The Department of Veterans Affairs is modifying its rules for Streamline Mortgage loans, also known as VA Interest Rate Reduction Refinancing Loans or IRRRLs. The May 9 2014 edition of the Federal Register contains an update on the VA position on ability to repay guidelines for VA IRRRLs as well as “safe harbor” qualified mortgage standards.

According to the Federal Register, last year the Consumer Financial Protection Bureau (CFPB) published a revision of something called Regulation Z. This regulation establishes the guidelines for a qualified mortgage. “That CFPB final rulemaking also generally prohibits a creditor from making a mortgage loan unless the creditor determines that the consumer will have the ability to repay the loan” says the Federal Register.

The CFPB rule, “further identified two types of qualified mortgages. One type enjoys a rebuttable presumption that the creditor making the loan satisfied the borrower’s ability-to-repay requirements. With these types of loans, the presumption favors the assertion that the creditor complied with the ability-to-repay requirements unless the borrower proves—based on
information that the creditor was aware of at the time the loan was made—that the consumer would be left with insufficient residual income”.

The other type of loan, “safe harbor” qualified mortgage loans, “are those that are considered to have conclusively met all requirements of a qualified mortgage and a borrower’s ability to repay a loan.”

The VA changes will help define which types of loans are qualified mortgages and and which ones are “rebuttable presumption” loans. The changes have not at the time of this writing been made into what is known as a “final rule”,

But what does it all mean? According to the Federal Register, “VA does not have authority to state with legal effect the proper interpretation of CFPB’s rules. CFPB has the authority to interpret, enforce, and amend the rules CFPB promulgates...As a result, VA’s approach in this rule is to define which VA loans satisfy the qualified mortgage requirements, notwithstanding other limitations. In other words, VA may not be able to provide a definitive interpretation of
CFPB’s rule, but VA can make sure that VA’s rule removes stakeholder uncertainties concerning VA loans.”

We’ll cover the changes when they become published as part of the VA Final Rule on the subject later this year.

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