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The Federal Housing Administration (FHA) and Ginnie Mae have released plans to adjust their cash-out policies to reduce risk, protect and preserve borrowers' home equity, and be more transparent and attractive to investors.

The FHA is lowering the maximum loan-to-value (LTV) requirements for cash-out refinance transactions from 85 percent to 80 percent, which aligns with the government-sponsored enterprises' limit. These changes are meant to reduce risk associated with cash-out refinancing lending, while still allowing homeowners to convert home equity to cash via a government-sponsored mortgage.

The new requirements go into effect for loans with case numbers assigned on or after Sept. 1.

In addition, Ginnie Mae will revise its pooling eligibility requirements applicable to all Department of Veterans Affairs (VA)-guaranteed refinance loans and also establish new pooling criteria for certain cash-out refinances with LTV ratios exceeding 90 percent.

Mortgage-backed securities guaranteed on or after Nov. 1, VA cash-out refinance loans with LTV ratios above 90 percent will now be excluded from Ginnie Mae I Single Issuer Pools and Ginnie Mae II Multi-Issuer Pools, but eligible for Ginnie Mae II Custom Pools. NAFCU, commenting on the proposal earlier this year, urged the agency to evaluate the impact of these changes to minimize any adverse effects on veterans looking to refinance.

The VA earlier this year released an interim final rule amending its regulations regarding VA-guaranteed or insured cash-out refinance loans. The VA's rule implements a provision of the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) aimed at protecting veterans from predatory lending.