Almost all VA home loans will be considered Qualified Mortgages that provide lenders a legal safe harbor, according to an interim final rule released last week by the Department of Veterans Affairs.
Under the interim rule, all purchase and refinance loans that receive a VA guaranty would be classified as safe harbor Qualified Mortgages, except for certain VA Streamline refinance loans. That “safe harbor” presumption is designed to shield lenders from legal liability arising from future foreclosure claims.
The rule also seeks to clarify uncertainty regarding Interest Rate Reduction Refinance Loans (IRRRL), the VA’s Streamline refinance option that’s served as a point of contention among some lenders and industry observers.
The VA’s interim rule took effect May 9 and replaces a temporary one in place since January. Wide-ranging reforms in the wake of the housing market collapse created the new class of mortgages (Qualified Mortgages) and a new independent agency to oversee the mortgage industry (the Consumer Financial Protection Bureau). The CFPB issued its own QM guidelines, which include a set of eight credit and underwriting requirements known as the Ability to Repay rule, and permitted government agencies to draft their own rules.
“Veterans, lenders and investors have expressed concern over the applicability and potential effect of CFPB’s qualified mortgage definition on the VA Home Loan program,” VA officials note in the rule. “Issuing this rule will help to remove these perceptions and allow veterans to continue to utilize the benefit they have earned without bearing the brunt of increasing pricing and limited availability of the VA product.”