[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]






                         LOAN GUARANTY PROGRAM

=======================================================================

                                HEARING

                               before the

                  SUBCOMMITTEE ON ECONOMIC OPPORTUNITY

                                 of the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 20, 2010

                               __________

                           Serial No. 111-80

                               __________

       Printed for the use of the Committee on Veterans' Affairs









                                  ______

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                     COMMITTEE ON VETERANS' AFFAIRS

                    BOB FILNER, California, Chairman

CORRINE BROWN, Florida               STEVE BUYER, Indiana, Ranking
VIC SNYDER, Arkansas                 CLIFF STEARNS, Florida
MICHAEL H. MICHAUD, Maine            JERRY MORAN, Kansas
STEPHANIE HERSETH SANDLIN, South     HENRY E. BROWN, Jr., South 
Dakota                               Carolina
HARRY E. MITCHELL, Arizona           JEFF MILLER, Florida
JOHN J. HALL, New York               JOHN BOOZMAN, Arkansas
DEBORAH L. HALVORSON, Illinois       BRIAN P. BILBRAY, California
THOMAS S.P. PERRIELLO, Virginia      DOUG LAMBORN, Colorado
HARRY TEAGUE, New Mexico             GUS M. BILIRAKIS, Florida
CIRO D. RODRIGUEZ, Texas             VERN BUCHANAN, Florida
JOE DONNELLY, Indiana                DAVID P. ROE, Tennessee
JERRY McNERNEY, California
ZACHARY T. SPACE, Ohio
TIMOTHY J. WALZ, Minnesota
JOHN H. ADLER, New Jersey
ANN KIRKPATRICK, Arizona
GLENN C. NYE, Virginia

                   Malcom A. Shorter, Staff Director

                                 ______

                  SUBCOMMITTEE ON ECONOMIC OPPORTUNITY

          STEPHANIE HERSETH SANDLIN, South Dakota, Chairwoman

THOMAS S.P. PERRIELLO, Virginia      JOHN BOOZMAN, Arkansas, Ranking
JOHN H. ADLER, New Jersey            JERRY MORAN, Kansas
ANN KIRKPATRICK, Arizona             GUS M. BILIRAKIS, Florida
HARRY TEAGUE, New Mexico

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
published in electronic form. The printed hearing record remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing record, the process 
of converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.











                            C O N T E N T S

                               __________

                              May 20, 2010

                                                                   Page
Loan Guaranty Program............................................     1

                           OPENING STATEMENTS

Chairwoman Stephanie Herseth Sandlin.............................     1
    Prepared statement of Chairwoman Herseth Sandlin.............    31
Hon. John Boozman, Ranking Republican Member.....................     2
    Prepared statement of Congressman Boozman....................    31

                               WITNESSES

U.S. Department of Veterans Affairs, Thomas J. Pamperin, 
  Associate Deputy Under Secretary for Policy and Program 
  Management, Veterans Benefits Administration...................    22
    Prepared statement of Mr. Pamperin...........................    53

                                 ______

American Bankers Association, James B. Barber, Chairman and Chief 
  Executive Officer, Acacia Federal Savings Bank, Falls Church, 
  VA.............................................................     3
    Prepared statement of Mr. Barber.............................    33
American Legion, Joseph C. Sharpe, Jr., Director, National 
  Economic Commission............................................    14
    Prepared statement of Mr. Sharpe.............................    46
Iraq and Afghanistan Veterans of America, Tim S. Embree, 
  Legislative Associate..........................................    17
    Prepared statement of Mr. Embree.............................    51
Mortgage Bankers Association, James H. Danis II, CMB, AMP, 
  President, Residential Mortgage Corporation, Fayetteville, NC..     4
    Prepared statement of Mr. Danis..............................    36
National Association of REALTORS', Moe Veissi, First 
  Vice President, and Broker/Owner, Veissi & Associates, Inc., 
  Miami, FL......................................................     6
    Prepared statement of Mr. Veissi.............................    42
Reserve Officers Association of the United States, Major General 
  David R. Bockel, USA (Ret.), Executive Director, and also on 
  behalf of Reserve Enlisted Association.........................    15
    Prepared statement of General Bockel.........................    48

                   MATERIAL SUBMITTED FOR THE RECORD

Post-Hearing Questions and Responses for the Record:

  Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on 
    Economic Opportunity, Committee on Veterans' Affairs, to 
    James B. Barber, Chairman and Chief Executive Officer, Acacia 
    Federal Savings Bank, Falls Church, VA, American Bankers 
    Association, letter dated May 24, 2010, and ABA responses....    58
  Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on 
    Economic Opportunity, Committee on Veterans' Affairs, to 
    James H. Danis, CMB, AMP, President, Residential Mortgage 
    Corporation, Fayetteville, NC, Mortgage Bankers Association, 
    letter dated May 24, 2010, and MBA responses.................    60
  Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on 
    Economic Opportunity, Committee on Veterans' Affairs, to 
    Maurice Veissi, Broker/Owner, Veissi & Associates, Inc., 
    Miami, FL, and First Vice President, National Association of 
    REALTORS', letter dated May 24, 2010, and NAR 
    responses....................................................    62
  Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on 
    Economic Opportunity, Committee on Veterans' Affairs, to Tim 
    S. Embree, Legislative Associate, Iraq and Afghanistan 
    Veterans of America, letter dated May 24, 2010, and IAVA 
    responses....................................................    64
  Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on 
    Economic Opportunity, Committee on Veterans' Affairs, to 
    Thomas J. Pamperin, Associate Deputy Under Secretary for 
    Policy and Program Management, Veterans Benefits 
    Administration, U.S. Department of Veterans Affairs..........    65

 
                         LOAN GUARANTY PROGRAM

                              ----------                              


                         THURSDAY, MAY 20, 2010

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
                      Subcommittee on Economic Opportunity,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 1:08 p.m., in 
Room 334, Cannon House Office Building, Hon. Stephanie Herseth 
Sandlin [Chairwoman of the Subcommittee] presiding.
    Present: Representatives Herseth Sandlin, Adler, and 
Boozman.

