The Department of Veterans Affairs has been reviewing its procedures for penalizing lenders that overcharge veterans.
Until recently, the only guideline given to lenders making loans to veterans was to charge "reasonable points and fees." Additionally, the office stopped reviewing 100% of the loans it guaranteed in April 1995 and now looks instead at 10%.
R. Keith Pedigo, director of the department's loan guarantee service, talked about the review with American Banker recently.
How has the Department of Veteran's Affairs' budget changed in the last few years?
PEDIGO: Overall the VA budget has increased, but that does not necessarily translate into every element. We really have two parts to the budget. The first is the money that we use to guarantee loans, which comes to us every year in the amount that we need it. The second pot of money that we get is used to pay salaries, etc. That pot of money has been coming down over the past two to three years, fairly significantly. The level of full-time entitlement personnel in the program has come down approximately 200, to about 1,780 employees right now.
Did these budget cuts coincide with the decision to review only 10% of loans made rather than 100%?.
PEDIGO: It did happen around the same time frame, but it did not coincide with that decision. We decided that we could achieve the same level of quality in our reviews, if we reduced the number down to 10% but required a more in-depth review of that sample.
What will happen to a company that was charging high points to refinance to market rates?
PEDIGO: This is a mixed bag of cases. At this point we are in the process of getting a formal opinion from our general counsel as to whether or not we have the authority under our operating statute to take punitive action. Although we don't know at this point, the primary take on this is the statute may not give us that authority.
You've never seen a problem like this before?
PEDIGO: This situation has never come up since 1980. If there has been a problem, it did not exist in this program in the first 15 years.
If your statute does not provide you with authority to disbar these lenders for charging high points, what will happen to them?
PEDIGO: It's difficult to say. We have had a preliminary expression of interest from the Justice Department.
Do you feel like you have the responsibility to educate veterans as to what normal discount points are, normal interest rates are?
PEDIGO: I would like to be able to educate all of them, but it's difficult for us to find a way to do that. There are 26, 27 million veterans, and its very difficult to reach a group that size. Vets are no different than anyone: To the extent that education might be needed, it's needed by the general public.
Following your current review of lenders, are you going to step up your educational efforts at all?
PEDIGO: Once it's over, we will evaluate our educational programs.
I think it's really important to focus in on the real situation. The real situation here is that the vast majority of lenders out there are not ripping anyone off.