Normally, veterans taking out a VA home loan have to pay a funding fee to the Veterans Administration (VA) at loan origination to defray the cost of administering a VA home loan. This can be paid either in cash when you take out the loan, or it can be rolled into the loan balance.
However, veterans with service-connected disabilities who are eligible to receive disability compensation from the VA are exempt from having to pay the funding fee.
Nevertheless, according to a new VA Inspector General report, tens of thousands of these disabled veterans were either wrongly charged a funding fee, or didn’t get their funding fees refunded when their disability status changed, qualifying them retroactively to a date prior to their loan origination.
When an eligible veteran applies for a VA home loan, they get a certificate of eligibility (COE) from the VA. Eligibility is based on duty status and length and character of service. Either you or your lender can request a COE from the VA. If you have a service-connected disability and are therefore eligible to receive disability compensation from the VA, it should be noted on your COE, and you should be exempt from the funding fee requirement.
If you are among those veterans who were wrongly charged a funding fee even though you are supposed to be exempt, you should get a refund.
If you paid the funding fee in cash at closing, then you should be reimbursed directly.
If you rolled the funding fee into the loan balance, then the VA is supposed to pay the lender. The lender is, in turn, supposed to apply the refund amount directly to your loan balance.
According to a new report from the VA’s Inspector General, this didn’t happen for years. From calendar years 2012 through the end of 2017, the VA’s own report found that the agency wrongly overcharged approximately 72,900 disabled veterans. Undoubtedly, many are here in Hawaii, where we have a very large military and veteran community.
Hawaiian Expression of the Day
“Ihea oe i ka wa a k ua e haloku ana?”
Where were you when the battle was at its thickest? Where were you when trouble was heaviest?
(More literally, “Where were you when the rain fell the hardest?” (Judd), or “Where were you in the rainy season?”)___________________________________________________________________
How much money are we talking about?
The funding fee ranges from 0.5 percent to 3.3 percent of the loan amount. Between 2012 and the end of 2017, the VA wrongly charged disabled veterans a total of about $286.4 million. According to the VA’s report, the average amount each disabled veteran homebuyer was overcharged was $4,483, and amounts overcharged reached as high as $19,470.
About 19,700 veterans have already been issued refunds for the overcharges. Some were issued after internal quality reviews identified the problem, and others were issued after the veteran requested the refund. However, the Inspector General’s review team estimates that the VA still owes refunds to approximately 53,200 veterans for loan funding fee charges, totaling more than $189 million.
What’s most upsetting to learn is that the VA’s Loan Guaranty Service Management was aware of the problem since at least October 2014 but did nothing to correct it.
What you can do.
Check your certificate of eligibility. If your COE says you were exempt, but you were charged a funding fee anyway, it should not be difficult to get a refund from the VA. However, if you rolled the funding fee into the loan, and the VA issues the refund to your lender, double-check to ensure the lender applied the refund to your loan balance.
This is important, because, per the IG report:
The lender or servicer is required to submit evidence to VA showing that the refund was applied to the veteran’s loan balance. The review team found that VA issued 47 funding fee refunds to lenders out of a sample of 200 loans reviewed. Four of the 47 refunds had documentation in WebLGY showing the lenders or servicers applied the refunds to loan balances.
For the remaining 43 refunds, the team could not find documentation in WebLGY showing the lenders or servicers applied the refunds to loan balances or refunded the veterans. Without documentation, VA has no reasonable assurance that lenders or servicers applied those refunds to the balances of veterans’ loans. The team requested evidence that these refunds were applied to the veterans’ loans. As of January 2019, the team had not received this documentation.
In some cases, the COEs issued by the VA were incorrect or outdated. In these cases, you may have the additional burden of proving you have a service-connected disability. But if you’re receiving compensation from the VA already, this shouldn’t be difficult.
Do you suspect wrongdoing in a VA program? Call the VA Office of the
Inspector General Hotline at 1-800-488-8244, or visit www.va.gov/oig/hotline.
Retroactive Disability Status
If you weren’t exempt from the funding fee requirement when you bought your home, but you qualified as disabled later (i.e., because of a wait list or pending medical review board), you may still be entitled to a refund of funding fees paid. As long as the effective date of your disability compensation eligibility is prior to the origination date on the loan, you should be entitled to a refund.
A veteran’s COE dated July 13, 2017, correctly showed the veteran as “nonexempt” from paying a funding fee. The lender charged the veteran the fee upon loan origination in August 2017. In March 2018, the veteran became entitled to receive VA disability compensation effective February 1, 2017. The veteran should have received a refund of approximately $15,200, since VA disability compensation was effective prior to the date of loan origination.
“Imua, e na poki’i! a inu i ka wai awa’awa, ahoe hope e ho’i mai ai!”
“Forward, brethren! Until you drink the bitter water, there is no going back!”
King Kamehameha the Great, addressing his warriors at the Battle of Iao
Valley, or the “Battle of the Dammed Waters, (Kepaniwai),” 1790.
The VA is implementing policies to ensure that disabled veterans are no longer wrongly charged a home loan funding fee, and to get refunds to those veterans who overpaid. The VA expects that these reforms will be in place and fully implemented by July 31, 2019.
At that point, the VA should have systems in place to go through their records, compare disability status and effective dates with VA home loan origination dates, identify any funding fees wrongly paid, and issue refunds either to the veteran directly, or to the lenders if the funding fees were wrapped into the home loan.
However, if you believe you were charged a funding fee in error on your home loan, you can call the VA Home Loan Service’s Honolulu regional office at 800-827-1000. Oahu residents can also visit the Honolulu office at 459 Patterson Road, E Wing.
Big Island residents
If you’re on the Big Island, there’s a VA benefits counselor permanently stationed at the Hilo Vet Center, Hilo Federal Building, Suite 327, 154 Waianuenue Avenue, except every first and third Wednesday of each month when the Counselor is scheduled to be in Kona. Walk-ins are accommodated between 8 am to 3:30 pm, Monday through Friday.
There is a full-time VA veterans benefits counselor stationed on Maui, at the Maui Vet Center, 157 Ma’a Street in Kahului. Walk-ins are accommodated from 8:00am to 3:30pm, Monday Through Friday.
At Pacific Home Loans, VA home loans are a specialty, we appreciate our veterans, and are dedicated to providing our veteran customers with the very best service in the home lending industry.
Looking to buy or refinance your dream home or an investment property? Call Pacific Home Loans today at (808) 891-0415.
Or apply now to start the pre-approval process. Veterans are encouraged to apply!
Mahalo from all of us at Pacific Home Loans.