Senate Passes Bill Providing VA, Ginnie Mae Loan ‘Seasoning’ Fix
The Senate yesterday by unanimous consent approved a bill that would close a loophole refinanced loans must meet to be eligible for the VA guaranty and for Ginnie Mae pooling.
The Senate companion bill was identical to H.R. 1988, the Protection Affordable Mortgages for Veterans Act of 2019 (https://www.congress.gov/bill/116th-congress/house-bill/1988), introduced by Rep. David Scott, D-Ga. Sens. Krysten Sinema, D-Ariz., and Thom Tillis, R-N.C., introduced the Senate bill.
The bills would close a loophole in the Economic Growth, Regulatory Relief, and Consumer Protection Act signed by President Trump last May. Among the many provisions contained within the legislation as enacted, Section 309, entitled “Protecting Veterans from Predatory Lending,” sought to address the problem of loan churning targeted at service members and veterans. This section instituted new requirements that refinanced loans must meet in order to be eligible for the VA guaranty and for Ginnie Mae pooling.
However, the calculation of the 210-day seasoning period in Section 309(a) deviated from well-understood seasoning requirements already in place through directives issued by Ginnie Mae. The new requirements of Section 309(a) begin the seasoning period on the date on which the first payment is made by the borrower. Because there was no effective date provided in the legislation as enacted, this provision took effect immediately and resulted in an unintended negative consequence for a cohort of VA loans originated in the spring of 2018. Specifically, these loans were no longer eligible for Ginnie Mae securitization, even though they maintained a valid VA guaranty and met all Ginnie Mae requirements at the time of closing.
Ahead of the vote, the Mortgage Bankers Association sent a letter in support of the Senate companion bill. MBA pointed out for some lenders, this situation has created liquidity strains due to the lack of viable alternative secondary market executions for these loans. The impact of this problem wouuld be felt even more severely when loans that were pooled into Ginnie Mae securities need to be bought out of these pools. In many situations, MBA said, the lender offering the refinance cannot know this date with certainty–particularly if the lender is not the servicer of the initial loan.
MBA has consistently supported the purpose of Section 309(a) of the act, which provides the new requirements that must be met for a refinanced loan to obtain a VA guaranty. The three requirements are:
–Fee recoupment within 36 months;
–Net tangible benefits to the borrower, measured as a decrease of at least 50 basis points in the interest rate in the case of a fixed-to-fixed refinance, and at least 200 basis points in the interest rate in the case of a fixed-to-floating refinance; and
–Seasoning of the initial loan for at least 210 days, combined with at least six monthly payments by the borrower.
In the letter to Sens. Johnny Isakson, R-Ga.; Jon Tester (chair and ranking member, respectively of the Senate VA Committee); Mike Crapo, R-Idaho, and Sherrod Brown, D-Ohio (chair and ranking member, respectively of the Senate Banking Committee), MBA Senior Vice President of Legislative and Political Affairs Bill Killmer said the Protecting Affordable Mortgages for Veterans Act of 2019 fixes this problem by beginning the 210-day seasoning period on the first payment due date of the initial loan, which will allow lenders greater compliance certainty and better ensure that loans are not erroneously pooled into Ginnie Mae securities.
“Absent this legislation, VA lenders of all sizes will be forced to sell or finance these loans at a loss, potentially hindering their ability or willingness to originate similar loans in the future,” Killmer said. “Importantly, striking this provision does nothing to weaken the consumer protections that were put in place through the original legislation, as the seasoning requirements in Section 309(b) are largely duplicative of those already instituted in Section 309(a).”
The bill now goes under consideration by the House; MBA sent a similar letter to House members urging the bill’s support.
