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KARE 11 Investigates: Congress seeks quick action to fix home loan overcharges

Two U.S. Senators introduce bipartisan legislation to ensure disabled veterans nationwide get hundreds of millions of dollars in refunds on VA home loans.

WASHINGTON — U.S. Senators John Boozman (R-AR) and Jon Tester (D-MT) have introduced legislation to ensure tens of thousands of disabled veterans are reimbursed for so-called “funding fees” on VA home loans they should not owe.

“Veterans rely on the VA to properly administer benefits they earned in service to our country,” Boozman said. “The department’s failure to uphold this responsibility has unduly burdened disabled veterans.”

The measure would set deadlines for VA action – and require that refunds go directly to veterans rather than being funneled through mortgage companies.

In May, KARE 11’s ‘Funding Fee Fiasco’ 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.

Despite that warning, KARE 11 reported that top VA officials failed to take corrective action.

Most of the overcharges involve veterans who had disability claims pending when their VA Home Loans were approved. Funding fees for loans are supposed to be waived for most disabled veterans, so when those pending disability claims were approved – and made retroactive – veterans should have received refunds.

In June, the VA’s Office of Inspector General (OIG) found that veterans were not notified they were due refunds – and the overcharges continued. 

The OIG investigation labeled what took place “troubling.” 

Now, lawmakers are pressing the VA to take immediate action.

“Ensuring our veterans aren’t unfairly burdened while accessing home loans isn’t a partisan issue— so when the VA doesn’t hold up its end of the deal, we need to do something about it,” said Tester, Ranking Member of the Senate Veterans’ Affairs Committee. “Our bipartisan bill holds the VA accountable to prevent these mistakes from happening again, and ensures that disabled veterans in Montana and across the country are not financially burdened because of VA bookkeeping errors. Anything less is unacceptable.”

Whistleblowers say veterans weren’t informed

A whistleblower provided KARE 11 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.

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.

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 OIG report

The OIG investigation confirmed KARE 11’s findings that the managers had been warned about the outstanding debts owed to veterans and did nothing to rectify the overcharges.

“Disturbingly, as of January 2019, Loan Guaranty Service management had not taken action to issue refunds to these exempt veterans,” wrote VA Assistant Inspector General for Audits and Evaluations Larry Reinkeymer.

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

WATCH: Federal watchdog finds veterans owed millions

“OIG finds it troubling that senior VBA (Veterans Benefits Administration) 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,” wrote Reinkeymer.

What’s more, since officials didn’t act when they were alerted about the problem in 2014, the overcharges have continued. As a result, the OIG report estimated that more than 70,000 veterans were overcharged more than $286 million – most of it still not refunded.

Read the OIG investigation here

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, according to the OIG report.           

WATCH: KARE 11 helps veterans begin getting refunds

Congress takes action

The bill introduced by Tester and Boozman requires the VA to:

  • Report to Congress a plan to identify all exempt veterans who were charged funding fees and a timeline for refunding all fees.
  • Develop an automated process for generating a refund of inappropriately or unavoidably collected funding fees. The VA is restricted from requiring a veteran, who has had such fees collected, to request a refund.
  • Develop a plan within 90 days for processing refunds by VA staff or award a contract to process refunds for erroneously collected fees.
  • Report annually to Congress: 1) the number of loan funding fee refunds applied to home loan balances; and 2) the number of such cases for which the VA has received documentation confirming the refund has been applied to the balance of the loan.
  • Develop a technology and process solution to enable real-time updates to funding fee exemption status and within 180 days report on the solution to Congress.
  • Authorize the secretary to refund collected fees directly to the veteran.
  • Develop a plan to annually audit VA loans to determine the rate of improperly charged fees. Findings of the audit will be reported to Congress annually within 60 days of completion of the audit.

“This bill ends the VA’s practice of unlawfully charging veterans who qualify for funding fee waivers,” Boozman said. “Ensuring the VA implements a process to reimburse veterans who weren’t required to pay in the first place and prevent veterans from unfair penalties in the future must be a priority.”

Since April 26, KARE 11 has been requesting interviews with VA officials about the refunds owed to veterans. They have not responded.

But after failing for years to take action, the VA suddenly issued a press release on May 13, just two days before KARE’s first report, announcing 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.

When veterans contact the VA Loan Center hotline at 1-877-827-3702, they are now given a recorded message stating notification letters will be sent to veterans owed a refund by September 30.

Additional information is available on the VA’s website.

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

Related: Congress questions $286M in home loan overcharges

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