        OPENING STATEMENT OF CHAIRWOMAN HERSETH SANDLIN

    Ms. Herseth Sandlin. Good afternoon, ladies and gentlemen. 
The Committee on Veterans' Affairs, Subcommittee on Economic 
Opportunity, hearing on the status of the U.S. Department of 
Veterans Affairs' (VA's) Home Loan Guaranty Program will come 
to order.
    In the 110th Congress, this Subcommittee held a series of 
hearings focused on the VA's Home Loan Program, including the 
specially adapted housing programs. Since then, we have been 
able to work in a bipartisan manner to increase the maximum 
loan guaranty amount, expand expiring adjustable rate mortgage 
programs, provide foreclosure prevention remedies for 
servicemembers and veterans, enhance specially adapted housing 
benefits, and require the VA to update the guidance it provides 
to veterans on the design and construction of specially adapted 
housing. In keeping with our commitment to meet the current 
needs of veterans, today's hearing seeks to review housing 
benefits that were first provided when President Franklin 
Delano Roosevelt signed the Servicemember's Readjustment Act of 
1944. For over 65 years, VA's Home Loan Program has been an 
important benefit that has allowed thousands of veterans the 
opportunity to own a home.
    While the overall VA-backed Home Loan Program has proven to 
be successful, today we have the opportunity to address several 
issues of concern. Some of these concerns, such as increasing 
the maximum loan guaranty or expanding the adjustable rate 
mortgage (ARM) program, were addressed in the 110th Congress 
and we hope to determine today if additional changes are 
warranted. Also, we will hear about veterans who were attracted 
by non-VA backed home loans who have joined the thousands of 
Americans struggling to make housing payments during difficult 
economic times. Fortunately, a growing number of veterans 
continue to take full advantage of the flexible program to 
refinance into a VA loan, allowing them to access the unique 
protections available through the VA to help ensure they remain 
homeowners.
    I look forward to hearing from all of our panelists as we 
continue to improve the VA's home loan benefits. I now 
recognize the distinguished Ranking Member Mr. Boozman for this 
opening remarks.
    [The prepared statement of Chairwoman Herseth Sandlin 
appears on p. 31.]

             OPENING STATEMENT OF HON. JOHN BOOZMAN

    Mr. Boozman. Thank you very much, Madam Chair. It appears 
that in general the Loan Guaranty Program is working quite well 
and I congratulate VA for its management of the program. And we 
look forward to talking more about that today.
    One of the problems that we would like to address also 
today is a broader issue. And we have had a little bit of a 
problem that it appears that perhaps senior VA is somewhat 
muzzling VA staff. And what I mean by that is that at a recent 
staff meeting Veterans Benefits Administration (VBA) staff were 
told they are not allowed to speak to Congressional staff 
without working through the Office of Congressional and 
Legislative Affairs (OCLA). Rightly or wrongly, VA staff 
informed our staffs that they could not speak directly to them, 
and to submit to even routine questions through OCLA. That 
policy is being interpreted as applying even to the most 
routine questions, like how many people have signed up for the 
GI Bill.
    This new policy, which I can only describe as shortsighted, 
and I really think harmful to veterans, prevents our staffs 
from conducting even routine, day-to-day business with not only 
VA but also with our constituents. Previously, administrations 
on both sides of the aisle have tried this to some extent. It 
is not a Democrat thing, it is not a Republican thing. And it 
always fails because Congress and VA both need two-way 
communications, continuing a longstanding cooperative way of 
doing business. Even at some times when it is less than 
comfortable for the VA.
    If we can have that level of communication, then certainly 
that fosters mutual trust that is in the long run good for 
veterans programs. In my opinion, questions from staffs that 
ask things like details on administrative procedure, or 
participation, or average times, etcetera, are a legitimate 
oversight function and VA employees should not be ordered not 
to respond directly to such requests. On the other hand, my 
staff has asked VA both directly and through OCLA for VA's 
positions on a risk retention provision in the Senate financial 
services. That is a request that requires the Department to 
make a statement of policy and OCLA should be involved. By the 
way, we have not gotten a reply on that matter, and I hope that 
we can also find out VA's position today. Because we have been 
informed that such a provision may negatively impact VA 
guaranteed loans in terms of higher fees or interest rates.
    Finally, I ask unanimous consent to enter comments provided 
by Mr. Adam Sachs on the risk retention provision in S. 3217 
and the Merkley Amendment to that bill in the record.
    Ms. Herseth Sandlin. So entered.
    Mr. Boozman. Thank you. Mr. Sachs is a former member of the 
VA Committee Democratic staff and is now in private practice, 
and raises several issues with the provision and amendment.
    Madam Chair it is imperative, I feel like, that our staffs 
be able to speak directly to VA employees who run these very 
important programs, and I look forward to a reversal of the 
policy. And with that, I yield back.
    [The prepared statement of Congressman Boozman, and Mr. 
Sachs' comments, appear on p. 31.]
    Ms. Herseth Sandlin. Thank you, Mr. Boozman. You raise 
important considerations that, as always, we will work 
together, and with the VA, to continue to express our concerns 
and regardless of administration to seek a consistent policy 
that is most responsive to the needs of the Subcommittee, and 
the full Committee, and the constituents we represent.
    I would like to welcome our panel who is testifying before 
the Subcommittee today. All three of the witnesses on our first 
panel are testifying before our Subcommittee for the first 
time. I thank all of you for being here. I would like to remind 
each of you that your complete written statements have been 
made part of our hearing record. If you could limit your 
opening statements to 5 minutes to provide us ample opportunity 
to pose questions, and recognizing that we have two additional 
panels, that way we again have sufficient time for followup 
once everyone has an opportunity to offer their verbal 
testimony.
    Joining us in our first panel today we have Mr. James 
Barber. He is the Chairman and Chief Executive Officer (CEO) of 
Acacia Federal Savings Bank in Falls Church, Virginia, and he 
is representing the American Bankers Association (ABA); Mr. 
James Danis, President of the Residential Mortgage Corporation 
in Fayetteville, North Carolina, representing the Mortgage 
Bankers Association (MBA); and Mr. Maurice Veissi, Broker and 
Owner of Veissi and Associates, Inc. in Miami, Florida, 
representing the National Association of REALTORS' 
as their First Vice President.
    Gentlemen, thank you for making travel arrangements to be 
with us here today. Welcome to the Subcommittee, and Mr. Barber 
we will start with you. You are recognized for 5 minutes.

