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VA Considering Mortgage Fee Changes

Wants to improve program competitiveness in home buying

April 14, 2017

By Mortgage Daily staff



The Department of Veterans Affairs is considering making changes to its fee limitations so that veterans can be more competitive in bids for homes.

VA's Loan Guaranty Service is reviewing its regulations governing the allowable expenses that a veteran can pay or be charged in connection with obtaining a VA-guaranteed mortgage.

Allowable fees were first outlined in a rule published in 1948, which allowed customary fees, except some brokerage and service charges, to be paid from loan proceeds.

But that rule didn't explicitly indicate whether a veteran might be allowed to pay such costs and expenses out of his or her own cash reserves.

In 1954, the rule was revised to restrict the types of charges and fees veterans were allowed to pay in order to protect them from junk fees.

Currently, the 1954 rule is still in place, though some specific fees have been modified. A 1 percent origination is allowed as long as none of the other fees on the schedule are charged.

But fees are relatively limited, leaving sellers and lenders to pay other fees themselves.

While the rule has protected many veterans from unreasonable closing costs, the home-buying process has more recently seen significant changes.

"In recent years, some veterans and their representatives have complained to VA that certain provisions of the rule can be detrimental to veterans' bargaining position during real estate negotiations," the filing stated. "These parties have asserted that VA-guaranteed loan borrowers are sometimes unable to compete with other offerors whose financing options are not restricted by similar regulatory constraints."

The agency acknowledges that in some cases, the fee limitations have led sellers to accept other offers, while in other cases, lenders have raised interest rates to make up for the costs.

So VA is considering ways to revise the list of acceptable charges and fees specified by the schedule and is seeking comments on how the public believes it should approach this undertaking.

The department has outlined areas it seeks feedback for in an April 13 Federal Register filing.

It wants to know ways it can protect veterans from incurring excessive closing costs, without being overly restrictive. It also wants to know whether distinguishing between a "fee" and a "charge" is meaningful or if the distinction should be eliminated.

Other areas it wants feedback on are the purpose of an origination fee, acceptable closing costs for veterans to pay, and what limits should be made on third-party charges. In addition, VA seeks feedback on attorneys fees, differentiation in charges for different types of VA loan transactions and fees on construction loans.

In addition, it wants to know if there are other lending programs that it can use as a model, and what other information should be considered in determining the types of expenses a veteran should be expected to pay.

The deadline for submitting a comment is Jun 12. Comments can be submitted online at www.regulations.gov/#!submitComment;D=VA-2017-VBA-0010-0001.

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