The Department of Veterans Affairs will announce today that it plans to restrict the amount of points that veterans can be charged when they refinance VA-guaranteed home loans.

A regulation, which a statement from the agency says is due out "as soon as possible," will set the maximum at two points, or $2,000 on a $100,000 loan.

The planned restriction was prompted by a recent investigation into lenders that specialize in the streamlined rate-reduction refinancing program for VA loans. That investigation followed inquiries by American Banker about predatory loan practices it had discovered. In recent weeks, the VA found that some lenders were charging as much as seven discount points when refinancing loans.

"We are gravely concerned that some veterans may not realize they are inflating the loan beyond the value of their home, leaving them in a potentially devastating financial predicament if they move and must sell the property," said R.J. Vogel, under secretary for benefits at the Department of Veterans Affairs.

The department had previously left fees and points on refis up to a lender's discretion.

Until a regulation can be adopted, the agency is asking lenders to voluntarily charge no more than two points. In the interim, any refinanced VA loans that carry more that two points must contain an affidavit signed by the borrower. The affidavit says, in part:

"My lender has explained that by adding more than two points into my loan, I may be risking the possibility that I will have difficulty selling my home for a price sufficient to pay off the loan . . . I also understand that by adding excessive points into my loan, I am not getting the full benefit of reducing my interest rate."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.