The residential mortgage business is awash in acronyms. Most professionals can identify what each means, but in today’s market, that is no longer sufficient. Survival requires familiarity; professionalism mandates understanding; but success demands execution. Add two more acronyms to your repertoire, VA and IRRL.
Simply put, the VA, or Veterans Affairs Home Loan program, was designed specifically to let former and current active duty personnel purchase and retain a home in recognition of their service. The Interest Rate Reduction Loan (IRRL), or VA Streamline, provides simple refinancing of a VA loan without any out-of-pocket expense. The loans are processed like a FHA Streamline transaction, without any appraisal, credit, or income and job qualification. Applicants can even skip up to two monthly payments. As an added benefit, a cash-out feature for energy-efficient improvements to the property is also available.
Originally conceived in 1944 during the Second World War, the loans represent a strategy by the Veterans Affairs Department to buffer the cruel emotional and financial aftermath of war and the readjustment of millions of men and woman serving in the Armed Forces. Additionally, the VA loan was seen as a less expensive alternative to cash bonuses, better suited to the immediate need for new housing, and a bonanza to the construction industry and American economy. Since its inception through 20061, the VA has guaranteed over 18 million home loans to veterans and transformed the conventional mortgage market both in product offerings and in terms and conditions.
To be eligible for an IRRL, veterans or active-duty personnel must own a home with an existing VA loan. Interestingly, the loan is also available to Native Americans living on reservations. Eligibility can be verified easily by lenders through a system called ACE (automated certificate of eligibility). This Internet-based application provides an online Certificate of Eligibility in a matter of seconds.
The program includes single-family residences, condominiums and manufactured homes. A refinance of the VA loan can lower the interest rate or obtain cash-out for up to $6,000 to make a home more energy efficient. The maximum loan amount for the VA Streamline is $417,000 without any restriction for property values since no appraisal is required.
An IRRL resembles an FHA Streamline because it can be processed much easier than a conventional loan. Since income, employment, or asset documentation has been waived, documentation requirements are virtually non-existent, and, more importantly, credit and appraisal are unnecessary. Recent revisions to the legislation also help spouses of eligible veterans establish occupancy and, in certain circumstances, make allowances for non-occupants as well. For compliance purposes, a VA refinance is covered under the auspices of the Real Estate Settlement Procedures Act.
An IRRL may be executed with "no money out of pocket" by including all costs in the new loan or by providing it at an interest rate sufficient for the lender to pay the costs. The interest rate on the new loan must be lower than the rate on the old loan unless you refinance an ARM to a fixed rate mortgage.
From the lender’s perspective, the VA Streamline is like a gift from heaven. It provides an additional product offering to the loan sales staff, complementing existing agency offerings, as all VA loans are guaranteed by the Federal government, the risk of a repurchase is limited only by fraud and catastrophic market devaluation. In fact, while FHA loans are insured by the government, the level of post-closing repercussions from a non-performing transaction can still be damaging. And because the VA loan program is designed to reward those protecting our country, the community’s perception of the lending institution is immeasurably improved.
For the loan officer, the IRRL provides a valuable tool to widen the applicant pool and supplement available loan products. In a market dominated by originators offering the plain vanilla standard agency products -- FNMA, Freddie, and GNMA -- VA Streamline and the IRRL provide both an under-utilized mechanism to fast track a transaction, and to differentiate originators interested in carving out a niche. In addition, the IRRL has become an effective work-out tool because the VA has shown an awesome flexibility in working with veterans to restructure their loans if they are unable to keep up with the payments. Finally, forbearance is regularly extended to VA homeowners experiencing temporary financial difficulty.
Extraordinarily, a recent amendment enacted last year, the Veterans’ Benefits Improvement Act, lets veterans with non-VA loans refinance out of high interest rates into a VA loan. Any veteran without an existing mortgage default is eligible as long as the new loan does not exceed the value of the home (as determined by an appraisal).
The VA Streamline represents a powerful tool for originators because it offers a virtually document-free rapid transaction with a reasonable commission. The ongoing wars in Iraq and Afghanistan have added hundreds of thousands of veterans into the pool of eligible applicants, and made the VA streamline more influential in the mortgage field than ever before.
And the new capability of refinancing into a VA loan from non VA transactions greatly expands the pool of qualified IRRL candidates. VA Streamline and IRRL reward our country’s service men and woman, improve a lender’s image in the community, and offer a distinctive and simple way to earn a reasonable commission.
David A. Wind, an Attorney, is Principal and President of Guaranteed Home Mortgage Company, Inc. Founded in 1992, Guaranteed Home Mortgage Company (Guaranteed), is a licensed mortgage investment and banking firm comprised of over 500 mortgage professionals lending in 30 states. For more information, please call 914-696-3400, email [email protected], visit www.ghmc.com or write Guaranteed Home Mortgage Company, Inc., Two Gannett Drive, #110, White Plains, NY 10604.
