VA home loan info.........

My better half is a former Marine. He is retired with a monthly income of $3,300. His home is appraised at approximately $125,000. He has a first & 2nd mortgage with payments of about $1800 a month and a high (over 10) %age. He is trying to get a lower percentage and monthly payment. He has a good credit score, 680.

He went through his local bank and they denied him. He asked them to apply for a VA loan, they stated that they don't do VA loans. We found a loan company that deals exclusively with VA loans. They would be able to consolidate the mortgages and with their interest rate of about 3.25% they could save him about $900 a month.

Today the loan officer called and said he could not get a VA loan, but he would try to get it underwritten by FHA.

We're just not understanding the VA loan system. Anyone out there can help us understand this?