Mortgage Company will not allow assumption

[Russell Thomas]

Is this Legal? I am a Veteran and trying to assume the loan from my sister in law who is also a Veteran. I have met all the requirements pertaining to credit score and documents. However the Mortgage company told me that they will not proceed because the balance of the loan is 38k and since they cannot charge more than .05 percent, they wont do. I was first told that there is a state legislation that prevents them from not charging fees or charging lower fees. 

Is this legal? What should  I do?