Over the past few years, VA loans have been at the center of controversies related to loan churning and high prepayment speeds.
In short, some veterans were refinancing their home loans at a very aggressive pace, whether beneficial to them or not.
It was happening so frequently that Ginnie Mae, which guarantees the underlying mortgage-backed securities, got involved.
This led to a number of important policy changes, including a requirement that the borrower make at least six consecutive monthly payments on the loan being refinanced.
And required the first payment due date on the refinance loan to occur no earlier than 210 days after the first payment due date of the original loan.
This seasoning requirement first applied to streamline refinances, and was later extended to cash out refinances.
Several large VA lenders faced pooling restrictions thanks to their elevated prepayment speeds, which limited how they could unload their mortgages.
$400 Million in VA Funding Fee Refunds Available
Now it turns out more than 100,000 veterans are due a refund related to the VA funding fee found on most VA loans.
This week, the U.S. Department of Veterans Affairs (VA) announced the completion of an “aggressive initiative” to process funding fee refunds to veteran homeowners.
The result of the multi-year investigation, which included VA-backed home loans spanning nearly two decades, will result in refunds in excess of $400 million.
The VA’s Loan Guaranty Service (LGY) program identified some 130,000 loans that were potentially due a refund, then VA staff examined the cases over the summer, averaging 16,000 reviews per week.
They discovered that most of the fees were charged correctly, other than some clerical errors.
The exception was veterans whose exemption status changed following the issuance of a disability rating after the closing of their loan.
In these cases, the effective date of the disability compensation would need to be retroactive to a date before the date of the loan closing.
Those who are affected should receive letters notifying them of their eligibility for a refund.
And it can be quite a substantial amount, with the VA funding fee ranging from 0.5% to 3.3% of the loan amount, depending on the type of loan and your military category.
The $400 million total payout divided by 130,000 is over $3,000.
If you didn’t receive a letter and believe you’re entitled to a refund of the VA funding fee, you can also contact your mortgage loan servicer or a VA Regional Loan Center at (877) 827-3702.
VA Funding Fee Changes Moving Forward
As part of this announcement, the VA has also made several changes related to a veteran’s funding fee exemption status. They include:
- Improved communications to better inform borrowers about the loan funding fee and when it may be waived
- Policy guidance directing mortgage lenders to inquire about a veteran’s VA disability claim status during the mortgage underwriting process
- Requirement to obtain an updated Certificate of Eligibility no more than 3 days prior to loan closing if the veteran had a disability claim pending
- System/procedural changes to ensure veterans eligible for fee waivers and potential refunds are identified quickly