difficult Than Expected”, National Mortgage News (). If such stakeholders view MBS investments that include VA-guaranteed refinance loans as less desirable, prudent lenders could be deprived of the cash flows, i.e. liquidity, necessary to make new VA-guaranteed loans to veterans.