  STATEMENTS OF JAMES B. BARBER, CHAIRMAN AND CHIEF EXECUTIVE 
  OFFICER, ACACIA FEDERAL SAVINGS BANK, FALLS CHURCH, VA, ON 
BEHALF OF AMERICAN BANKERS ASSOCIATION; JAMES H. DANIS II, CMB, 
AMP, PRESIDENT, RESIDENTIAL MORTGAGE CORPORATION, FAYETTEVILLE, 
NC, ON BEHALF OF MORTGAGE BANKERS ASSOCIATION; AND MOE VEISSI, 
 BROKER/OWNER, VEISSI & ASSOCIATES INC., MIAMI, FL, AND FIRST 
       VICE PRESIDENT, NATIONAL ASSOCIATION OF REALTORS

                  STATEMENT OF JAMES B. BARBER

    Mr. Barber. Thank you. Chairwoman Herseth Sandlin, Ranking 
Member Boozman, and Members of the Subcommittee, my name is 
James Barber, and I am Chairman and CEO of Acacia Federal 
Savings Bank. I am pleased to be here today on behalf of the 
American Bankers Association.
    The subject of this hearing is an important one for the 
millions of veterans who have taken advantage of the 
opportunity for home ownership through the Veterans 
Administration Loan Guaranty Program. This program is unique in 
the mortgage lending industry, in that it allows a veteran to 
obtain a mortgage with no down payment, and no requirement to 
obtain private mortgage insurance, or PMI. Maintaining the 
strength of this program will ensure that millions more of our 
servicemembers can access this valuable resource. There are 
simply no comparable conventional or Federal Housing 
Administration (FHA) insured options that can offer this kind 
of support and opportunity.
    While zero down payment loan programs have come under 
increased and deserved scrutiny, evidence shows that the VA 
program is working well. There are three reasons for its 
strength. First and most importantly, the program has 
maintained strict underwriting standards. Second, the VA is 
supportive of the program and has improved it to support both 
lenders and borrowers. Finally, the men and women who access 
this program have a strong commitment to meeting their 
financial obligations despite economic difficulties that they 
may encounter.
    In order to keep this program strong, Congress should avoid 
putting global requirements on lending that would severely 
hamper the good work of the program. Recent legislative 
proposals have contemplated requiring some down payment for any 
mortgage. This would be a mistake that would take away one of 
the main benefits of the program for our veterans, the ability 
to access homeownership. Because without this program the down 
payment may be difficult or impossible to maintain.
    The VA has made an effort to improve and upgrade the 
program over the years. Notably in recent years, VA has 
modified its guidelines for high cost areas, a move that has 
had lasting implications. Despite these improvements there is 
still more that can be done.
    We believe there should be more consistency between 
regional offices that handle applications and underwriting. And 
although the VA has worked on making information available, the 
Web sites can still be improved to make information easier to 
find and to improve their reliability.
    The banking industry appreciates the work that has been 
done over the years to make the VA Loan Guaranty Program a 
useful one for military personnel. We hope that the program 
will continue to offer unique opportunities to our servicemen 
and servicewomen. We plan to work together with Congress and 
the VA to make improvements so that the program can serve its 
customers better.
    Thank you for the opportunity to present ABA's views. I 
would be happy to answer any questions you may have.
    [The prepared statement of Mr. Barber appears on p. 33.]
    Ms. Herseth Sandlin. Thank you very much, Mr. Barber. Mr. 
Danis, you are recognized.

            STATEMENT OF JAMES H. DANIS II, CMB, AMP

    Mr. Danis. Chairwoman Herseth Sandlin, Ranking Member 
Boozman, and Members of the Subcommittee. Thank you for the 
opportunity to testify on behalf of the Mortgage Bankers 
Association.
    My name is Jim Danis, and I am the President of Residential 
Mortgage Corp is Fayetteville, North Carolina, a certified 
mortgage banker, and MBA member. I have been in the mortgage 
business for 17 years and have worked with the VA Home Loan 
Guaranty Program my entire career. I know full well how 
important it is to the men and women of our military. Today, 
approximately 70 percent of the loans my company closes are VA 
loans. As credit markets have tightened, and loan underwriting 
has become more strict, finding affordable, low down payment 
mortgages has become increasingly difficult. That is where the 
VA comes in, providing 100-percent loan to value loans to our 
veterans who have dedicated their lives to serving our country.
    The VA program has been a tremendous success and the 
numbers pretty much speak to themselves. The homeownership rate 
among veterans is an astounding 82 percent, compared to 67 
percent for the general population. And VA loans have performed 
better than any other segment of the market. Despite most of 
these borrowers not having skin in the game, VA loans have 
outperformed their counterparts through the recent housing 
crisis. According to MBA data, the seriously delinquent rate 
for the first quarter of 2010 was 5.29 percent, well below even 
the 7 percent delinquency rate for prime loans.
    The VA portfolio has been able to weather today's turbulent 
market largely due to its conservative underwriting standards. 
VA mortgages have always been fully documented and fully 
underwritten loans on owned or occupied properties.
    Madam Chairwoman, although the VA Guaranty Loan Program has 
had an excellent track record of providing benefits to veterans 
and active-duty military personnel, MBA would like to recommend 
a few ways to keep it strong. First and foremost, Congress 
should avoid mandating costly new risk retention requirements 
that could cripple the program and harm our economic recovery. 
Both the House and the Senate Financial Reform Bills contain 
provisions that would require mortgagees and securitizers to 
retain a 5 percent interest in any mortgage they originate, 
sell, or securitize. This would directly hurt the VA program 
and it will also harm small independent lenders like my 
company, which serve military communities. Congress should 
specifically exempt VA loans as well as any other loans or 
securities ensured or guaranteed by the government, such as 
FHA, Rural Housing, Fannie Mae, and Freddie Mac. Failure to 
exclude the VA and other safe and properly underwritten loans 
will negatively affect the housing recovery and veterans' 
opportunities to secure affordable home mortgages.
    To further help with the housing recovery, Congress should 
extend VA's higher loan limits. The Veterans' Benefits 
Improvement Act of 2008 provided a temporary increase in the 
maximum guaranty for loans closed through the end of 2011. It 
also allows borrowers to refinance 100 percent of the value of 
their home. Prior to this, refinances were generally limited to 
90 percent. MBA supports these changes, and we thank this 
Subcommittee for ensuring that veterans who reside in high cost 
areas can enjoy their much deserved housing benefits. We would 
ask that Congress consider extending these limits until the 
housing crisis has subsided.
    MBA would further recommend that the VA Loan Program be 
reviewed and updated so that it is better aligned with prudent 
industry standards. VA management should have the flexibility 
to make programmatic changes to keep that program competitive, 
current, and relevant in a rapidly changing market. And while 
my company does not service mortgage loans, I know that MBA 
members who do often report that VA's processes can be made 
simpler or more cost effective.
    My full written statement goes into greater detail on these 
important, highly technical issues. We believe these changes 
would encourage more lenders to participate in the VA program 
and would directly benefit military families.
    Madam Chairwoman, I would like to close on a personal note. 
My commitment to the VA program goes beyond merely 
professional. The homes my parents purchased to raise me and my 
siblings were bought with VA loans. And in keeping with our 
family tradition, after my discharge from the Army in 1989, I 
financed my very first home with a VA loan. For so many reasons 
I am a strong advocate of this program. It is invaluable to the 
brave men and women who have sacrificed so much for this 
country, and the enhancements discussed in my testimony would 
make it even more attractive and beneficial to veterans and 
their families. Thank you.
    [The prepared statement of Mr. Danis appears on p. 36.]
    Ms. Herseth Sandlin. I appreciate your recommendations, Mr. 
Danis, and I also apologize for not pronouncing your name 
correctly in your introduction.
    Mr. Danis. No, that is fine.
    Ms. Herseth Sandlin. We have a series of votes. But I think 
that, Mr. Veissi, we will go ahead and take your testimony, and 
then we will take a short break. When we return we will pose 
questions to the three of you on this panel. So Mr. Veissi, you 
are recognized for 5 minutes.

