VA IRRRL After Forbearance
The COVID-19 coronavirus pandemic has hit Americans hard. Millions of lives have been abruptly disrupted.
The economy shuddered to a slow roll in a very short period of time, and millions of families are experiencing financial hardship as a result.
Financial hardship is a horrible experience for anyone, and it’s amplified if you are a homeowner with a mortgage payment.
On March 27th, 2020 the Federal CARES Act was passed to offer a clear path for payment relief options available to homeowners impacted by the near Nationwide shutdown.
If you have a VA home loan, your loan is Federally backed and covered under the CARES Act.
The CARES Act clearly defines the path to payment relief through forbearance. What it does not tell you is what your options are for refinancing if you went into forbearance because of COVID-19.
If you already have a VA home loan, you’re looking at historically low mortgage interest rates right now. If you’re currently or were recently in a COVID-19 forbearance plan, we did not have a clear path to qualifying for a VA IRRRL until June 30th, 2020.
This article explores the June 30th guidance released by the Veterans Administration as it specifically pertains to qualifying for a VA IRRRL after a CARES Act forbearance.
Homeowner Protection Under CARES Act
The Federal CARES Act only covers homeowners whose loans are Federally backed. Under the umbrella definition of Federally backed is FHFA (Fannie Mae & Freddie Mac), FHA, VA & USDA.
FHFA has been pretty clear about their 40% of the market by providing a clear pathway to forbearance and then out of forbearance into deferment or repayment, whichever is best for the homeowner.
The following is a translation of the official VA guidance. I tried to remove all of the “lender-speak” so it’s easier to understand your rights in plain language.
Our goal with this article is to empower Veterans so that misinformed or inexperienced loan officers are not preventing you from using your VA home loan benefit during these unprecedented times.
If you would like to review the original source document, you can view Circular 26-20-25 here.
CARES Act Forbearance Impact on VA IRRRL Guidelines
This guidance specifically addresses the challenges that otherwise eligible Veterans may experience if you have experienced a temporary financial hardship due to COVID-19, which ultimately resulted in mortgage forbearance.
Homeowners with a VA home loan are covered under the CARES Act.
The Act specifically grants mortgage forbearance as a safety net in the event that you either “directly or indirectly” experience financial hardship from the COVID-19 emergency. Requesting temporary mortgage payment relief under the CARES Act is incredibly easy.
Excerpt from the CARES Act:
See Public Law 116-136. Under section 4022 of the CARES Act, a borrower with a “Federally backed mortgage loan” who is experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency may request a forbearance on such loan.
A borrower can obtain forbearance by:
(i) submitting a request to the borrower’s servicer and
(ii) affirming that the borrower is experiencing financial hardship during the COVID-19 emergency. The forbearance must be granted for up to 180 days and must be extended for an additional period of up to 180 days at the request of the borrower.
The forbearance must be granted for up to 180 days and must be extended for an additional period of up to 180 days at the request of the borrower.
Forbearance must be offered upon the borrower’s request, regardless of delinquency status.
Effective Dates
- The guidance in this Circular is effective immediately and applied to any loan closed on or the day after this Circular is signed.
- The policies outlined in this Circular will remain in place until further notice or the Circular is rescinded.
- This Circular is rescinded on July 1, 2021.
COVID Related Underwriting Flexibilities
Lenders should continue to follow all applicable VA policies using good judgment and flexibility in originating VA-guaranteed loans for Veterans who invoke CARES Act forbearances.
If you have experienced financial hardship caused by COVID-19, VA is temporarily waiving certain regulations and policy requirements to help Veterans and the private sector to secure home loans.
The flexibility that VA underwriters have now to act in the best interest of the Veteran is one of the most powerful features of the VA Veteran home loan.
Unfortunately, this is also the reason why so many loan officers and lenders get it wrong.
In an effort to help as many Veterans as possible to take advantage of their home loan benefit, VA approved underwriters are encouraged to use common sense and their own discretion when making decisions to approve or deny a Veteran’s application.
But not all loan officers, underwriters, or lenders are created equal. Not even close.
For this reason, we encourage Veterans to ONLY use professional advocacy groups like VettedVA to connect with experienced, passional VA mortgage experts.
A Veteran’s options are literally limited to the experience and willingness of the loan officer and underwriter to fight for your loan approval if you are unable to breeze through with automated underwriting.
VA IRRRL – Interest Rate Reduction Refinance Loan
A VA IRRRL allows a qualified Veteran to reduce your interest rate as long as you can meet both seasoning and net tangible benefit requirements.
Am I Eligible For an IRRRL?
