VA taking steps to deal with mortgage crisis

With thousands of service members and veterans having lost homes or facing foreclosure as the mortgage crisis continues, lawmakers are pushing legislation to raise VA loan ceilings, lower VA funding fees and expand the VA’s ability to help veterans refinance loans they can’t afford.

The Department of Veterans Affairs, meanwhile, is encouraging military members, veterans and surviving widows with at-risk loans to seek advice from VA loan counselors even if their loans are not VA-guaranteed.

VA loan experts lack authority to restructure or renegotiate loans not backed by VA. But they can advise veterans on their options and on how they might negotiate with mortgage holders to avoid default.

VA’s effort to reach mortgage holders in distress now includes a toll free number — 1-877-827-3702 — that automatically directs callers to the nearest of nine VA regional loan centers. 

VA loan counselors have helped 74,000 homeowners since 2000, including half of all VA loans in serious default last year, thus saving the government nearly $1.5 billion, officials contend.

The VA Loan Guaranty program avoided the subprime loan debacle. While delinquency rates have climbed over the past five years for subprime, FHA and prime mortgages, delinquencies have fallen for VA-backed loans.

During the easy mortgage money frenzy that led to the housing market crash, VA-backed loans with no down payment lost favor with home-buying veterans who needed bigger loans for more costly houses than the VA would approve, or were tempted by teaser loans and unchecked credit.

“We never did the same things (as mortgage companies) as far as changing rules for what it takes to get a loan,” said Judith Caden, director of the VA Loan Guaranty Service, in a phone interview. “We’ve required underwriting and always had underwriting standards.  We’ve always required that (applicant) income and credit be documented. We made sure that someone getting a VA loan could afford that loan.”

That doesn’t mean VA loans operated well during the housing market bubble or mortgage crisis that has followed, according to Rep. Bob Filner, D-Calif., chairman of the House Veterans Affairs Committee. VA loans have “basically become irrelevant,” Filner told Military Update. “Especially in California (where) they gave out less than 100 loans last year.”

A more accurate figure for VA loans in California last year is 2,000, according to VA data. But officials get Filner’s point. The ceiling on VA loans is $417,000, which more so before the housing bubble popped, didn’t cover many new mortgages in Filner’s state. VA loan rates and fees often were seen as less competitive than other offerings.

As a result, VA-guaranteed loans nationwide fell from a recent peak of nearly 500,000 in 2003 to 133,000 last year. The trend seems to have bottomed and VA loans across the country are rising. In California, 3,500 VA loans have been approved through the first eight months of fiscal 2008.

Filner said the two major successes of the World War II-era GI Bill were in education and housing. Congress is moving to approve an initiative from Sen. Jim Webb, D-Va., for a new wartime education benefit. Filner said he’d like to lead a similar effort to enhance the VA home loan program.

“I’m in Congress because of the GI Bill of ’44. My dad came back from World War II, got some education but more important he bought us a house for $3,000 and all of a sudden we were in the middle class,” Filner said.

Too many military people today in and around his district in San Diego have been “devastated” by the mortgage crisis, Filner said. “The problem is they can’t work out something with the bank and they can’t turn to the VA.”

Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at:
milupdate@aol.com