                    STATEMENT OF MOE VEISSI

    Mr. Veissi. Madam Chairwoman, Ranking Member Boozman, and 
the Members of the Subcommittee, my name is Moe Veissi. I have 
been a realtor for over 40 years and am a broker/owner of 
Veissi and Associates in Miami, Florida. I also serve as First 
Vice President of the National Association of Realtors, and 
previously to that the President of the Florida Association of 
REALTORS'.
    Today I speak on behalf of 1.1 million realtors working in 
all aspects of the real estate transaction. On a personal note, 
I also speak as the father of a soldier. My son is on active 
duty with the Army in Iraq and when he, along with all 
America's sons and daughters, returns home, I will be most 
proud that the VA is there to make good on the promises our 
Nation made when they joined the military.
    The VA Home Loan Guaranty Program created under the GI Bill 
encourages the private lenders to offer favorable home loans to 
qualified veterans. Today, the VA has guaranteed nearly 19 
million loans to American veterans with a total loan value of 
just over $1 trillion. Because of programs such as the VA Home 
Loan Guaranty Program, the homeownership for veterans is 
significantly higher than the national average, as high in many 
cases as 80 percent. The program is most effective when it 
provides veterans who are unable to qualify for conventional 
loans with favorable loan terms. VA's strong yet flexible 
underwriting allows veterans the ability to purchase a home of 
their own without depleting their savings. More than 90 percent 
of the veterans utilize the zero down payment provided by VA, 
and their track record is absolutely fantastic. The default 
rate and delinquency rate for VA loans is far better than 
subprime, better than FHA, and yes, even better than prime 
loans.
    Despite all the talk of skin in the game, this program 
shows that solid underwriting is the key to substantial 
homeownership. VA requires participating lenders to ensure that 
the loan payments are appropriate for the veteran's present and 
anticipated income and expenses. The VA also requires the use 
of manual underwriting for those veterans who might be on the 
margin. It is important to note that VA has never guaranteed 
subprime loans, never. However, as a result of the work of this 
Subcommittee, and the passage of the Veterans' Benefits 
Improvement Act of 2008, veterans have been able to refinance 
their distressed non-VA loans into a safe, affordable VA loan.
    The VA Loan Guaranty Program is more important than ever 
today. As a result, the National Association of 
REALTORS' has stepped up its efforts to educate our 
members about this valuable program and last fall the National 
Association of REALTORS' partnered with the Veterans 
Affairs Department to produce ``Unlocking the Future: A VA 
Toolkit for Realtors and Homeowners.'' Madam Chair, with your 
permission we would like to submit a copy of this toolkit into 
the record.
    Ms. Herseth Sandlin. Yes, we will so enter that into the 
record.
    [The toolkit, entitled ``Unlocking the Future, a VA Toolkit 
for Realtors and Homeowners,'' is being retained in the 
Committee files. The toolkit may also be accessed on the 
National Association of REALTORS', Web site at 
http://www.realtor.org/wps/wcm/connect/
b5d4f2804043162b8adcff205f470b6e/VA_ToolKit_Booklet.pdf?MO 
D=AJPERES&CACHEID=b5d4f2804043162b8adcff205f470b6e.]
    Mr. Veissi. Thank you. This comprehensive information DVD 
and brochure, complete with videos and frequently asked 
questions, provides realtors with the information they need to 
successfully guide a veteran through the home loan process. 
[The DVD can be accessed at http://www.realtor.org/
government_affairs/va_tool_ kit_faq.]
    As we have discussed, the Subcommittee has been 
instrumental in making a number of changes to the VA Home Loan 
Guaranty, making this program even more useful for veterans and 
we think there are a few other changes that could help our 
Nation's military families. Approximately 60 percent of the 
veterans live in urban areas, where the median prices of homes 
are often above the national average. The current loan limits, 
which provide loans up to 125 percent of local area median 
price, expire in 2011. We urge the Subcommittee to take action 
to make these limits permanent. Veterans in high cost areas 
should not be penalized for geographic differences in this 
housing market.
    Furthermore, since military families tend to move often, an 
adjustable rate or hybrid ARM can be a very reasonable mortgage 
choice. The curtain law extended authority for the adjustable 
rate and hybrid ARMs through 2012. We encourage Congress to 
authorize these products permanently.
    While we fully support VA's efforts to limit fees paid by 
veterans, our members report that veterans using the VA Home 
Loan Program have found themselves at a disadvantage when 
purchasing a home because sellers refused to pay pest 
inspections or other fees customarily paid by the buyers. In 
States like my home State like Florida, where a large number of 
veterans live, a high percentage of the sales are foreclosure 
or short sales. Since there is no seller to pay the fees, 
veterans are completely shut out of this market, and it often 
includes the most affordable homes. NAR believes that VA should 
provide borrowers with flexibility to negotiate these fees as a 
normal part of the home purchase transaction.
    I thank the Subcommittee for this opportunity to share the 
views of the National Association of REALTORS' 
regarding veterans' housing. We strongly support housing 
opportunities for our Nation's veterans and active-duty 
military professionals, and we hope the Subcommittee will 
support our recommendations for enhancing and improving the VA 
Home Loan Guaranty so that it may be a real benefit to those 
who have bravely served our country.
    [The prepared statement of Mr. Veissi appears on p. 42.]
    Ms. Herseth Sandlin. Thank you very much for your 
testimony, Mr. Veissi. Thank you all. We are going to take a 
short recess. We have four votes. So we hope to return within 
about a half an hour. It might be a little bit longer than 
that, but that is our hope. Thank you.
    [Recess.]
    Ms. Herseth Sandlin. I thank our witnesses for their 
patience as we recess for votes. I would like to start my 
questions for you, Mr. Danis, and the other two witnesses in 
this panel can provide feedback on this question as well if you 
would like. In your written testimony you state that the VA 
Loan Program should be aligned with prudent industry standards. 
I was wondering if you could give us some examples, or 
elaborate on the standards that you believe that the VA should 
consider?
    Mr. Danis. Yes, ma'am. The main difference that I see is 
with closing cost issues. At VA, there are certain closing 
costs that VA will not allow the veteran to pay for in the 
closing process. And this is in an effort to protect the 
veteran, although what it does at times, depending on the 
situation, it can actually put the veteran at a disadvantage as 
far as when they are negotiating the sales contract. There are 
certain closing costs, like I said, that VA does not allow the 
veteran to pay for and the seller may not be able to, or may 
not be willing to pay for those closing costs. So, and I have 
seen this happen quite a bit, contracts or negotiations can 
fall through and the veteran can actually lose the property 
that they may be purchasing, or putting a bid on.
    As far as other industry standards, I think VA needs the 
flexibility to be able to make programmatic changes as they 
come about, depending on what the market is doing. As of now, 
they do not have that authority or the actual flexibility to do 
so. And those are the main issues that I see.
    Ms. Herseth Sandlin. Also, some of the changes you propose 
would make the VA loan more similar to the FHA loan. Can you 
speak to how the typical VA borrower may be considered versus 
your typical FHA borrower?
    Mr. Danis. I think those changes mainly have to do on the 
servicing side.
    Ms. Herseth Sandlin. Okay.
    Mr. Danis. The reason being is FHA has on the servicing 
side, if there is a foreclosure for example, FHA has the 
