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How Cash-Out Refinancing Works with a VA Home Loan | Department of Veterans Affairs | theSITREP - YouTube
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so is that is the process to refi the
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same as
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originating loan
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yeah yeah it's the same there's no
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difference we look at the income we look
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at the credit we um you know some
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caveats to some differences between a va
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purchase va refine a va purchase you can
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buy a house 100 financing
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no down payment right
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and that includes the funding fee so
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i'll give you example veteran buys a
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house 100 financing
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no disability
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first time using their benefit the
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funding fee that we just talked about is
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2.3 percent
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that's financed into the loan
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right so simple numbers 100 000 purchase
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funding fee 2.3
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that means the loan amount's 102
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300 right right
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but you're buying the house for 100
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grand so you're actually your loan to
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value is 100 and it's not 100 it's 102.3
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right because that funding fee is on top
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of that okay
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when you refinance
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the loan to value is capped
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at two levels
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and
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those include the funding fee in other
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words for example
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if you're doing a 90
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cash out refinance
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to get the best rates
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you want to keep the loan amount plus
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the funding fee
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under 90 percent loan to value
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because on the refinance
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the funding fee is now part of the loan
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to value calculation whereas before 2019
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there was a lot of equity stripping
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going on because veterans were being
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refinanced on a regular basis but that
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funding fee was never part of the loan
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to value calculation so their loan
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amounts just kept going and going and
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next thing you know they were way
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underwater so now to try to mitigate
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some of that
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when i do a hundred percent cash out
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refinance for a veteran which i'll talk
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a little bit about
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the loan to value is the loan to value
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100 that's it so
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technically a veteran only has the
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ability to borrow
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about 96 to 97
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of the value of the house because we
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have to account for the funding fee as
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well this
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i mean correct me if i'm wrong i've
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never refinanced anything but
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that's
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higher than normal civilians civilians
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only 80 loan to value yeah so
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one of the one of the uh modifications
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in the regulation for va cash out
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refinancing in 2019 was
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and this is a little bit in the weeds
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ginny may is who securitizes or where we
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sell the securitizations of va loans too
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jenny may you've heard of fannie mae
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you've heard of freddie mac ginny may is
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the government
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sponsored entity sub you know that that
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securitizes and
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va loans usda loans and fha loans right
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because of the predatory nature of the
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va cash out refinancing
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and how frequently veterans are being
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refinanced habitually and predatorily
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um they said
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we're gonna
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we're gonna create what's called a
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custom pool
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what that means is any va refinance
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that's 90
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loan to value or under
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will have
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the best rates
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the
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easiest qualifications those those
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particular groups of va loans
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if you're a va loan and you're going to
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be doing a 93 97 98 99 percent 100 cash
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out refinance
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the cost is substantially higher the
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interest rate is substantially higher
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than it would be if it was 90 or less
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and the reason for that is to slow down
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or otherwise stop
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as much as they can
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veterans from taking out that much
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equity in their property
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because
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some lenders were abusing that and so
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therefore as a result
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of improprieties by other lenders and
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mortgage professionals they had to
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modify
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curtails to a degree the veterans access
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to the equity in their own property
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do they take into account i mean if i'm
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say if i'm pulling out you know a
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hundred thousand dollars
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uh or whatever number high number it's
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90 something percent
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of the equity that i have but i'm going
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to dump all that money right into the
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house to improve its equity doesn't
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matter doesn't matter rates
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the rate's substantially higher and
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i mean
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so and that's where lenders can control
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the cost of that i mean there is a
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there is a cost passed on to the lender
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from ginny may for those high loan debt
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what we call high loan to value va cash
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out refinances
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veterans lenders because it's a riskier
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lender will will add additional costs on
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top of that so
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it's not uncommon to see
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the difference in a 100
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cash out refinance to a 90 cash out
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refinance the difference in the rate to
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be
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1.5 to 2 percent higher
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significant wow it depends so
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um
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does it mean it's a bad transaction no
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certainly if the veteran is
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put themselves in a position where they
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have a lot of high interest credit cards
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and
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their interest rates increasing
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but with the cash out proceeds they're
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going to pay off all their debt
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and free up their cash flow free up cash
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yeah if they free up cash flow and that
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saves them 2 000 a month
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then certainly
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it makes sense now it's a financial
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education at that point to say hey
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listen
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you did this once don't do it again
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you're not doing it again because it's
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you're you're out right
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um
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and that increase in residual
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is an important piece of our
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conversation because
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with the regulatory changes in cash out
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refinancing in 2019
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came along with it
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veterans are required to meet one of
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eight net tangible benefits when they're
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doing a refinance
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um
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whether it's 90 or 100 or 97 or 83 or 89
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or whatever it is
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and you know
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i
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will honestly say that i don't i didn't
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memorize all eight net tangible benefits
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off the top of my head but a few of them
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are
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if you maintain a 90 loan to value or
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less that's one of the net tangible
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benefits
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if you're refinancing out of a
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construction loan that's another one if
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you're reducing your rate that's another
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one if you are
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um
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increasing residual income like we just
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talked about that's another one if you
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are
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what was that's four there's five
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there's four other ones there um
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and now yeah if if you meet one of the
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eight net tangible benefits you're okay
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right you're okay but we have to
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account for those and there's a
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a net tangible benefit form that is now
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required to be delivered to the service
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member three days within three days of
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the application and then that same form
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when finalized towards the end of the
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closing to be submitted to the lender to
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the service member so they could see
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what the net tangible benefit is so
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they've gotten better at
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quantifying uh whether there is a
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legitimately a true benefit for the
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service member so cash out refinancing
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is a lot different now than it was two
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years ago
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