MBA, Realtors Voice Opposition to Potential VA Fee Increase

The Mortgage Bankers Association and the National Association of Realtors yesterday sent a letter to House and Senate leaders in opposition to possible legislation that could increase funding fees to veterans’ homeownership benefits.

Specifically, the letter addresses the potential for legislation that would increase funding fees associated with Interest Rate Reduction Refinance Loans (IRRRLs) guaranteed by the Department of Veterans Affairs. These funding fees are paid by veterans – either upfront or through the financing of their loans.

In the letter to leaders of the Senate and House Committees on Veterans Affairs, MBA and NAR said an increase in funding fees would translate directly into higher costs for veterans seeking to purchase a home or refinance their mortgage. 

“MBA and NAR have consistently registered our opposition to legislation that increases VA home loan funding fees to offset the costs associated with non-housing-related expenditures,” the letter said. “Although this proposed legislation would use the fee increase to fund job training and education programs that both organizations support, we believe the use of the VA home loan program for this purpose is inappropriate, particularly in the midst of a pandemic and a widespread economic downturn. This is exactly the time at which veterans should be encouraged to use streamlined refinancing options, such as IRRRLs, to lower their monthly mortgage payments. These savings are particularly important for those veterans who have suffered temporary job losses or reductions in income.”

The letter noted actions to increase VA funding fees would run counter to other public sector efforts to mitigate the economic impact of the pandemic and that IRRRLs have proven to be a “lifeline” for many veterans in recent months.

“Since the onset of the pandemic, over 329,000 veterans have used IRRRLs to refinance into lower payments, making their loans more affordable and sustainable,” the letter said. These payment reductions not only are in the best interest of veterans, but by reducing the likelihood of default, they improve the health of the VA home loan program and protect taxpayers. If Congress raises IRRRL funding fees, these important benefits could be placed out of reach for some veterans who have yet to refinance. An increase in the IRRRL funding fee from 50 basis points to 85 basis points, as has been contemplated, would increase the funding fee paid by veterans by more than $1,000 on an average loan size of $301,322.”

Even more concerning than the costs associated with this particular funding fee increase, the letter said, are the cumulative costs associated with the series of funding fee increases that Congress has implemented in recent years. “These funding fee increases are not correlated with the risks associated with the VA home loan program, putting the funding fee schedule into greater misalignment with the risk profile of veteran borrowers,” the letter said. “The continued use of VA funding fees as a means to pay for expenditures unrelated to housing severely threatens the VA home loan program – perhaps not because of any individual funding fee increase, but rather through a ‘death by a thousand hikes.’”

MBA/NAR also said use of VA funding fees to pay for non-housing-related expenditures represents a highly problematic practice – requiring veterans to subsidize what should be earned benefits. “Expenditures in areas such as job training, education, and healthcare for veterans are worthwhile and laudable,” the letter said. “The costs of these additional benefits, however, should not fall on the backs of those veterans seeking to become homeowners or those veteran homeowners seeking to lower their monthly mortgage payments. Simply put, legislation that transfers funds from one set of veterans to another set of veterans is not an expansion of benefits.”

MBA and NAR asked the respective committees to ensure that VA funding fees are set at levels commensurate with the risks associated with VA-guaranteed home lending, and to conduct oversight and analysis of past funding fee increases, rather than levying further increases. 

The letter went to Senate Veterans’ Affairs Committee Chairman Jerry Moran, R-Kansas, and the committee’s Ranking Member, Sen. Jon Tester, D-Mont.; and House Veterans’ Affairs Committee Chairman Mark Takano, D-Calif., and Ranking Member Phil Roe, R-Tenn.