Will VA Refinance Fees Rise? What Congress’s Latest VA Loan Proposal Means for Veterans
The New York Times recently reported on a proposal in the U.S. House of Representatives to hike the funding fee on new VA loans.
"Most of the higher fees were dropped," said The Times. "A revised proposal would increase fees for mortgage refinancings but leave the fees on VA loans for buyers unchanged, according to an email from Kathleen McCarthy, a spokeswoman for the House Committee on Veterans' Affairs under its chair, Representative Mike Bost, Republican of Illinois."
In January, Bost introduced a revision to an existing bill that increased benefits for survivors of service members killed in the line of duty, as well as for about 7,000 severely disabled veterans who need regular, medically supervised in-home care, according to The Times.
How Much More Might Veterans and Service Members Pay?
The VA funding fee for streamline refinances would almost triple under the new proposal, increasing to 1.4% of the loan amount from the current 0.5%. On an average $400,000 mortgage, that would see a veteran or service member pay $5,600, up from the current $2,000. The fee could be rolled into the loan and repaid monthly as part of the normal mortgage payment.
Last year, the VA refinanced almost 120,000 of its loans under its Interest Rate Reduction Refinance Loan (IRRRL) streamline program and another 85,000 cash-out refinances.
"Total VA refinances climbed 73.2% year over year, with cash-out refinances rising 26.5%, reported Housing Wire in December. "While still below pandemic-era high points, the spike shows borrowers are actively using VA loans to lower their monthly payments or tap into home equity."
The proposed bill also increases the fee on VA loan assumptions – when a buyer takes over an existing mortgage from a seller– from 0.5% to 1.0%.
Why Hike Any Funding Fees?
When Bost introduced the original bill to increase benefits for survivors and catastrophically disabled veterans, he wanted the full cost to be offset by other revenue or savings. Others on the House Committee on Veterans' Affairs disagreed.
Representative Mark Takano of California told The Times that Congress and the White House "can certainly find the funding to meet our veterans' needs, instead of having veterans foot the bill."
And the Community Home Lenders of America (CHLA) wrote to the committee in January: "In [a] period of significant homeownership affordability challenges, particularly for veterans, CHLA cannot support mortgage fee hikes not based on actuarial considerations. We have repeatedly expressed concerns about a long-standing practice of increasing VA mortgage fees above actuarially based premium levels, in order to fund non-housing programs."
In other words, the CHLA objected to Congress's repeated attempts to have veterans and service members pay higher funding fees than are necessary to secure the VA loan program in order to use the money for other purposes.
Watch This Space for More Developments
These proposed changes mean no increases in funding fees for those buying homes with VA loans. Only those refinancing or assuming such loans are still likely to be hit.
However, the bill is still in its early stages and may be amended again. So, nothing is yet certain, including its passage into law.
