VA Thought of the Week: An in-depth Review of the Comparison Certification
VA created 2 forms for the Comparison Certification. The first is the estimated or proposed comparison and the second is the final comparison. Like a Loan Estimate, the proposed comparison must be accurate, but not necessarily perfect. It can be changed if the circumstances change, and then reissued. The final comparison is just as important as the final Closing Disclosure. It must be accurate without exception.
Section 1 of the proposed comparison statement places the existing loan data next to the proposed loan data to compare:
- Loan balance: The remaining balance on the existing loan compared to the new balance on the proposed loan.
- Monthly Payment: The monthly P&I (+MI if present) on the existing loan to the new P&I on the proposed loan (this must be accurate and not include Taxes and Insurance deposits).
- Remaining Term (Months): The remaining term of the existing loan compared to the term of the proposed loan.
- Loan Type: Type of the existing loan (ARM, Fixed) compared to the proposed loan.
- Interest Rate: The current rate of the existing loan (if an ARM, the current rate) compared to the starting rate of the proposed loan.
- Total of remaining payments: The total of the remaining amount of payments compared to the proposed loan total payments (multiply line 2 by line 3).
- Loan-To-Value Percent: The LTV of the existing loan (line 1 divided by the estimated value) compared to the proposed LTV.
- Home Equity remaining: The equity available on the existing loan (estimated value minus line 1) compared to the proposed loan,
Section 2 of the proposed comparison statement determines the NTB from the eight factors discussed last week. Only one of the NTB factors needs to be established but it must be accurate. We have seen many cases where the NTB for paying interim construction debt was selected, but the new loan paid off multiple credit cards rather than a HELOC or 2nd lien. That would not be acceptable and only the increase in borrower’s residual is the acceptable NTB.
Section 3 of the proposed comparison statement is the borrower’s certification of receipt. This is very important. This form must be given to the borrower within 3 days of the application, just like all the other disclosures and LE. It must be accurate! It is the Loan Officer’s responsibility to ensure it is accurate when the information is provided to the disclosure staff to include in the initial package to the borrower.
If new information is received regarding the existing loan and the initial form is determined to be wrong, then a new form should be sent to the borrower, just like if we had a change to the LE.
The Final Comparison Certification is almost identical to the proposed. This portion of the comparison must be issued at the time of the initial CD and again at the final CD and must be provided at least 3 days prior to loan closing.
Section 1 covers the loan comparison of the existing loan and the new loan (not proposed). This one is just like the proposed but using final accurate numbers.
Section 2 summarizes the refinance by providing the amount of cash disbursed directly to the borrower, any payoff amounts that were paid by the new loan, and the amount of increase in the total paid over the life of the loan compared to the existing loan(s).
Section 3 restates the NTB selection.
Section 4 is again the borrower certification and date.
Be accurate! This form is every bit as important as the accuracy of the CD. This could mean the difference of VA accepting the new loan for guaranty or rejecting it. Do not let this form go unreviewed because it is the Loan Officer’s responsibility to ensure it is right.
All of these are in place to make sure that Veterans are aware of the effect on their debt with the refinance of their loan.
Next week, we will cover Interest Rate Reduction Refinance Loans (IRRRL) and the loan comparisons for those loan types.