NAFCU urges greater clarity, accountability in veteran-guaranteed home loans

WASHINGTON, DC (June 13, 2017) — National Association of Federally-Insured Credit Unions (NAFCU) Regulatory Affairs Counsel Ann Kossachev wrote in a letter Monday, saying that the association hopes to see greater accountability and clarity as the Department of Veterans Affairs works on a rulemaking related to expenses that a veteran may be charged when obtaining a VA-guaranteed home loan.

“NAFCU and its member credit unions are pleased that the VA is reevaluating its regulations regarding permissible charges and fees to provide greater clarity to the industry,” wrote Kossachev. She added that NAFCU hopes to see a “return to the regulatory framework that permitted lenders to charge costs and expenses normally paid under local lending customs” and “greater accountability for settlement and real estate agents who participate in the VA-guaranteed home loan market.”

Under the current framework, which restricts the types of charges and fees veterans are allowed to pay, Kossachev explained that sellers and lenders working with a VA-guaranteed loan borrower are forced to pay many of the customary real estate transaction expenses. This places veteran borrowers in diminished bargaining position, so the VA is requesting feedback on possible revisions to these regulations.

In her letter, Kossachev shares NAFCU’s responses to the VA’s questions posed in its advanced notice of proposed rulemaking, pertaining to veteran borrowers’ closing costs, third-party charges and fees, and loan origination fees, among other topics.

Below please find the full-text of the letter:

June 12, 2017


Regulation Policy and Management

Department of Veterans Affairs

810 Vermont Avenue NW

Washington, D.C. 20420

RE: RIN 2900-AP62—Loan Guaranty: Revisions to Allowable Charges and Fees Assessed Incident to VA-Guaranteed Home Loans

Dear Director:

On behalf of the National Association of Federally-Insured Credit Unions (NAFCU), the only national trade association focusing exclusively on federal issues affecting the nation’s federally-insured credit unions, I am writing in regard to the Department of Veterans Affairs’ (VA) Advanced Notice of Proposed Rulemaking related to expenses that a veteran may be charged when obtaining a VA-guaranteed home loan. NAFCU and its member credit unions are pleased that the VA is reevaluating its regulations regarding permissible charges and fees to provide greater clarity to the industry. Through this reevaluation, NAFCU would like to see a return to the regulatory framework that permitted lenders to charge costs and expenses normally paid under local lending customs. NAFCU would also like to see greater accountability for settlement and real estate agents who participate in the VA-guaranteed home loan market in order to truly protect veterans from unreasonable charges and fees.

General Comments

In 1948, the VA published its rule regulating charges and fees that a borrower may be charged or pay when obtaining a VA-guaranteed home loan. Under this rule, borrowers were permitted to use loan proceeds to pay any expenses typically paid according to local lending customs, with the exception of certain brokerage and service charges. Then, in 1954, the VA amended the rule to restrict the types of charges and fees veterans were allowed to pay, including those typically paid under local customs, by expressly listing the types of charges and fees allowed. Notwithstanding these limitations, the rule does allow a lender to charge a veteran an origination fee of up to 1 percent of the loan amount, so long as it is charged in lieu of all other fees permitted by the schedule.

This general framework has largely remained the same since the 1954 version and is now codified at 38 C.F.R. 36.4313. As a result, sellers and lenders who are conducting a sale with a VA-guaranteed borrower are forced to pay many of the customary real estate transaction expenses. These additional expenses incurred by sellers and lenders may result in diminished bargaining positions for veteran borrowers. In light of these concerns, the VA is requesting responses to specific questions regarding revisions to the list of allowed charges and fees codified at 38 C.F.R. 36.4313(d) as well as general comments on issues related to improving these regulations.

NAFCU applauds the VA for their continued efforts to protect veteran homebuyers from unnecessary and unreasonable charges and fees, but agrees that changes must be made to account for a vastly different home buying process and environment. NAFCU is hopeful that the VA will find an efficient and effective way to create greater consistency in the implementation of its regulations related to permissible charges and fees.

