Better late than never. The VA has issued their guidance for the disclosure of allowable fees to veterans for a VA guaranteed loan. VA Circular 26-16-11 (Exhibit A & Exhibit B) outlines how a lender should be disclosing allowable fees and charges and how a lender and seller credit should be reflected on the new Closing Disclosure to offset an excess charge for unallowable fees.
Under the VA home loan program, only certain fees may be charged to the veteran in connection with getting a mortgage loan. These fees are listed in the VA Handbook under Chapter 8, Section 2.c .
In addition to these allowable fees, a lender may also charge and collect from the veteran a flat fee equal to 1% of the loan amount to cover all other fees and costs. As an alternative to this flat 1% fee, the lender may charge individual fees for unallowable charges that total no more than 1% of the loan amount. Bottom line is that a lender may charge the allowable fees, plus up to 1% of the loan amount in other fees on a VA loan.
The final Closing Disclosure must accurately reflect what fees were charged in connection with the loan. Any unallowable fees above the 1% limit must be reflected on the CD as being either paid by the seller, of by “other” when paid by the lender.
A lump sum credit to offset any over charges for unallowable fees is not acceptable on VA loans. These lender credits to offset an over charge in unallowable fees must be in addition to any other lender credits offered the borrower in connection with obtaining their loan.
Safest bet is to disclose, and charge, the fees for the items allowable by VA, with a flat 1% origination fee to cover all other loan charges. You may also charge any reasonable discount points. If not, be sure to reflect any credits to offset the excess in the unallowable fees against any of these fees being charged, not as a lump sum credit. Otherwise, the VA may require you refund the excess charges to the veteran, in addition to the credit given at the closing.
Oh, one more thing, the VA requires a copy of a signed final CD on their guaranteed loans. Make sure you instruct the closing agent accordingly.