The VA Home Loan Guaranty program is meant to help veterans finance the purchase of homes with favorable loan terms. Veterans typically pay a funding fee to defray the cost of administering the program; however, veterans who receive VA service-connected disability compensation are exempt from paying it. If veterans receive a disability determination with an effective date for receiving benefits before their loan closing date, they are entitled to a refund of any funding fee. As a result of the PACT Act, many veterans became eligible to receive refunds for the funding fees they had paid on home loans before receiving their disability compensation.
The audit team found deficiencies with funding fee refunds for veterans using dual entitlement (two or more veterans using some or all of their combined eligible loan benefits) on joint loans and also noticed that some veterans exempt from paying funding fees were inappropriately charged at their loan closings. The team estimated that 250 veterans were entitled to a funding fee refund due to either lenders’ errors at closing or retroactive disability determinations between October 1, 2021, and September 30, 2024. The estimated average for the refunds for the 250 veterans was $6,100, totaling $1.5 million during the review period. In the OIG’s sample, the range for these refunds was about $2,200 to $10,800 per veteran. The OIG determined that the Loan Guaranty Service’s automated system improperly charged a funding fee.
The VA Office of Inspector General made two recommendations to improve processes. The acting principal deputy under secretary for benefits, performing the delegable duties of the under secretary for benefits, concurred.
