The initial guidance was issued as a part of the VA’s internal review and refund of over $400M of incorrect funding fee charges spanning 20 years and over 130,000 loans.

Overview: Supplement to Chapter 8, Topic 8, The VA Funding Fee and update to Chapter 6, Refinancing concerning IRRRLs.

Background: In 2011, the VA added the Veteran’s funding fee status to the COE. Lenders and servicers should rely on the COE as evidence of the Veteran’s exemption status.

CIRCULAR HIGHLIGHTS

Determine if the Veteran is exempt BEFORE closing. VA makes it clear the determination of exemption from paying the funding fee must take place BEFORE the loan closes. Lenders are specifically alerted they must not advise a Veteran to close on a loan and request a funding fee later.

If the COE does not show the Veteran is exempt, the Lender must ask the Veteran if they have a claim pending for compensation with the VA. If so, the Lender must obtain an updated COE no earlier than 3 days prior to closing using the COE “correct” function in WebLGY.

All Veterans must pay the funding fee, except in three situations:

1. WebLGY shows the Veteran’s has already been determined exempt.
2. The Borrower is a surviving spouse of any Veteran who died from a service-connected disability and is currently in receipt of Dependency and Indemnity Compensation (DIC).
3. A Veteran who is rated eligible to receive compensation resulting from a pre-discharge disability examination or rating, or based on a pre-discharge review of existing medical evidence that results in the issuance and receipt of a memorandum rating prior to closing.

For IRRRLs, a COE is now required except in the following situations:

1. WebLGY shows the Veteran’s has already been determined exempt.
2. The entitlement on the loan being refinanced belongs to the surviving spouse of a Veteran.
3. The entitlement on the loan being refinanced belongs to a Veteran who has since passed away, and the IRRRL Borrower is a spouse, who was also a co-borrower on the loan being refinanced.

Funding Fee Refunds:

Funding fee refunds must be paid to the Veterans by VA through FFPS unless the lender paid the funding fee to VA in error or the lender paid the funding fee before the Veteran decided not to close the loan.  The lender or servicer must change the refund destination from “Lender/Vendor” to “Primary Veteran” in FFPS.  If the loan is in default, the Veteran will be advised they can use the refund to help bring their loan current.