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Investigation: Veterans owed millions in refunds on VA home loans

Top VA officials failed to alert disabled veterans nationwide about refunds due for improper fees on their VA home loans.
Credit: TEGNA

A new report from the VA’s Inspector General accuses senior officials in the Department of Veterans Affairs of failing to protect the financial interests of disabled veterans who used the agency’s popular home loan guarantee program.

As a result, the Department of Veterans Affairs owes approximately 53,200 veterans an estimated $189 million in home loan refunds, according to the report.

The findings by the VA’s Office of Inspector General (OIG) mirror the disclosures in TEGNA’s Funding Fee Fiasco investigation. 

TEGNA’s investigation revealed that senior VA managers in Washington were warned about funding fee overcharges five years ago by officials in the St. Paul, Minnesota Regional Loan Center, but failed to take corrective action.

The OIG report called what took place “troubling.”

Credit: KARE
The OIG report called the failure to refund overcharged veterans “troubling."

OIG’s report states, “Because inappropriate funding fee charges were not refunded, many exempt veterans may have suffered significant financial losses.”

RELATED: Federal watchdog finds veterans owed millions on VA home loans

What’s more, since officials didn’t act when they were alerted about the problem in 2014, the overcharges have continued.

The refund amounts veterans are owed are often substantial. The average funding fee charge was $4,483, with the largest topping out at $19,470.

Roger’s VA home loan

Roger Roath purchased his Lakeville, Minnesota home with the help of the VA’s widely praised Home Loan Guarantee Program. The history of why he is owed money is buried in his stack of home loan records. 

The nation’s debt to Roger began in the 1960s when he enlisted in the Navy.

“I served in Vietnam off the Gulf of Tonkin from 1968 to 1969 – aircraft carrier,” he said proudly.

Roger says he’s had ringing in his ears ever since. So, in 2011, he applied for a disability rating with the VA. After an initial denial, he appealed. His claim was eventually approved, but it took time.

“Approximately three years later,” he recalled.

Credit: KARE
Roger Roath is one of tens of thousands of veterans nationwide a KARE 11 investigation has discovered are owed a home loan refund

While his disability case was still pending, Roger refinanced his loan as interest rates continued to go down.

“Twice - 2011 and 2013,” he said. He used the VA’s Home Loan Program both times.

Disability waivers

Veterans who use the VA program are generally required to pay what’s called a "Funding Fee" – up to 3.3 percent of the loan amount. In Roger’s case that added up to thousands of dollars.

For disabled veterans, however, that funding fee is waived.

Since Roger’s disability claim was still pending when he refinanced his VA loan, he had to pay the fee.

But the VA’s own rules say that if a disability claim is approved after a loan is finalized – and the disability rating is made retroactive like Roger’s was – the veteran is due a refund of the funding fees.

Credit: KARE
Loan records show Roath paid a $10,065 funding fee when he refinanced in 2011.

Unfortunately, Roger says he didn’t know about that until he saw an investigative report on KARE 11, TEGNA’s Minneapolis station, detailing a problem in the VA’s Home Loan program. And he is not alone.

Whistleblowers say veterans weren’t informed

In May, a whistleblower provided internal VA records that revealed a bombshell. Disabled veterans across the county who were owed home loan refunds weren’t always getting them, according to an analysis of funding fees done back in 2014 by employees at the VA’s St. Paul Regional Loan Center.

Between 2006 and 2014 “VA inappropriately collected approximately $150,901,534 on 47,588 loans,” their report concluded at the time.

RELATED: Whistleblowers say veterans are owed millions

Multiple VA insiders, speaking on the condition of anonymity to protect their jobs, said that high-ranking officials at Department of Veterans Affairs headquarters in Washington, D.C., were informed of the issue five years ago.

Despite the warning, they said officials failed to ensure that veterans got the refunds they deserved.

Credit: U.S. Dept. of Veterans Affairs
Mike Frueh was VA’s Director of Home Loan Guaranty in 2014.

Records show that Mike Frueh, then Director of the VA Loan Guaranty Program, and Deputy Director Jeffrey London were made aware in 2014 that veterans were being inappropriately charged and not being given refunds.

Frueh was later promoted to Chief of Staff for Veterans Benefits and Jeffrey London took over from his old boss and is now Executive Director of the Loan Guaranty Service.

The newly released OIG investigation confirms the managers had been warned about the outstanding debts owed to veterans and did nothing to rectify the overcharges.

The OIG Investigation

“Disturbingly, as of January 2019, Loan Guaranty Service management had not taken action to issue refunds to these exempt veterans,” the OIG report states.

“OIG finds it troubling that senior VBA management was aware that thousands of veterans were potentially owed more than $150 million yet did not take adequate actions to ensure refunds were issued,” VA Assistant Inspector General for Audits and Evaluations Larry Reinkeymer wrote in the report.

Read the OIG investigation below or click here:

Meanwhile, the number of veterans affected and the amount they are owed grew – from an estimated $150 million in 2014 to $189 million by the end of 2017, the OIG investigation found.

The OIG report warned the totals could soar even higher. “The review team estimated that VA could owe an additional 34,400 exempt veterans funding fee refunds of $164 million over the next five years if adequate controls are not implemented to minimize or detect these inappropriate charges,” the report states.

On April 26, 2019, TEGNA’s investigative team began requesting interviews with VA officials about the delayed refunds. They declined.

But after failing for years to take action, the VA suddenly issued a press release on May 13, just days before TEGNA’s first report was released. The VA announced major reform efforts are underway. The release also said VA is conducting an ongoing internal review looking at millions of loans dating back to 1998 to determine if additional refunds are needed.

Watch the original investigation below or click here:

The OIG investigation reviewed loans made in 2012 through 2017. It determined nearly 73,000 veterans had improper funding fees adding up to $286 million. Some of those veterans did receive the refunds they deserved. The study says approximately 19,000 veterans – roughly one in four – received refunds totaling $97 million. However, the review team estimated VA still owed approximately 53,200 veterans refunds totaling $189 million.

The VA managers who sat on the problem blamed their failure to notify veterans on “competing priorities” including processing high volumes of applications.

To that point, the OIG investigative team wrote, “…their priorities should have included issuing funding fee refunds to exempt veterans and implementing controls to minimize or detect future inappropriate charges.”

The OIG report also states the Under Secretary for Benefits “indicated that the financial impact to veterans is minimal when amortized over the life of a loan.”

Getting refunds

Impacted veterans like Andrew Ganfield don’t agree with that sentiment.

“It’s 10 grand off the principal of my mortgage,” said Ganfield. “That’s a big deal!”

Ganfield is one of the veterans who called the VA loan center and demand a refund after seeing TEGNA’s first report about the funding fee overcharges.

A VA employee called him back leaving a voicemail stating he appeared to be eligible to have that $10,197 refunded and applied to his loan balance.

Listen to the voicemail Andrew received from the VA below or click here:

If you think you may be entitled to a refund of the funding fee, contact the VA Loan Center at 1-877-827-3702.

Additional information is available on the VA’s website here.

If you’re one of the veterans who may be impacted, email the team working on this investigation at: investigations@kare11.com

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