Below are NAFCU’s responses to the first nine questions from the list of questions posed in this Advanced Notice of Proposed Rulemaking. The remaining two questions posed are inapplicable to NAFCU’s member credit unions.

NAFCU’s Responses to the VA’s Questions for Comment

  1. What are ways that VA can protect veterans from incurring excessive closing costs, without being overly restrictive?

Veteran borrowers are currently able to receive more accurate and informative estimated cost disclosures to help them choose a loan. This is partly a result of the enhanced regulatory framework established by the TILA/RESPA Integrated Disclosure rule (TRID). Lenders are also currently held to a much more stringent standard in terms of justifying the estimates they provide to borrowers. Thus, there is little need for the VA to impose further specific restrictions on charges and fees to prevent veterans from incurring excessive closing costs.

The existing regulatory landscape is already burdensome and any additional regulation from the VA related to mortgage lending would be unnecessary and overly restrictive. NAFCU’s member credit unions would appreciate clarification on the proper way to disclose the VA’s non-allowable charges and fees for purposes of the TRID Loan Estimate, both in instances where the 1 percent origination fee has been charged, as well as those instances where it has not. There is currently no TRID guidance on this point and VA regional offices are also unable to provide sufficient guidance. Further clarity in this area would help simplify the disclosure aspect of the lending process.

  1. Under the current rule, VA distinguishes between a “fee” and a “charge” but does not define the terms. VA invites comments as to whether the public finds the distinction meaningful. Should VA eliminate the distinction? If not, how should VA define the terms?

Although NAFCU recognizes there is likely a difference between “fee” and “charge,” in certain contexts, within the mortgage lending industry, the difference is negligible. Within the industry, some participants understand “fee” to usually describe a service, such as a settlement fee, whereas a “charge” is usually a required cost, such as a county transfer tax. The two terms are more generally, however, considered synonyms and often used interchangeably. This sows confusion and complicates good faith efforts to comply with the law. Therefore, it seems reasonable that the VA might adopt one of the following two approaches.

First, the VA could define at least one of these terms, in line with the industry understanding explained above, to eliminate confusion and facilitate compliance with VA guidelines (we recognize that different jurisdictions have varying requirements in terms of “charges,” so that term may be more difficult to define). The VA should explore options to leverage the central role settlement agents and real estate agents play in guiding veteran borrowers through the loan process. These parties should be knowledgeable of VA allowable charges and fees, as well as the intricacies of local fees customary to real estate transactions. In establishing the manner in which fees and charges are defined and assessed, the VA should ensure that these parties are taken into consideration and, to the extent possible, held to standards comparable to those imposed upon lenders. Alternatively, the VA could formally acknowledge that no consistent definition is possible for the purposes of VA guidelines, and simply provide definitive guidance clarifying that the terms “fee” and “charge” are, in fact, interchangeable terms.

  1. Does the term “origination fee” accurately reflect what a borrower would pay to a lender in order to originate a loan? What do veterans and lenders view as the purpose of an origination fee?

The origination fee is understood as the lender’s fee to originate the loan. The term does reflect this purpose adequately. Notably, on pricing options that do not reflect the 1 percent origination fee, the origination cost is typically built into the rate, which is higher without the origination fee. By choosing to pay the 1 percent origination fee, veteran borrowers understand that they are opting to incur this cost upfront in exchange for a lower interest rate.

  1. How should VA identify which closing costs are acceptable for the veteran to pay, which are acceptable for another party but not a veteran to pay, and which, if any, should be prohibited?

Ideally, specific charges and fees would not be labeled as allowable or non-allowable. Permitting all customary and reasonable costs necessary to close a loan would be more in line with the industry standard. If the VA continues to distinguish between allowable and non-allowable charges and fees, then a more centralized, accessible, and complete list of such charges and fees would be beneficial. Furthermore, if a VA Regional Loan Center determines certain charges and fees are allowable or non-allowable in their jurisdiction, they should be required to post this information publicly, through a centralized website or database, to aid lenders in determining what fees are actually acceptable.

  1. To what extent, if at all, should VA limit third-party charges or fees to the actual costs of the service provided? Alternatively, should VA permit borrowers, sellers, and lenders to negotiate their own bargains?

