Fees for Veterans Affairs interest rate reduction refinancing loans (IRRRLs) could nearly triple if Congress passes the Take Care of America's Veterans Act as currently proposed.

The bill has been introduced in both the House and Senate, with the lead sponsors being Rep. Mike Bost, R.-Illinois and Sen. Jerry Moran, R.-Kansas.

It combines several other pieces of legislation introduced in both houses. All of the current co-sponsors are Republican.

Besides the fee increases, the bill will expand VA home loan eligibility to National Guard members and Reservists who might otherwise not be eligible for this benefit.

How the bill could change VA loan fees

Current fees for both IRRRLs and assumptions are 50 basis points. The bill would change these to 1.42% for IRRRLs and 1% for assumptions.

The proposal also adds an extra 1% on top of the other fees for those newly eligible loans for National Guard members and Reservists. In 2023, the VA reduced some of its fees to pre-2020 levels.

House pay-as-you-go rules, also known as PAYGO, require offsets to bring legislation to its floor.

Much of the social media and other comments have been regarding the increase in the IRRRL fee and how it could harm this segment.

What the increased IRRRL fees mean for borrowers

"In short, it increases the housing costs for active duty service members disproportionately, and on average it will raise the cost of an IRRRL refinance over the life of the loan by $8,500," said Brendan McKay, president of advocacy of the Broker Action Coalition.

The BAC put out a call to action that generates a message users can send to their senator opposing the fee hike.

With the proposal, for an IRRRL loan done today, which would take 18 months to recoup the cost, the timeline would expand to five years, meaning under the current rules, the loan could not be done, McKay, who is also a Maryland mortgage broker, explained. Those require the costs to be recouped within 36 months.

"Service members won't be able to take advantage of decreasing interest rates because of how much more expensive the transaction just became," he said.

Active duty personnel are primarily impacted because veterans who have a service-related disability rating of 10% or higher are exempt from having to pay the fee.

While some of these limits were put into place to reduce churning, the IRRRL also has a 210-day rule before the mortgage can be refinanced again into a new IRRRL.

While the existing rules create guardrails which take some transactions off of the table, these changes will remove even possible loans from the equation.

Keeping the VA borrower first and foremost

NewDay USA is a mortgage banker whose clientele is primarily veterans and is keeping them in mind when it comes to this change.

"We trust that the Congress [is] obviously putting the care and the need of the veterans and the long-term stability of the program in mind in making some of these rules," said Franco Greco, chief revenue officer at NewDay.

"We work inside a framework that the VA provides, and we make sure that every loan that we do has a real benefit for the veteran," Greco continued. "So for us it is going to be a business change, we're going to take the rule that's given to us and see how many loans that we can help serve a veteran that still meets their VA net tangible benefit test."

The increased cost would affect the tangible benefit calculation but it would be tough to tell what will happen in the long run because the interest rate environment is so dynamic, he said.

"They got great professionals at the VA," Greco said. "I really have faith they put a lot of work into this; we work closely with them, and they always have the veteran in mind when putting these things together."

Supporting the mission, not how Congress plans to fund it

The National Association of Mortgage Brokers said it supports the primary mission of the bill, which includes enhancing health care as well as expanding benefits for disabled veterans.

But funding the increased benefits should not come from decreasing homeownership affordability for veterans, NAMB argued in a press release.

"We are concerned that nearly tripling the IRRRL fee places an unintended financial burden on the very community we aim to protect," said NAMB President Kimber White, a Florida-based mortgage broker. "Increasing these upfront costs directly reduces the immediate financial relief that a lower interest rate provides, extending the time it takes for a veteran family to recover their refinancing expenses."

Still, the NAMB statement thanked Bost, who is chairman of the House Committee on Veterans Affairs, as well as Rep. Mark Takano, D.-California, the ranking member, for the opportunity to work together on the issue.

The House Committee on Veterans Affairs continues to look at ways to modernize the home loan program, including improving the appraisal process, someone with knowledge of the committee's work said.