ability to do a partial claim or a partial refunding. Whereas 
VA does not have that ability, FHA does. So those are the main 
differences that I see on the servicing side there. On the 
originations side, there really are not that many differences. 
Now, the various loan programs, as you know, FHA has an up 
front mortgage insurance and a monthly built into the payment, 
where VA is just the funding fee.
    Ms. Herseth Sandlin. Okay. Mr. Veissi and Mr. Barber, do 
you have any comments on either of those questions?
    Mr. Veissi. The only additional comment I might have is 
when a vet goes into a marketplace, especially one like today, 
that is replete with short sales and foreclosures, that vet is 
at an enormous disadvantage predicated upon the fact that they 
cannot compete with those fees up front that were just 
mentioned. But more importantly, because there is no one to 
address that fee structure to. Those sellers are represented by 
asset managers or agents that represent usually a lender, who 
is like a second or third party down. So they are really in a 
hole when they deal with that kind of situation, and are unable 
to make those kinds of decisions.
    Ms. Herseth Sandlin. Well, I think you just answered, in 
part answered the question I was going to pose to you in terms 
of how difficult it is for a veteran to find a lender that 
participates in the VA Loan Guaranty Program?
    Mr. Veissi. It is, in some areas of the country, especially 
where the location is, is a stronger military, has a stronger 
military presence than others, it is probably not quite as 
difficult. Nonetheless, given the standards of VA and the 
foreclosure rate of VA, you would think that there would be a, 
just a tremendous opportunity for lenders to jump into that 
arena. But it is not quite always that way. Part of the reason 
is basically the same thing, there is not a secondary 
marketplace for that VA loan. So that restricts as well the 
opportunities for them to be as much of an advantage in the 
lending process as a nonveteran.
    Ms. Herseth Sandlin. Okay. And then finally, Mr. Barber, 
you state that the certificate of eligibility is confusing for 
both the lender and the veteran. In your opinion, should VA 
update the certificate to state what is acceptable for each 
veteran? Or how can we deal with a situation that may be more 
confusing than necessary for both parties?
    Mr. Barber. It is my understanding from talking with staff 
that the certificate sometimes is different in different places 
and different eligibilities. So it has to do with creating a 
consistent model nationally.
    Ms. Herseth Sandlin. More uniform, okay. Thank you. Mr. 
Boozman.
    Mr. Boozman. Thank you, Madam Chair. Really, to all of the 
panel, the Senate Financial Services Bill contains a retention 
of risk provision. Additionally, Senator Merkley has offered an 
amendment that appears to affect processing of refinanced 
loans. Do you all have a position on either of those 
provisions? And do you believe they will negatively affect VA-
backed loans and VA lenders? And if so, in what ways? And I 
think some of you alluded to that in your testimony.
    Mr. Danis. Yes, sir. I do. The Merkley Amendment, the way 
it will affect VA loans, and I believe negatively it will, it 
has to with the VA interest rate reduction loans. This loan is 
a rate and term refinance, where it allows the veteran to 
either refinance the rate, or the term or a combination. It is 
not a fully documented or a fully underwritten loan as a 
purchase would be. The veteran is not providing income or 
credit documents. And the loan was designed, basically, so that 
a veteran could refinance their mortgage, very quickly take 
advantage of the market conditions, and not have to, not have 
to provide all of that documentation.
    Now VA with an interest reduction loan is not suffering an 
additional risk. You are refinancing the VA to a VA mortgage. 
So they are not suffering any additional risk on that loan. So 
the Merkley Amendment in that respect would make the VA 
interest reduction loan a full qualifying mortgage, whereas 
that was not the intended purpose in the beginning of it.
    Mr. Boozman. This is a program that seems to be working 
pretty well. From your testimony, and then from listening to 
veterans, so many veterans that have been part of the program 
through the years. This seems to be something that does well. 
And then also when you look at the statistics of this program 
versus the others, again, it does indicate, too, that it is 
working well and doing what we want it to do.
    If we made it such that instead of it being a full loan so 
that you can get 100 percent, if it were reduced to 95 percent, 
or 90 percent, or whatever, how would that affect the 
individual's eligibility as far as to be able to participate in 
the program? One of the things that we have is high ownership 
by veterans compared to the general population, low 
foreclosures, and things like that. How would that adjustment, 
how would that impact veterans as far as their ability to 
acquire the loans in the first place?
    Mr. Barber. I will just start by saying it would negatively 
impact them, and some percentage of veterans would not be able 
to make that initial step on the housing ladder.
    Mr. Boozman. A significant percentage?
    Mr. Barber. Some significant percentage, I would suspect.
    Mr. Danis. And----
    Mr. Boozman. Go ahead.
    Mr. Danis. Excuse me. I would say at least 90 percent of 
the loans that I originate are 100 percent loan to value 
mortgages. If the veteran were to, were required to put a down 
payment, I believe that they would not be able to qualify for 
those mortgages. A significant portion of them would not. So 
that would make housing, housing financing a lot more difficult 
for them.
    Mr. Boozman. Would you agree with that also, sir?
    Mr. Veissi. I would, and additionally that is an 
entitlement that those veterans believed they were going to 
have initially when they came back from their tours of duty and 
service. The success of this program is absolutely 
unparalleled. The numbers that you heard are unparalleled even 
in the prime mortgage market. The prime is probably about 
three-quarters of a point higher in foreclosure than the VA 
loan process. Even in the ARM factors, knowing that most vets 
are moved from place to place in a 1- to 3-year period, when 
most of us live in our homes for 11 or 12 years, they need 
those kind of advantages to be able to take an opportunity of 
home ownership in America today. It is just a different kind of 
a, a different kind of a buy-sell relationship.
    Mr. Danis. You know----
    Mr. Boozman. Go ahead, sir.
    Mr. Danis. I also believe because the VA's underwriting 
standards, as conservative and as strict as they have been, and 
I have been underwriting VA loans since 1993, 1996, excuse me, 
since 1996. And over that history, I have not seen changes, 
large changes, or major changes, to the underwriting standards. 
And I believe because of their underwriting standards that a 
down payment would not be required. As you can see in the past 
history and the performances of those loans, which the majority 
are 100 percent mortgages, a down payment is not going to make 
a major change one way or the other. It would just decrease the 
availability of the mortgage for the veteran.
    Mr. Boozman. Good, well I very much agree with you. And I 
just really wanted to get that, you all are our experts in that 
field. I really wanted to get that for the record that you felt 
very strongly. And I can say that in the sense that you do feel 
very strongly, it appears, that that would have a real negative 
impact to the ability of our veterans to use the program. Thank 
you, Madam Chair.
    Ms. Herseth Sandlin. Thank you, Mr. Boozman. Mr. Adler.
    Mr. Adler. Thank you, Madam Chair, and thank you for 
holding this hearing. This actually gives me comfort. This is 
almost a hearing in search of a problem, because this is a 
program that is really working well. So I am reassured by your 
questions, and the good responses by this panel, Mr. Boozman's 
questions and the good responses by this panel, that things are 
