Legislation moving through Congress would increase fees on U.S. Department of Veterans Affairs (VA) loans, creating a new flashpoint for the mortgage industry.

H.R. 6047, which would expand benefits for severely disabled veterans and survivors, would offset its costs by raising fees. The fee for the Interest Rate Reduction Refinance Loan (IRRRL) program would rise from 0.5% to 1.42%, while the VA assumption fee would double from 0.5% to 1%. The bill would also extend current funding fee rates for non-disabled veterans and add modest monthly costs for some borrowers.

For refinances, the average increase is estimated at $8,550 over the life of the loan, according to Brendan McKay, co-founder and chief advocacy officer for the Broker Action Coalition. The BAC has launched a call to action, urging industry professionals to reach out to their legislative representatives. McKay noted that 382 letters were sent to the Senate in the first 24 hours.

“On the surface, the fee doesn’t sound bad, but it disproportionately impacts active-duty military, and the scary part about this is, the people that it really impacts the most are not, in my opinion, paying attention to it,” said Gay Veale, chief experience officer at Vetted VA.

The proposal — introduced by Rep. Tom Barrett (R-Mich.) with support from Rep. Mike Bost (R-Ill.) — passed the House of Representatives in May and is moving quickly in the Senate, sources said. For months, there was a feeling the bill would not move forward until it gained recent traction and the attention of the industry.

Meanwhile, the House is evaluating the Take Care of America’s Veterans Act, a package with 60-plus bipartisan bills to reform health care and other benefits services at the VA.

In a statement to HousingWire, a VA spokesperson said, “VA doesn’t comment on pending legislation.”

Offsetting the cost

In a letter to the House on Tuesday, the Mortgage Bankers Association (MBA) said that revisions to the language of H.R. 6047 — now included as Section 104 within H.R. 9237 — “would create even greater challenges for veteran homeowners and homebuyers by removing the 10-year sunset of funding fee increases.”

“Consequently, MBA recommends that House leaders seek alternative offsets to the legislation, including designated appropriations and/or the use of unobligated or unutilized funds previously authorized by Congress for related programs,” the MBA stated.

The industry is treading carefully to address the issue, as the primary intent of these bills is to help veterans. H.R. 6047, for example, would increase benefits for severely disabled veterans who require round-the-clock care; raise survivors’ VA benefits by 1.5% over two years; and expand VA home loan eligibility for National Guard and Reserve members.

Specifically, it reduces the active-duty requirement for Guard and Reserve members from 90 days to 14 days, coupled with a 1% fee. Lawmakers estimate the changes will impact more than 500,000 people.

“What it shouldn’t be is pitting veterans against veterans — it shouldn’t be that another veteran is asked to give up a benefit or to pay more for something in order to support our most severely disabled. This is a debt that our nation owes, not other veterans,” Veale said.

Veale added that instead of raising VA funding fees, policymakers should expand eligibility to increase participation and fee revenue. She suggests making it easier for National Guard and Reserve members — who currently face complex eligibility rules and a minimum six-year service requirement — to qualify for VA loans, while also allowing veterans to transfer VA loan benefits to dependents, similar to the GI Bill.

Fewer advantages

Major Singleton, a branch manager at Edge Home Finance, explained that for those without a VA disability rating — which applies to active-duty service members — the cost of refinancing a home would go up substantially if the bill passes.

“When you’re doing a VA loan, the service member has to be able to recoup their cost of refinancing within 36 months, so if the closing cost is higher, then that means that potentially less veterans, less service members would meet recoupment,” Singleton said.

According to McKay, due to the fee change, “a refinance that pays for itself in roughly a year and a half today would take nearly five years to recoup, which would mean it’s ineligible.”

The fee can be paid upfront or rolled into the mortgage, which is the preferred option for most borrowers. The VA requires borrowers to make six on-time monthly payments to refinance a loan, while Ginnie Mae requires the borrower to have been in the loan for 210 days from the first payment due date.

Loan officers say the new bill, if approved, would mostly affect loans originated after 2023, when mortgage rates started to increase.

“I would agree that many of them refinanced during the COVID years, but for many of our active-duty service members, they purchased over the last two to three years with rates in the 6s,” Singleton said.

“I’ve been able to get people rates in the 5s; however, with the increased fee, that interest rate would have to maybe drop into the 4s in order for you to recoup the amount. Theoretically, we could get into the 4s, but we’re a long ways away from that.”

Kimber White, the president of the National Association of Mortgage Brokers (NAMB), applauded Congress for prioritizing health care and resource programs for disabled service members while noting the trade-offs.

“However, we are concerned that nearly tripling the IRRRL fee places an unintended financial burden on the very community we aim to protect,” White said. “Increasing these upfront costs directly reduces the immediate financial relief that a lower interest rate provides, extending the time it takes for a veteran family to recover their refinancing expenses.”

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