A few years back, during the height of the housing boom, the VA loan program was feeling pressure from the mortgage industry to ease its credit underwriting conditions and allow lenders to select the appraisers rather than letting the VA do it.
And why not?
There were zero-down programs everywhere and it appeared that anyone with a pulse back then could get a home loan, so the VA would have to ease up to stay competitive in the market.
“We were criticized for not lessening our standards,” said Mark Bologna, director of VA’s Home Loan Guaranty Service. “It’s a testament to my predecessors that they stood by the foundation of the program.”
The VA Loan is guaranteed by the Department of Veterans Affairs, making it an attractive option to lenders in the event a VA Loan should foreclose. The loan is available to those who served in the military and active duty military members.
VA’s decision to maintain its foundation worked well and now VA loans are as strong as ever in the mortgage market. While they make up only three percent of the overall market, 2009 first quarter numbers from the Mortgage Bankers Association show VA loans have the second lowest delinquency rate — 8.21 percent — among all residential mortgage types.
Only prime loans had a lower delinquency rate: 6.06 percent. FHA delinquency was 13.84 percent, and subprime late payments stood at a staggering 24.95 percent.
And it’s not just the low delinquency rate that Bologna points to as a measure of how well the VA loan has done compared to its competition.
VA boasted the lowest foreclosure rate of all the loan products for the first quarter, with 1.93 percent of borrowers in the foreclosure process compared to 2.49 percent of prime borrowers going through foreclosure.
“With all the challenges facing veterans in this tough economy, the VA loan has done very well,” Bologna said.
Perhaps being the only “zero-down ballgame in town,” as Dean Eckes, acting valuation officer at the Phoenix Regional VA office, put it, doesn’t hurt. But Bologna and other mortgage industry experts are touting that the program has plenty to offer.
“It’s as solid as anything out right now,” said David Reed, a mortgage expert with 20 years of mortgage experience and author of Your Guide to VA Loans.
In addition to the VA loan requiring no down payment and having no monthly mortgage insurance, the VA has been aggressive in trying to evolve the loan program.
One such evolution was the 100 percent cashout refinance option that was signed into law last October as well as the increase in VA loan amounts that was also a part of the Veterans’ Benefits Improvement Act of 2008.
Of course, the timing of the 100 percent cashout coincided with the “bottom falling out of the mortgage market,” as Bologna points out, and so lenders have not been overly vigorous in taking on the cashout. Declining property markets make refinancing a home for 100 percent of what it’s worth difficult anyway because houses won’t appraise for what the owner’s owe on the property.
Bologna said he feels the 100 percent option will become more viable once the economy and housing market turns around.
As for the increased loan limits, they can reach up to $1 million according to Bologna depending upon the county you live in, whereas the maximum for most counties is $417,000. The higher limits are allowing VA borrowers to purchase in areas like California, which has seen a spike in VA Loans as a result.
“Before, in California, $417,000 might not get you a decent starter home,” Bologna said.
Education
While the evolution of the VA Loan continues, it’s educating people about the VA program that remains a steadfast priority of the agency.
“We want VA information out to everybody,” Bologna said, “it’s not just a benefit, veterans are entitled to it.”
Mortgage expert Reed argues that while he has no quibbles at all with the VA loan itself, he fears that not enough is known about the program.
“My biggest issue is most (people) don’t know the benefits of the VA loan, nor do they know how to get approved for a VA loan,” Reed said.
Bologna disagrees with that sentiment and said the agency is very aggressive in getting the word out about the VA loan to both veterans and active duty military.
“We do a lot with our partners, servicers and lenders to provide resources to people about the VA loan,” Bologna said.
That includes providing pamphlets on the VA Loan process, as well as a CD and DVD that features someone going through the VA process to help illustrate what can be expected. The agency also sponsors and attends military events to spread VA loan information.
Bologna also mentioned that the VA is working with the National Association of Realtors, National Association of Homebuilders and National Association of Mortgage Brokers “as we speak” to better educate them on the loan process so they can provide better information and service to their clients.
“Because this is a benefit for veterans, we are always trying to reach out and looking for different ways to promote and educate,” Bologna said.
Reed added that his biggest VA complaint is that not enough real estate agents and brokers know about the program. However, with the ongoing education from the VA, a Realtor’s locale can have an impact on his or her VA knowledge.
Greg Chaplain, a Realtor in Norfolk, Va., calls it “education by exposure.”
“If I’m in central Texas, how much do I need to know about the VA loan?” Chaplain said. “But shame on you if you’re in an area with a lot of military and you’re not familiar with the program.”
Chaplain likes the VA Loan program and it’s the brunt of his business considering he’s in Norfolk, which is home to the world’s largest Navy base. But Chaplain said it helps to have a good mortgage company that knows what it’s doing when it comes to VA loans.
He cited one experience where the mortgage company forgot to secure a borrower’s certificate of eligibility, arguably the most important item in the initial loan process.
“It’s not just the Realtor,” Chaplain said of those who needs VA Loan knowledge, “the title company, the mortgage company … it takes all three to close a loan.”
Moving Forward
Whether it’s the additions to the VA refinance program — including a streamline program that allows for VA borrowers to lower their interest rate without an appraisal — or the constant push to educate, or even the automation of the certificate of eligibility process for lenders to expedite the VA process, the VA Loan Program remains vibrant and flexible.
“We continue to make good loans and provide a viable program for veterans,” Bologna said.
In fact, the VA is on pace to originate between 250,000 to 280,000 loans this fiscal year, the most in years. They’re actively looking at ways to improve the program and are always talking with consumers and lenders from the mortgage industry about what works and what doesn’t.
The agency is also doing its part by helping with the housing market turnaround, including repurchasing delinquent mortgages and spreading out missed payments over time. The VA also counsels veteran homeowners on their mortgage options even if they’re not in a VA Loan.
With all that’s going on with the VA program and in the economy, Bologna said VA’s commitment to veterans never wavers.
“We help veterans every opportunity we can.”