going okay here. We have a very low delinquency rate, and it is 
partly for the reasons of that last colloquy, really good 
underwriting, that seems to have worked well. And as the 
realtors make the point, there is an understanding that there 
is going to be no down payment and that has not been 
detrimental as it certainly was with the no doc loans in a 
different context that have, you know, helped drag our economy 
down. This is a program that is really serving us well.
    I am going to direct one of my questions to Mr. Barber, and 
maybe the other panelists, with respect to one tweak in the 
underwriting process regarding 180 days, sort of old documents 
versus 30 days. In testimony you suggested one possible change 
in underwriting might be to have documents be required to be a 
little more current than 180 days. Do you want to comment on 
that at all?
    Mr. Barber. Yes, again it is a consistency issue I am 
hearing regarding some documents required on new construction, 
and creating consistency in the program compared to other non-
VA programs.
    Mr. Adler. From a mortgage bank's perspective, or from a 
realtor's perspective, do you think that would cause any 
serious disruption in what is generally a good program, but 
probably one place where it is sort of irrationally out of line 
with conventional underwriting process?
    Mr. Danis. As far as the 180-day time limit, like Mr. 
Barber said, that applies to new construction. When you get 
into existing homes, those underwriting time frames are less. I 
believe it is 120 days. You know personally, and this is just 
our philosophy, my personal philosophy, our document time 
frames are a lot less, just to make sure that we have the most 
available current information on those veterans.
    Mr. Veissi. I concur.
    Mr. Adler. Thank you. To followup Mr. Boozman's questions 
regarding risk retention, I know the House had some amendment 
in its bill. I think Mr. Minnick and Mr. Miller. The Senate has 
an amendment, and I know Mr. Merkley is talking about something 
on the Senate side. Are there any other things you would 
suggest as a compromise position that would ameliorate the 
anticipated negative consequences of the skin in the game, 5 
percent risk retention? Maintain some of that notion, but not 
go quite as far as you fear?
    Mr. Veissi. You know, one of the things that we probably do 
not recognize has nothing to do with the lend/borrower side. It 
has to do with the military itself. Not only do they have a 
good counseling program for a vet that is going into the 
housing market, but there is another kind of a risk fail safe. 
It could be a renter, it could be a purchaser, anytime that 
that vet is having a problem with their loan, or their rental 
for that matter, that information goes right back to their 
commanding officer (CO). There is a difference in that kind of 
a loan than a loan to you and I. It does not go back to my dad 
or my mom, it goes back to his or her CO. And that is an 
enormous lever when those folks come back and say, ``Hey we 
told you ahead of time, this is what you have to try and 
accomplish.'' So I just think it is a real solid vehicle right 
as it stands right now.
    Mr. Adler. Mr. Danis, I know in your written comments you 
were opposed to any sort of risk retention in this context, 
distinguishing this from other situations perhaps. Is there a 
compromise point that you could see short of maybe farther 
along than the Minnick Amendment, farther along than the 
Landrieu Amendment, that you think would be a compromise point 
that you could tolerate?
    Mr. Danis. To be honest with you, no. And as far as risk 
retention is concerned, we believe that fully documented, fully 
underwritten loans should have a zero risk carve out. The 
reason being, especially on the VA side, with the risk 
retention piece it creates a model where the independent 
mortgage lender, any independent mortgage lender, it becomes 
totally unsustainable. To be blunt, if the bill passes through 
the House and the Senate without a carve out, independent 
mortgage lenders are done. There are no ifs, ands, or buts 
about it, we are done. We would have to shut our doors. So we 
would not be able to serve our communities and we would not be 
able to serve the veterans and the markets that we are in. It 
sounds blunt, but that is the best and clearest way to put it. 
If there is not a carve out for fully qualified loans, whether 
they are VA or any other type of mortgage. FHA, Rural Housing, 
and Fannie, and Freddie, the independent mortgage bankers are 
done.
    Mr. Adler. Bankers have a different view? Same view?
    Mr. Barber. Oh, I think the VA, it should be just carved 
out. And if it is not, in my mind, it is kind of coming in and 
shooting the survivors. Right? The subprime lenders are gone, 
VA survived the process and the downturn very well, and it 
should be carved out. I mean, we have had a tremendous downturn 
and the VA Loan Program, it seems to me, has done very well. No 
reason to shoot the survivors.
    Mr. Adler. Gentlemen, thank you. And Madam Chair, I am 
going to stop as I started. This is a happy situation, and this 
Subcommittee has analyzed a lot of situations where veterans 
are struggling in this segment of society or that. This is one 
of those happy successes where government has worked to honor 
those that have served our country.
    Ms. Herseth Sandlin. Well, thank you, Mr. Adler. Mr. 
Boozman and I feel strongly in light of the fact that the House 
version of the Financial Regulatory Reform Bill does provide a 
carve out for the VA Loan Program, that we will work with you 
and other Members of our Subcommittee to communicate 
effectively to conferees the importance of at least getting 
that carve out, understanding the broader points that Mr. Danis 
is making.
    One final question for each of you, from your perspective, 
do you think the VA, each of you is representing national 
organizations where you have a lot of members who have done 
some very creative, innovative things as it relates to 
marketing products that are good for consumers. In your 
experience, do you think that there is anything more that the 
VA could be doing either for the veterans or the lenders as it 
relates to sort educating potential users of the VA Loan 
Guaranty Program?
    Mr. Veissi. Well, I think one of the things, yes, and I 
think one of the things that we did in conjunction with the VA 
was to produce this toolkit. It is not, it is not the be all, 
end all. But it is an attempt to try and not only educate our 
folks on how to deal with a very unique part of the real estate 
industry and the financing industry, but also to the veteran as 
well. When we stop doing that, we stop doing some of the things 
that we promised that veteran when they entered the service in 
the entitlement program. So I think it behooves us to continue 
to make sure that they understand and know the opportunities 
that exist for them, yes.
    Ms. Herseth Sandlin. All right. Thank you, and I thank you 
for identifying the fact that this could be a partnership with 
other stakeholders and the VA to advance more helpful 
information about the program to the veterans themselves. Any 
other final comments from the panel? Well, I thank you all, 
again, for your testimony, for being with us at this hearing 
today, the recommendations that you have provided, your 
thoughtful responses to our questions. We are going to continue 
to work with you and your organizations to explore some of the 
proposals that you have submitted to the Subcommittee for 
consideration. Thank you very much.
    Mr. Veissi. Thank you.
    Mr. Danis. Thank you.
    Ms. Herseth Sandlin. Joining us on our second panel is Mr. 
Joseph Sharpe, Director of the National Economic Commission for 
the American Legion; Major General David Bockel, Executive 
Director for the Reserve Officers Association (ROA) of the 
United States. General Bockel is also representing the Reserve 
Enlisted Association (REA) today. Also joining us is Mr. 
Timothy Embree, Legislative Associate for the Iraq and 
Afghanistan Veterans of America (IAVA). Gentlemen, welcome to 
the Subcommittee. We will start with Mr. Sharpe, and go ahead 
and begin your testimony. You are recognized for 5 minutes.

