Most Americans would agree Congress seems to be gridlocked. But, there’s at least one exception to the impasse: Hiking fees for mortgages backed by the Veterans Administration.
Two months ago, Congress approved a two-year hike in funding fees for VA mortgages to pay for the Blue Water Navy Vietnam Veterans Act, passing on the some of the costs for caring for ill Vietnam vets to military families buying homes with VA mortgages. President Donald Trump signed the bill into law on June 25.
Under the Blue Water bill, which takes effect on Jan. 1, the first-use fee for a VA mortgage rises to 2.3% from 2.15%, while the subsequent-use fee increases to 3.6% from 3.3%.
Now, another bill is pending that would extend the two-year life of the hikes by six years. It has already passed the U.S. House of Representatives and now is pending in the Senate. The new legislation provides grants to adapt homes for disabled veterans and includes educational benefits for military spouses and children.
You won’t find many people who object to caring for disabled veterans and their families. It’s when you talk about the source of the funding that you get some push-back.
“These are all worthwhile benefits, and we want to see veterans get the care they deserve, but why is Congress choosing to pay for these benefits on the backs of military families?” said Chris Birk, director of education for Veterans United, the largest VA lender.
In the last two decades, Congress has either increased VA loan fees or extended temporary fee hikes about a dozen times, often to pay for veteran-related programs.
Using current mortgage rates, every 25 basis point hike in the fee cuts 78,871 military or veteran buyers from the home market, according to a report by NDP Analytics. When rates rise, the impact is bigger.
“In the environment of rising interest rates, an increase in the VA funding fee would magnify the negative impacts of rising interest rates on loan originations,” the report said.
If mortgage rates were to rise by 1.5%, as they could over the next six years, the number of military families culled from the market by a 25 basis point hike increases to 243,374, according to the report.
Many VA borrowers roll the fee into their loan balance and pay it off over time, said Birk, of Veterans United. Paying interest on the higher fees over the course of 30 years greatly increases the cost, he said.
Hiking fees “is potentially putting veterans and military families in a precarious position, swelling their loan balances to pay for caring for other veterans,” Birk said.