MBA Urges VA to Evaluate ‘Allowable Fees' Policy

Mike Sorohan msorohan@mba.org

June 13, 2017

In a June 12 letter to the U.S. Department of Veterans Affairs, the Mortgage Bankers Association called on the VA to review its allowable fees policy for veterans, which have remained unchanged for 63 years.

MBA Senior Vice President of Residential Policy and Member Engagement Pete Mills said re-evaluation of the allowable fees policy would ensure that the VA Loan Guaranty Program, which provides veterans access to affordable housing, still serves its intended purpose in the most effective way.

"MBA has been a staunch supporter of the Loan Guaranty Program, which has been critical in providing veterans access to affordable housing," Mills wrote.

The allowable fees policy, developed in 1954, was developed to protect veterans from excessive and unnecessary closing charges, which MBA said remains an appropriate goal. "However, given the significant recent regulatory changes that have greatly improved consumer protections, the VA should consider whether changes in the allowable fees policy could streamline the home buying process for the borrower and provide improved process efficiencies for lenders, thus encouraging more lenders to participate in the Loan Guaranty Program," MBA said. "Additionally, MBA strongly encourages the VA to undertake a comprehensive review of its definitions and identify those that should be clarified and modernized. MBA recommends that VA provide a strong education component to accompany any revisions to ensure that changes are clear and can be applied easily and consistently by lenders of all business models. We also believe increased education about the Loan Guaranty Program will help more lenders, real estate agents and veterans become knowledgeable about the program and increase the number of veterans taking advantage of the benefit."

MBA noted the allowable fees policy was well-intended and has been effective in keeping closing costs affordable for many veterans. "It is important to note, however, that just because the veteran is not able to pay certain fees, in most cases it does not mean that those costs are not incurred," the letter said. "The cost to originate a loan is not less for veterans compared to other homebuyers and veterans end up paying through other means, such as a higher interest rate. In some cases, certain lenders may elect to absorb the costs. As larger lenders may be able to assume these costs, smaller lenders may not be able to do so. Participating in the Loan Guaranty Program is a serious financial decision for some lenders and the costs may be preventing some small-to-midsized lenders from offering this VA benefit."

Additionally, MBA noted based on some lenders' experiences, the list of allowable and non-allowable charges may not be applied consistently among lenders because of unclear definitions for specific fees. "This uncertainty in the fee structure is impacting some veterans' ability to obtain mortgages because sellers and lenders are absorbing many of the customary real estate transaction expenses," MBA said. "On some occasions, especially in markets with tight inventory, sellers and their listing real agents may avoid contracts from homebuyers using VA financing because they do not want to be held responsible for covering disallowed fees."

MBA noted the regulatory environment has changed significantly since 1954, and especially since the implementation of the Dodd-Frank rules. "Safeguarding consumers from unreasonable costs and providing additional consumer protections were some of the main objectives of the legislative and regulatory reforms that were enacted after the recent mortgage crisis," the letter said. "Lenders are now operating in a regulatory environment with the safest and strongest consumer protection regulations in history and some of the concerns that the allowable fees policy were meant to address are dealt with by overarching consumer protection policies that safeguard all consumers."

MBA recommended VA take into consideration existing regulations that provide consumer protection, and determine if they can help streamline the home buying process for both the borrower and lender, without compromising veteran protections.

Additionally, MBA noted the real estate finance industry would benefit from additional guidance on program definitions. "Additional guidance would provide clarity to lenders and would help ensure consistent compliance with program guidelines," the letter said. "Geographical and lender differences influence the interpretation of some terminology and it would be beneficial if the VA would provide clear and concise definitions to help the industry apply policies consistently."

The letter also recommended VA increase its education and outreach efforts to real estate agents and veterans. "Some lenders have experience with real estate agents who have dissuaded prospective buyers from using this benefit because they believe that sellers have to pay more fees with a VA borrower," MBA noted. "Unfamiliarity with how the program works makes some listing real estate agents wary of the process, thus they discourage some sellers from accepting offers from veterans using VA loans. Providing accurate information to real estate agents and veterans would increase their knowledge and comfort with VA loans."

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