The VA should limit third-party charges or fees to the extent that they are “pass-through” fees. That is, certain lender-required fees such as credit reports, flood certifications, and appraisals should be limited to the actual cost of the service provided. Credit unions, as not-for-profit, cooperative financial institutions, always put their members first and seek to only charge fair and competitive fees for services. Although other financial institutions may apply their own upcharges to third-party charges, credit unions are opposed to this practice and do not see this as an opportunity to extract additional revenue from the lending transaction. Therefore, the VA should limit such charges to the actual amount of the service.

  1. To what extent, if at all, should local real estate customs affect (i) the types and amounts of closing costs that VA allows and (ii) which party is responsible for paying such costs?

Local real estate customs should be honored. This approach would be much more in line with industry standards. The VA is overall quite generous with what they allow sellers to contribute to closing costs. This generally accepted practice should, therefore, be formally recognized. Allowing lenders to adopt local customs would create greater regional uniformity and consistency in the application of VA regulations regarding permissible charges and fees. Overall, such an appproach would make the entire home buying process easier for both lenders and consumers.

  1. In a non-VA-guaranteed loan transaction, how are attorneys’ fees usually paid when the attorney is not representing the veteran? Should VA allow a borrower to pay an attorney fee if the attorney does not have a fiduciary duty to the borrower?

When an attorney is acting as the settlement agent on a non-VA guaranteed loan, attorneys’ fees are generally classified as settlement or title charges. Therefore, these fees are paid by the borrower just as any other settlement or title charge. The VA’s guidelines, however, seem to indicate that attorney charges are inherently distinct from settlement or title charges. This discrepancy should be eliminated and the VA should view attorneys’ fees as equivalent to any other settlement or title charge. Only in the case where an attorney is acting in another capacity, and not as a settlement agent, should the attorney’s fees be classified as something other than the typical settlement or title charge. Additionally, this distinction, or lack thereof, should be explicitly outlined in the statute and VA regulations so that borrowers are aware that this fee is allowable and they will be responsible for paying it.

  1. Should VA allow lenders to charge veterans differently depending upon the type of transaction (e.g., purchase, cash-out refinance, streamlined refinance, etc.)? If so, what are the justifications for the different pricing?

No, the VA should not allow lenders to charge a veteran differently depending on the type of transaction. Charges and fees may vary depending on the loan value, property type, and the overall risk the lender may perceive on the loan, but the fee is otherwise the same across all loans, regardless of the type of transaction. Thus, the VA should not permit this type of differentiation in charges to veterans.

  1. What other lending programs, whether public or private, might VA consider as models in considering amendments to VA’s charges and fees rule? What characteristics make these programs useful analogs to the VA-guaranteed loan program?

On January 27, 2006, the Federal Housing Administration (FHA) issued a Mortgagee Letter (2006-04) that changed how the FHA handles closing costs to align its generally acceptable practices with the industry standard. The change allowed borrowers to pay for customary and reasonable costs necessary to close a mortgage. In response to mortgagee input, the FHA determined that prohibiting certain borrower-paid closing costs amounted to a “significant impediment” to usage of its loan programs. To avoid these unintended negative consequences, the FHA opted to eliminate those prohibitions. There are still some FHA fee restrictions that must be strictly followed; however, this change greatly reduced the complexity of determining which fees are allowable and non-allowable for the FHA. The FHA’s Mortgagee Letter is available at:


NAFCU is thankful for the opportunity to provide feedback regarding the regulations governing allowable expenses charged in connection with obtaining a VA-guaranteed home loan. If you have any questions or concerns, please do not hesitate to contact me at or (703) 842-2212.


Ann Kossachev

Regulatory Affairs Counsel


The National Association of Federally-Insured Credit Unions is the only national trade association focusing exclusively on federal issues affecting the nation’s federally-insured credit unions. NAFCU membership is direct and provides credit unions with the best in federal advocacy, education and compliance assistance. For more information on NAFCU, go to or @NAFCU on Twitter.


Molly Safreed, (NAFCU)

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