VA Limit Bumped

Congressional approval results in conforming-indexed limit of $333,700

November 18, 2004

By SAM GARCIA and COCO SALAZAR

In an announcement Wednesday, the Mortgage Bankers Association said the House of Representatives approved bill S. 2486, also known as the Veterans Benefits Improvement Act of 2004. The bill passed the Senate on Oct. 8.

“MBA commends Congress for passing this bill, which contains many provisions that are vitally important to our nation’s veterans, particularly in light of the current massive build-up of our armed forces and the prospect of an increasing veteran population following service members’ active-duty service,” MBA government affairs executive Kurt Pfotenhauer said in the statement. “During this time of war it is more important than ever for veterans and their families to enjoy the benefits of homeownership.”

The Act raises the VA home loan guaranty limit amount and indexes it annually to 25 percent of the Freddie Mac conforming loan limit, which results in a maximum loan amount of $333,700, MBA said.

Keith Pedigo, director of VAs Loan Guaranty Service, explained to MortgageDaily.com that while the new maximum VA loan amount is actually the same as Freddie’s current conforming loan amount, VA only guarantees 25% of the loan — making the maximum guaranty $83,425. He added that when conforming limits are lifted again, the new guaranty amount and VA loan amount will automatically increase.

MBA said it supports the concept of indexing the maximum VA guaranty amount to Freddie’s limit because it avoids the need to have congressional action to keep the VA benefit relevant as home prices change. Even though national home prices have appreciated approximately 73% since 1995, the VA guaranty loan amount has been raised only one other time since then, with that increase being about 18%.

A Mortgage Banker’s spokesman would not speculate on when the President might sign the bill into law.

The new law also makes technical changes to the VA adjustable-rate mortgage and VA hybrid ARM programs, the trade group reported.

The Act allows the VA Secretary to adjust the cap structure on hybrid ARMs to an initial term of more than the current cap of three years. With the possible change, MBA believes 5/1 ARMs will be more viable as these are currently the most popular hybrid ARMs in the conventional market.

MBA added, however, that it believes the hybrid ARM program should continue past its termination date of fiscal year 2005 as it has been very popular with veterans — they comprised more than 59,000 originations, or 18% of VA’s total volume in fiscal year 2004 — and that veterans should have the option of a one-year ARM.