A long-awaited loan regulation that the Office of Veterans Affairs had planned to put into effect Monday is again in jeopardy.

The rule, designed to prevent lenders from encouraging veterans to refinance into larger mortgage loans, will be put on hold for another two weeks while the agency fixes a technical error, said Keith R. Pedigo, director of the agency's loan guarantee office.

But if Mortgage Information Corp. has its way, the regulation will never take effect. The St. Petersburg, Fla., lender, a subsidiary of Dallas-based Amresco, filed a petition Thursday in Federal Court to delay or cancel the rule.

It was the second time in two years that Mortgage Information had challenged the plan. As the country's largest provider of refinanced loans for veterans, Mortgage Information could lose business if it were implemented.

In announcing its lawsuit, the company said the rule would "prevent veterans who are even slightly late on their mortgage payments from easily refinancing the VA-guaranteed loan and reducing their interest rate."

Mr. Pedigo said the rule was in direct response to potentially unscrupulous lending practices that cropped up in 1996 and 1997.

"We started seeing numerous instances where lenders were encouraging veterans to skip payments on their loan, get a refinanced loan that included those payments, and then pocket the money," Mr. Pedigo said. "We didn't think that was in the best interest of veterans."

He noted that borrowers' new loan balances would be higher than their original mortgages and that monthly payments often would be higher.

The new rule would require lenders to submit applications for the refinancing of delinquent loans to the Office of Veterans Affairs for review.

It would also require lenders to submit new loans that have higher interest rates or principal payments.

"We won't necessarily deny the loan," Mr. Pedigo said. "We just want to be sure that the veteran will be able to handle the new payments."

The rule is "technically flawed, cumbersome, and unnecessary," Mortgage Information said.

It said the combination of increased red tape and downsizing at the agency will "choke the loan refinancing program to death."

The veterans agency has reduced its work force in the last five years from 2,000 employees to 1,300.

Mortgage Information and the veterans agency have been battling about the regulation since it was introduced in 1996. In that year some borrowers and former employees accused the lender of pressuring veterans to refinance into larger loans. Amresco bought the company in July 1998.

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