    STATEMENTS OF JOSEPH C. SHARPE, JR., DIRECTOR, NATIONAL 
 ECONOMIC COMMISSION, AMERICAN LEGION; MAJOR GENERAL DAVID R. 
   BOCKEL, USA (RET.), EXECUTIVE DIRECTOR, RESERVE OFFICERS 
ASSOCIATION OF THE UNITED STATES, AND ALSO ON BEHALF OF RESERVE 
ENLISTED ASSOCIATION; AND TIM S. EMBREE, LEGISLATIVE ASSOCIATE, 
            IRAQ AND AFGHANISTAN VETERANS OF AMERICA

               STATEMENT OF JOSEPH C. SHARPE, JR.

    Mr. Sharpe. Good afternoon, Chair, and Ranking Member 
Boozman, and Members of the Subcommittee. Thank you for the 
opportunity to present the American Legion's view on the status 
of VA's Loan Guaranty Program. In the last 5 fiscal years, VA 
has assisted more than 947,000 veterans in obtaining home loan 
financing totaling almost $180 billion. In fiscal year 2009, VA 
guaranteed over 325,000 loans, with the average loan being over 
$200,000.
    The American Legion has been very pleased to watch the 
performance of VA loans during the unprecedented downturn in 
the mortgage marketplace over the last 2\1/2\ years. 
Historically, the Mortgage Bankers Association has tracked the 
performance of prime, subprime, Federal Housing Administration, 
and VA loans using its national delinquency survey. The most 
recent available survey is the for the fourth quarter of 2009 
and it shows that serious delinquency rates for those loan 
types is as follows: prime, 7 percent; subprime, over 30 
percent; FHA, about 9 percent; and VA at 5 percent. The data 
clearly shows that VA loans are performing better than all 
other mortgage loan types in the marketplace. This favorable 
performance during a difficult economic period can likely be 
attributed to several factors. One, VA has continued to 
maintain its prudently crafted credit underwriting standards 
while other players in the mortgage industry compromised their 
standards to generate more business. Two, VA selects the 
appraiser that will be used for the VA loan from its list of 
approved appraisers, and does not allow lenders to make the 
selected as is typical in the rest of the mortgage industry. 
Three, VA has always maintained a comprehensive and 
aggressively administered program of assisting veterans who 
encounter trouble making their loan payments. And four, the 
fact that veterans and servicemembers are generally more 
responsible borrowers as a result of the maturity and 
discipline they developed while serving their country.
    However, in 1982 Public Law 97-253 was enacted and imposed 
a half percent funding fee on all veterans using the loan 
program, with the exception of those veterans in receipt of a 
compensation for a service-connected disability. This was 
considered to be a temporary measure to help reduce the 
national debt. Unfortunately, this fee has been a fixture of 
the Home Loan Program, and even more unfortunately it has been 
raised numerous times by Congress since 1982. The American 
Legion strongly urges Congress to consider either eliminating 
this fee or significantly reducing it. Veterans should not have 
to make such a significant financial sacrifice in order to use 
a benefit that they have earned as a result of their service to 
America.
    In addition, the American Legion supports that all spouses 
of deceased veterans gain eligibility for the VA Home Loan 
Program. The current eligibility for a home loan for spouses is 
an unmarried spouse of a veteran who died while in service or 
from a service-connected disability, or are from a spouse of a 
serviceperson missing in action, or a prisoner of war. It is 
unfair for a veteran spouse only to become eligible for a home 
loan if the veterans dies of a service-connected disability.
    Finally, as the mortgage crisis continues to unfold, the VA 
needs to do more to promote their excellent home loan program 
and to encourage veterans facing housing problems to contact 
the VA Financial Counseling Center.
    In conclusion, thank you for the opportunity to submit the 
American Legion's views on the status of the Home Loan Program.
    [The prepared statement of Mr. Sharpe appears on p. 46.]
    Ms. Herseth Sandlin. Thank you, Mr. Sharpe. General Bockel, 
you are recognized.

