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Legislation clarifies securitization timeline for VA loans

A bill approved this week by the U.S. House of Representatives clarifies when mortgages backed by the U.S. Department of Veterans Affairs (VA) qualify to be pooled into Ginnie Mae securities.

Military personnel holding houseThe legislation, known as the Protecting Affordable Mortgages for Veterans Act of 2019, passed the House by a voice vote under suspension of rules. The ruling clears up a policy — the “Protecting Veterans from Predatory Lending” section of the Economic Growth, Regulatory Relief and Consumer Protection Act — established earlier this year to protect borrowers from predatory VA loan refinancing.

Regulations prohibit the VA from guaranteeing a refinanced home loan until either the date of the sixth monthly payment or 210 days after the first payment is made, whichever is later. This 210-day span is known as the “seasoning period." The bill changes the triggering of the seasoning period to begin on the first payment’s due date, not the day that the payment is actually made.

The adjustment was made because, if a VA loan is refinanced, the lender doing the refinancing may not know the date of the first payment unless it also originated the initial loan. Making the change to the seasoning period clears up exactly when the loan can be securitized, regardless of who serviced the first mortgage.

The Mortgage Bankers Association (MBA) sent a letter to House leadership ahead of the vote on the bill, urging its passage. Per the MBA, the bill allows lenders greater compliance certainty and helps guarantee that loans aren’t erroneously pooled into Ginnie Mae securities.

"Importantly, nothing in this legislation weakens the consumer protections that were put in place through the original legislation," the MBA said. "The bill would also provide the added benefit of ensuring the Ginnie Mae eligibility of re-performing VA refinance loans that are bought out of pools as servicers consider loss-mitigation options."

The bill now heads to the White House, where President Donald Trump could sign it into law.


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