Scarpero says nearly tripling the VA IRRRL fee could mean most of his past year's refinances would never have closed
Just days before the US celebrates its 250th anniversary on July 4, a new bill designed to help supplement veterans’ benefits is receiving major pushback from mortgage trade groups due to a major fee increase.
A provision buried inside a bill meant to expand benefits for severely disabled veterans is drawing sharp opposition from the mortgage industry. Section 104(b) of H.R. 9237, the Take Care of America's Veterans Act, would amend the VA loan fee table to raise the funding fee on Interest Rate Reduction Refinance Loans (IRRRLs) from 0.50% to 1.42%, nearly tripling the cost for non-exempt veterans using the streamlined refinance program.
According to VA loan volume data, lenders closed 119,457 IRRRL loans nationwide in fiscal year 2025. And one mortgage broker who specializes in VA loans said many of his IRRRL loans likely wouldn’t have closed with these new fees in place.
Carlos Scarpero (pictured top), mortgage broker at Edge Home Finance, said the bill is using one group of veterans to pay for another.
"It's one of the situations where you're basically using the funds from one side to pay for the other side," Scarpero told Mortgage Professional America. "I am happy that they're helping the veterans with disabilities, but it's kind of ridiculous because the funding fee fund has plenty of money. They just claim they couldn't find another way to fund that disability payment. But there are always ways to fund everything."
Many IRRRLs may not qualify
Scarpero looked back at the IRRRLs he closed over the past year against the proposed fee. Most would not have made financial sense.
"A lot of these loans that I've done, most of them probably would not have closed if that bill had been in effect last year," he said. "All these veterans that could have saved $200, $300, $400 a month, you're basically tripling the funding fee. That would certainly cause some problems."
The reason comes down to a federal requirement that protects veterans from refinancing into a worse position. VA rules require that a refinance recoup its closing costs within 36 months through the borrower's monthly savings.
"You still got the recoup rules, and I'm totally in favor of that rule," Scarpero said. "It's pretty common for an IRRRL to be at like 12 to 18 months on the recoup. That could easily throw it over the 36 months. Some loans will work, but a lot won't."
Veterans who are exempt from the funding fee, generally those with a service-connected disability rating, would not be affected by the change. Scarpero said non-exempt borrowers, the ones who would feel the increase, already make up more than half of his IRRRL volume.
The National Association of Mortgage Brokers (NAMB) has formally opposed the funding fee provision, even while supporting the bill's broader goal of expanding veteran benefits.
"Our nation's veterans deserve our utmost gratitude and support, and we applaud Congress for prioritizing healthcare and resource programs for disabled service members," said Kimber White, NAMB president. "However, we are concerned that nearly tripling the IRRRL fee places an unintended financial burden on the very community we aim to protect. Increasing these upfront costs directly reduces the immediate financial relief that a lower interest rate provides."
The Broker Action Coalition (BAC) is encouraging brokers to send a message to members of Congress on its website opposing the same provision. Scarpero said he has not encountered a single industry voice defending the fee increase as written.
Flaws in the math
Scarpero said tripling the fee will not necessarily triple the revenue Congress is counting on because the volume of IRRRLs will likely decrease.
"It doesn't triple if you don't get the IRRRLs. It only triples if you actually get the same amount of refis," he said. "If the refis dry up by two-thirds, you're basically back to where you started."
A borrower facing a fee large enough to push their deal past the 36-month recoup threshold has little reason to refinance at all, he said, which means the government collects nothing on loans that simply do not close.
Public pressure may still be able to change the provision before the bill becomes law, Scarpero said, and brokers and veterans advocates are not giving up.
"I'm hoping and praying that all this stuff works, and we just keep pushing," he said. "That's all we can do. Spread the word."
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