A Florida lender has blocked an attempt by the Department of Veterans Affairs to ensure lower monthly payments for veterans who refinance mortgages.
The department, which guarantees the loans, last week rescinded an Interest Rate Reduction Refinance Loan rule, originally scheduled to take effect Monday, after Mortgage Investors Corp., St. Petersburg, Fla., filed a petition with the federal circuit court.
Mortgage Investors, whose fees prompted the department to cap refinancing charges at 2 points a year ago, said the rule would have "prevented a majority of veterans in this country from qualifying to refinance their VA loans."
The Mortgage Bankers Association said the rule was rescinded because the required comment period did not expire until Dec. 8. Other lenders complained that the veterans agency was folding under pressure.
Last year American Banker discovered that Mortgage Investors Corp. was charging some borrowers as much as 7.5% of the loan amount to refinance, and that in some instances loan officers were passing themselves off as members of the Department of Veterans Affairs.
The department passed a rule in January capping refinancing fees at 2% of the loan amount, but did not bar Mortgage Investors Corp. from its lending program.
"If there are people out there that abuse veterans, they should be punished," said Louis Jennings, executive vice president of Vienna, Va.- based Navy Federal Credit Union.
According to Title 38 of the United States Code, the department may bar a lender from the program if it has "willfully or negligently engaged in practices otherwise detrimental to the interest of veterans or the government."
By allowing lenders like Mortgage Investors Corp. to stay in the program, the department is "admitting that it has absolutely no clout, and no control over lenders," Mr. Jennings said.
The department said that it could not comment on Mortgage Investors Corp. because it is being sued by the lender, but insisted that it is doing what it must to protect veterans.
An attorney for Mortgage Investors Corp. said that the company had not filed any lawsuit against the department.
"We're not going after any one lender, because we're dealing with a widespread problem," said a spokesman for the department. Why Mortgage Investors Corp. is still making VA loans is "a good question, but not one I can answer," the spokesman said.
Barring lenders from making VA loans may not even be the agency's responsibility, said a spokesman for the House Veterans Affairs Committee. "What is the industry doing about this problem?" he asked.
The committee spokesman said he could not comment specifically on Mortgage Investors Corp.
Industry groups said it is up to the department to police the industry. "They have sanctions that they can use, and they haven't done so,"said Steve O'Conner, who heads a committee on VA and FHA loans at the Mortgage Bankers Association.
The department is expected to propose another rule on interest rate reduction that will be nearly identical to the first, Mr. O'Conner said.