Regarding the change requiring the VA Funding Fee cost to be included in LTV calculations for refinances up to 100% LTV, it is not clear how the Veteran will benefit. It is also not clear how the Department of Veterans Affairs regulatory agency will benefit from this modification and, since there are many disadvantages to Veterans and the VA as a result of this modification, the implication is that this modification is made at the expense of the VA and the Veterans it was designed to serve. Here is one example:
Those who might not otherwise be eligible to refinance as a result of this modification will directly impact revenue generated by the VA with fewer VA funding fees collected particularly from homeowners with larger loan amounts and lower amounts of equity.
For example, prior to this modification, a Veteran with a loan amount at $580,200 and a value of $600,000 has the capability to payoff debts worth up to $19,800 using the VA cash out refinance program because the final loan amount's LTV was capped at 103.3%, which represents a funding fee collected by the VA for almost $20,000. By requiring the funding fee to be calculated within 100% of the home's value, the Veteran is essentially priced out of the opportunity to refinance and pay down almost $20,000 worth of debts because the VA funding fee would engulf the full amount of equity. This is a disadvantage for both the VA and the veteran, both of whom will no longer have access to an additional $20,000 in disposable revenue as a result of this modification. Veterans needing such a small amount are typically the type of customer needing immediate access to cash to avoid a sudden crisis in their finances or to pay for medical emergencies, and these desperate servicemembers will be priced out of the market by the VA's modification.
What's more, has the VA weighed the financial implications of this by identifying how many refinances will be priced out of the market as a result of this rule? Hypothetically speaking, the loss of merely 10,000 of these loans represents a loss in revenue totaling $200 million for the VA's regional loan centers.
Furthermore, It is not clear how this modification benefits the VA and the veteran, but what is clear is there are disadvantages to both parties that are worth recognizing. If the benefits of this modification to the VA and the veteran exist and simply were not stated, please explain what these benefits are so that everyone affected by this modification can understand how the VA weighed the benefits against the disadvantages so that we can all arrive to the conclusion that the benefits outweigh the disadvantages.
If this is not possible, then this modification implies that the VA is suddenly in the business of knowingly making rule changes that is financially counterproductive to itself and the Veterans it is designed to serve.
Regarding explanations on how the removal of home equity may affect the Veteran, this should not be required on VA Cash Outs involving debt consolidations for the simple fact that the savings generated from debt relief always outweighs the benefits of equity saved, which is not disposable income but just a number on paper. For someone wanting to consolidate debt, what benefits exist by leaving equity assets in the home while one pays off high interest debt with out of pocket assets? Other than being a number on paper, the equity does nothing for Veterans who could save themselves from a financial emergency in the event that, hypothetically speaking, they are not forced into selling a home that may be underwater years later due to a recession and not being able to pay off debts from years prior.
Lastly, the VA has created an unreasonable degree of ambiguity with its modification of seasoning requirements for Type 1 and Type 2 cash outs. The timelines of 210 days or 6 payments from the first payment date is redundant to the extent that it does not make sense, and this is because the VA attaches a modifier to these timelines consisting of "on the later date of". Frankly, regardless of the first payment date, 6 payments will never be the later date of 210 days, which is 7 months. No such scenarios on exist for applicants of Cash Out refinances due to AUS requirements for late payments.
Furthermore, while the seasoning changes were presumably designed to be consistent with Ginnie Mae's interpretation of seasoning requirements, it fails to consider H. R. 6737 and S. 3536 Protect Affordable Mortgages for Veterans Act of 2018 which was designed to give Ginnie Mae the freedom to bring their interpretation of seasoning requirements in line with the VA's. This bill was already passed in the House and was recently introduced in Senate, so the President is expected to see it on his desk for his signature shortly, which means the VA's new modification to seasoning timelines will recreate the exact problem of inconsistency with Ginnie Mae that it presumably aims to reconcile in the first place.