The ""Subcommittee on Economic Opportunity"":http://veterans.house.gov/economic/ held a hearing Thursday in order to review the current status of the ""U.S. Department of Veterans Affairs (VA) Home Loan Guarantee Program."":http://www.homeloans.va.gov/
[IMAGE]According to Stephanie Herseth Sandlin, chairwoman of the subcommittee, VA's loan guarantee program has been an important benefit for more than 65 years that has allowed thousands of veterans the opportunity to own a home. And although this program has proven to be successful, she said there are still ""several issues of concern"" that need to be addressed.
Various panelists testified at the hearing, including James H. Danis II, on behalf of the ""Mortgage Bankers Association"":http://www.mbaa.org/default.htm (MBA), and Joe Sharpe, on behalf of the ""American Legion."":http://www.legion.org/ Both Danis and Sharpe spoke of the successes of the VA Home Loan Guarantee Program and made suggestions for how to make it stronger.
In the midst of the mortgage crisis, VA's loan guarantee program has remained remarkably healthy. According to Danis, ""the numbers pretty much speak for themselves."" He said the homeownership rate among veterans is ""astounding"" at 82 percent compared to 67 percent for the general population. In addition, he said VA loans have performed better than any other segment of the market, despite most of these borrowers not having ""skin in the game.""
Danis cited recent MBA data to support this claim. According to this data, the serious delinquency rate for VA
[COLUMN_BREAK]loans was 5.29 percent in the first quarter of this year, well below the 7 percent delinquency rate for prime loans and significantly less than the 30 percent delinquency rate for subprime loans.
""The VA portfolio has been able to weather today's turbulent market largely due to its conservative underwriting standards,"" Danis said in his testimony before the subcommittee. ""VA mortgages have always been fully documented and fully underwritten loans on owner-occupied properties.""
Sharpe agreed that conservative underwriting standards have attributed to the favorable performance of VA loans, and he also highlighted other contributing factors. He pointed to the fact that VA selects home appraisers from its own approved list, and he said VA has an aggressive program to help veterans who are unable to make loan payments.
Despite this success, both Danis and Sharpe had several recommendations for improving the VA Home Loan Guarantee Program.
Danis emphasized his concern regarding the new risk retention requirement included in both the House and Senate financial reform bills. The House bill, ""which passed in December"":http://dsnews.comarticles/house-passes-reform-legislation-but-scraps-bankruptcy-cramdowns-2009-12-11, and the Senate reform bill, ""which officially passed late Thursday night"":http://dsnews.comarticles/senate-approves-financial-reform-bill-2010-05-20, both contain provisions that will require mortgagees and securitizers to retain a 5 percent interest in any mortgage they originate, sell, or securitize. Danis said this will directly hurt the VA program and also harm small, independent lenders.
In addition, Danis recommended that Congress extend VA's higher loan limits, and he suggested that the VA loan program be reviewed and updated so that it is better aligned with prudent industry standards.
Sharpe focused on VA's current practice of charging veterans a ""funding fee"" that was introduced in 1982. Currently, veterans using the program for the first time must pay 2.15 percent of the loan amount, and those using it for the second time must pay 3.3 percent of the loan amount. Sharpe told the subcommittee that the American Legion wants Congress to consider either eliminating this fee or significantly reducing it.