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NAFCU sent a letter to the Department of Veterans Affairs (VA) Tuesday outlining concerns with a proposed rule that could add unnecessary restrictions and raise home loan refinancing costs for veterans and credit unions.

The association is generally supportive of the VA providing credit unions regulatory clarity on certain refinance loan calculations; however, NAFCU believes the VA is proposing to establish other regulatory parameters that are much more stringent than two recently passed laws require.

In the letter, NAFCU argues that the VA’s proposal “to expansively define a veteran’s ‘monthly payment’ on the loan to be refinanced as including ‘any additional monthly amounts agreed to between the veteran and the holder of the loan being refinanced’” does not “effectively exclude additional monthly amounts agreed to between a veteran and the holder of the loan being refinanced that are wholly unrelated to the loan being refinanced.”

“For example, consider a veteran that has both a home loan and an auto loan with the same lender,” writes NAFCU Regulatory Affairs Counsel Dale Baker. “Under this proposed subsection, irrespective of the veteran’s home loan payment status, the veteran would not be credited with making a timely monthly payment under this proposed subsection in any month the veteran fails to pay any portion of the veteran’s auto loan in the month it is due. Certainly, neither Congress nor the VA intended for a veteran’s payment history on an auto loan, student loan, credit card, business line of credit, or any other financial obligation that is wholly unrelated to a home loan being refinanced to affect a veteran’s eligibility for an IRRRL in this way.”

In addition, the proposal would materially modify the Economic Growth, Regulatory Relief, and Consumer Protection Act’s (EGRRCPA) six monthly payments seasoning element by requiring that such six monthly payments be consecutive.

“A veteran’s failure to make a full monthly payment in any month before the veteran has made six consecutive monthly payments on the loan to be refinanced would reset the loan’s seasoning element,” Baker explains, noting that this consecutive requirement greatly exceeds EGRRCPA’s requirements.

To ensure veterans are not negatively impacted by the proposed rule, NAFCU recommends the VA revise the monthly payment definition to reference only amounts directly related to the loan being refinanced and drop the consecutive modifier for the six monthly payment seasoning element. NAFCU also advises the VA to adopt a phased mandatory compliance timeline as the current proposal contains no timeline.

NAFCU will continue to advocate for the financial well-being of veterans and their families and ensure credit unions can provide them with safe, affordable financial products and services.