The minimum requirements for an IRRRL are that all of these things must be true:
- You already have a VA loan
- You are using the IRRRL to refinance your current VA loan
- You can certify that you currently live in, or have lived in the home connected to the VA loan
Flexibilities for Past Due Payments From Forbearance
Under normal circumstances, lenders are required to obtain prior approval from VA if your loan being refinanced is more than 30 days past due.
If you have missed more than one monthly payment (more than 30 days late), you will be asked by the lender to provide reasons for the loan deficiency, information to establish that the reason for your delinquency has been resolved and that you have the ability to meet VA underwriting guidelines for the new loan.
VA is temporarily waiving certain prior approval requirements applicable to delinquent loans.
Waiver of Prior Approval if Over 30 Days Late
Under this Circular, VA’s prior approval is not required, regardless of delinquency status, if—
- VA has already approved your lender to close loans on an automatic basis,
- You initiated a CARES Act forbearance on the loan being refinanced,
- The borrower has provided information to establish that the borrower is no longer experiencing a financial hardship caused by COVID-19, and
- You meet all standard underwriting guidelines for an Interest Rate Reduction Refinance Loan.
No Late Payments Regardless of Forbearance
As mentioned above, VA’s regulations require prior approval and underwriting for an IRRRL only when the loan being refinanced is more than 30 days past due.
If the loan being refinanced is not more than 30 days past due, VA’s approval is not required in advance of the loan, nor is underwriting required.
Thus, VA’s prior approval and lender underwriting are not required in cases where the loan being refinanced is overdue by 30 days or less, regardless of whether the Veteran requested a CARES Act forbearance and the delinquency status at the time of such request.
Paying Back Skipped Payments with a VA IRRRL
One of the most impactful flexibilities that VA announced is your ability to include any skipped payments during forbearance in the IRRRL.
This is a huge deal. Here’s an example of how big this is: If you are trying to qualify for a conventional loan and you skipped payments or deferred payments after forbearance, you must make 3 consecutive on-time payments before being eligible to refinance.
With interest rates on VA loans being so low, and they look to remain low for quite some time, you want to be able to take advantage of your IRRRL benefit when the time is right for you, not after you’ve met some arbitrary waiting period.
Your lender can include the following in your VA IRRRL loan amount:
- Any past-due installment payments, including those a borrower deferred under a CARES Act forbearance, plus
- Allowable late charges, consistent with the note, the CARES Act, and all other applicable laws, plus
- the cost of any energy efficiency improvements, plus
- Allowable closing costs and discount points, and
- the VA funding fee.
IRRRL Seasoning Warning
“Seasoning” is a term used to describe the number of days that must pass between refinances.
I know this sounds strange, why would you keep refinancing over and over again?
Well, there were entire lending organizations out there, advertising on the internet and on TV, churning Veteran loans. Churning means they would refinance them over and over again and charge fees every time.
Unfortunately, those predatory VA lenders are still out there, but now they must follow the new seasoning requirements before being eligible for another VA IRRRL.
Seasoning Requirements for VA IRRRL
- The first payment on your new loan must be at least 210 days from the closing date of our previous loan, and
- You must have made 6 consecutive, on-time payments on the current loan.
How Forbearance Affects Seasoning
Most of you will not run into this, but it’s important to point out that while your mortgage is in forbearance, those months are NOT counted toward seasoning requirements.
Here are a couple of examples of how this might impact you:
If you have made 6 or more on-time consecutive payments before your CARES Act forbearance, your seasoning requirement HAS been met.
If you purchased or refinanced your current loan and only made 5 payments before your CARES Act forbearance, your seasoning requirement HAS NOT been met.
You must make 6 consecutive payments before being eligible for a VA IRRRL.
Do I need an appraisal?
An appraisal is not necessary except in cases where your lender is required to demonstrate that the IRRRL satisfies the net tangible benefit requirement. Ask your loan officer after you’ve been pre-approved.
Fees and Charges for Veterans Affected by COVID-19.
The VA encourages lenders in this circular to carefully consider whether an IRRRL is in the best financial interest of a Veteran.
The VA also mentions that it strongly supports and encourages the fee waivers that many lenders have adopted, including the waiver of origination fees, discount points, and premium pricing offsets, for Veterans affected by COVID-19.
Take-Aways
As I mentioned at the beginning of this article, my opinion of the Veterans Administration’s guidance here is very positive.
I think the VA covered all of the bases here, and I think any Veteran that is able to secure stable income will be able to easily have access to the full benefits of your VA home loan entitlement.
The only thing tricky here is the 6 consecutive payments rule mentioned above. But it’s unlikely that if you refinanced 6 months ago that you would be able to meet the VA Tangible Net Benefit test again.
