More than 53,000 disabled veterans may be owed refunds totaling about $189 million in home loan fees they were incorrectly charged by the Department of Veterans Affairs, according to estimates from the VA Inspector General in a report issued on the 75th anniversary of D-Day.
Auditors said they found it “troubling” that senior Veterans Benefits Administration officials were aware in October, 2014 that thousands of exempt veterans were owed refunds, but didn’t take adequate action to issue refunds.
Nearly 73,000 exempt veterans were incorrectly charged an estimated $286 million in funding fees for their VA home loans from 2012 through 2017, auditors estimated. During that period, VA issued about $97 million in refunds to 19,700 of the veterans — leaving an estimated 53,200 who may still get refunds.
Although the inappropriate charges represent just 3 percent of the total amount of funding fees collected, auditors said, it can be significant for individuals. Their sampling found the amounts averaged $4,483, and were as high as $19,470. In coming up with their estimates, the auditors conducted a statistical sampling of 200 loans made from 2012 through 2017.
Generally, veterans and service members are required to pay a VA funding fee when they apply for a VA home loan, to defray the VA’s cost for administering the loan. However, veterans are exempt from paying a funding fee if they’re entitled to receive VA disability compensation. VA funding fees range from 0.5 percent to 3.3 percent of the loan amount. The VA guarantees the loans, which are made through lenders such as banks and credit unions.
VA Loan Guaranty Service officials have drafted a plan to identify these exempt veterans and to issue the refunds, and expect to implement their plan by July 31, according to the VA’s response submitted to the IG. It was not clear when they expect the refunds to be issued. VA officials referred questions about the issue to the VA’s six-page response in the IG report.
Officials have also asked their general counsel for an opinion on whether the law allows VA to issue refunds directly to the veteran rather than to their lender to apply the refund to the balance of the loan.
On May 13, VA officials announced that veterans who qualify for the funding fee waiver are now being notified in the home loan certificate of eligibility, and in their disability compensation award letter. They also announced procedural changes to provide a regular review of data. VA will also make changes to ensure a veteran’s up-to-date status for the fee waiver is correctly identified.
One issue identified by the IG, and being reviewed by the VA, is how to credit borrowers who, after their loan has closed, were awarded disability compensation with retroactive effective dates which would have made them eligible for the waiver at the time the loan was given.
VA officials cited an an ongoing review looking at millions of loans dating back to 1998, noting that since 2014, the VA has provided an average total of $75- to $100 million in these refunds to about 5,000 veterans each year.
VA officials knew about this in 2014
In October, 2014, officials with the VA regional loan center in St. Paul, Minn., notified the VA Loan Guaranty Service officials that their nationwide analysis of loans issued between October, 2006 and May 31, 2014, indicated about 48,000 veterans may be due refunds of funding fees totaling about $151 million. They noted it would take between four to eight staff members about a year to refund the charges. In May, 2016, the former director of the Loan Guaranty Service documented a need to address the refunds, acknowledging more than $150 million in refunds may be due, the IG auditors stated.
“Disturbingly, as of January 2019, Loan Guaranty Service management had not taken action to issue refunds to these exempt veterans,” the IG report stated.
An official with Disabled American Veterans said he is troubled to learn that VA didn’t take adequate action to issue refunds to disable veterans despite become aware of the issue in 2014. “This breach of trust needs to be immediately rectified by refunding these fees to ensure disabled veterans are made financially whole without delay,” said Randy Reese, DAV Washington Executive Director.
“Likewise, Congress should hold oversight hearings to hold those who ignored or attempted to cover-up the fee exemption errors and refunds accountable.”
In their response to the VA IG, Loan Guaranty Service officials cited other competing priorities: unprecedented growth in the VA home loan program during the period from 2012 through 2017, with parallel increases in phone call volume, requests for VA certificates of eligibility, and appraisals. In 2014, VA estimated it would take 12 VA employees devoted full time for an entire year to complete the refunds; the more recent data indicates it would take at least 30 full time employees more than a year to complete the process, according to the VA’s response.
The Loan Guaranty Service has relied on veterans to contact the VA, and veterans are required to file a claim for the refunds, according to the report. However, auditors found that the VA hasn’t published a standard form for requesting a funding fee refund. Requiring a veteran to submit a claim for a refund “improperly places the burden and responsibility solely upon the veteran,” the auditors stated.
The earlier VA announcement directs veterans who think they may be eligible for a refund to visit the VA’s website at https://www.benefits.va.gov/homeloans/purchaseco_loan_fee.asp
In some cases, the veterans were exempt at the time they applied for the loan, but were incorrectly charged fees. That would be difficult to prevent if the lenders incorrectly collected fees even when the veteran’s certificate of eligibility showed he or she was exempt, but VA should be able to detect those cases and issue refunds, auditors said.
In other cases, veterans became exempt after the certificate of eligibility was issued; or the certificate of eligibility was incorrect. In still other cases, the veteran was owed a refund because of a retroactive change in exemption status.