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. The explicit delineation provided in subsection (d), i.e., the distinction between loan refinance amounts relative to loan payoff amounts, requires VA to consider cash-out refinances separately. Based on the way Congress structured section 3709, VA-guaranteed or insured refinance loans are now effectively grouped into three categories: (i) IRRRLs, (ii) cash-outs in which the amount of the principal for the new loan is equal to or less than the payoff amount on the refinanced loan (Type I Cash-Outs), and (iii) cash-outs in which the amount of the principal for the new loan is larger than the payoff amount of the refinanced loan (Type II Cash-Outs). (For ease of reference, VA is referring in this preamble to the types of refinancing loans as IRRRLs, Type I Cash-Outs, and Type II Cash-Outs, respectively. VA is not using these terms in the rule text.) Start Printed Page 64460
In other words, it could be suggested that subsections (a) through (c) apply solely to IRRRLs and subsection (d) applies to cash-out refinance loans, generally, both Type I and Type II. Had Congress specified that online payday loans in VA section 3709(a)-(c) applied to loans made for the purpose authorized in 38 U.S.C. 3710(a)(8) or solely to streamline refinance loans, or had Congress not been explicit in making subsection (d) apply solely to Type II Cash-Outs, VA would have understood the statute this way.
It could be understood that, because the text of section 3709(d) does not make any specific reference to Type I Cash-Outs, such loans fall outside the scope of section 3709 altogether
Nevertheless, the text of subsection 3709(d) omits Type I Cash-Outs. In addition, the introductory provisions of subsections (a) through (c) are substantially similar. They refer generally to 38 U.S.C. 3710, without distinction, requiring that if a loan is made for a purpose authorized under section 3710 and is then to be refinanced and guaranteed or insured by VA, the new refinancing loan is subject to the requirements of subsections (a) through (c). On the plain text of subsections (a) through (d), then, the statute requires VA to apply subsections (a) through (c) to all refinances not expressly excepted under subsection (d). Thus, VA understands subsections (a) through (c) to apply to IRRRLs and Type I Cash-Outs and subsection (d) to apply to Type II Cash-Outs.