     STATEMENT OF MAJOR GENERAL DAVID R. BOCKEL, USA (RET.)

    General Bockel. Madam Chairwoman, Ranking Member Boozman, 
Members of the Subcommittee, I am Major General David Bockel. I 
am the Executive Director of the Reserve Officers Association 
and I would like to thank you for the opportunity to testify 
today.
    One advantage of either a Guard or a Reserve veteran is 
that they have dual careers. They bring into the military their 
civilian skills. What the Reserve Officers Association and the 
Reserve Enlisted Association, which represents 66,000 members, 
can bring to this hearing is the perspective of individuals who 
have been in the real estate industry or perhaps in mortgage 
loans as well as the point of view of a veteran.
    Despite the fact that the demand for Veterans Affairs Home 
Loan Guaranty Program has diminished over the last few years, 
it is not because it is a bad product but because there are 
more home loan choices for veterans in the marketplace. The key 
to any economic environment is the fact that this product 
provides veterans a back up plan should their options fall 
through. Some veterans are so content with the program they 
have never sought home financing from any other conventional 
loan source. ROA and REA would like to see changes in the 
funding fees to encourage subsequent use of this VA benefit.
    As some 57 million Americans are eligible for the program, 
if anything it demonstrates that it is underutilized likely 
because most of these veterans are unaware of this program and 
their qualifications. Veterans Affairs is dependent upon the 
real estate and mortgage industry to get the word out. Coming 
myself from the advertising industry, I am personally certain 
that there are means other than having veterans go to the VA 
Web site to get that word out.
    The Reserve Officers Association feels it is important to 
authorize this program beyond 2012 and we are appreciative that 
this Committee is holding a hearing early in the legislative 
cycle to take a look at the program. Of concern to the 
associations is that the National Guard and Reserve members not 
yet mobilized have to pay a VA funding fee that is 25 basis 
points higher than those serving members or veterans who earned 
this benefit on active duty. It is important to remember that 
for nearly 10 years the Guard and Reserve have performed the 
same missions and accepted the same risk as the active-duty 
force, often providing up to 40 percent of those who are 
deployed, and augmenting the active force so that the active 
members can return to their home purchased under the VA Home 
Loan Guaranty Program. While a quarter of a percent seems like 
a small amount, this fee is added to the loan amount and 
continues adding to its expense. On a $417,000 by a Reserve 
component member, the VA funding fee adds over $10,000 to the 
loan amount, which is nearly 12 percent higher than what the 
active duty member pays. Now, some would say that this is a 
small amount of money compared to the total amount of the loan. 
Yet this can affect the dollar level of the mortgage 
qualifications that continues to send out the message that the 
National Guard and Reserve members are second class warriors.
    As a number of selected Reservists are also full time 
Active Guard and Reserve, or AGR, personnel, I would like to 
finish my testimony by talking about how the VA Home Loan 
Program needs to be more flexible for those members serving on 
active duty in that capacity. Losing access to the guaranty is 
a problem for active Guard and Reserve members who purchase a 
home using the VA Loan Program, but upon transfer to a new 
station are unable to sell the first house. They lose their 
eligibility for a new VA loan until the first property is sold. 
Should they decide to rent it in order to keep their home for a 
later tour or retirement, there can be challenges from the VA 
about renting the property if the transfer occurs too soon 
after the initial purchase.
    Lastly, VA will only allow spouses to occupy a newly 
purchased house if a servicemember is deployed. ROA and REA 
hope this might be expanded to include parents or siblings, as 
some overseas members would like to own homes during their 
deployment but they are precluded if they are not married.
    Again, I thank the Subcommittee for this opportunity to 
testify and stand by for your questions.
    [The prepared statement of General Bockel appears on p. 
48.]
    Ms. Herseth Sandlin. Thank you very much, General Bockel. 
Mr. Embree, welcome back to the Subcommittee. You are 
recognized.

                   STATEMENT OF TIM S. EMBREE

    Mr. Embree. Thank you, ma'am. Madam Chairwoman, Ranking 
Member, and Members of the Subcommittee, on behalf of Iraq and 
Afghanistan Veterans of America's 180,000 members and 
supporters, I would like to thank you for inviting IAVA to 
testify today. My name is Tim Embree. I am from St. Louis, 
Missouri, and I served two tours in Iraq with the United States 
Marine Corps Reserve. Veterans housing and homeownership is a 
critical issue facing Iraq and Afghanistan veterans and IAVA 
welcomes the opportunity to discuss the VA Loan Guaranty 
Program with you today.
    Due to the current housing crisis, we are beginning to see 
some of the shortfalls of the VA Loan Guaranty Program. This 
popular benefit is well administered, and since 1944 the VA has 
made 18 million homes affordable for troops and veterans by 
acting as a guarantor of the mortgage loans. Tragically, during 
the peak of the housing bubble the number of new VA loans 
declined as the marketing of subprime mortgages seemed to have 
drawn troops and veterans away from the VA Home Loan Program. 
In early 2008, foreclosure rates in military towns were 
increasing at four times the national average. The net effect 
of the widespread, targeted advertising of subprime loans, and 
the deterrence of limits and fees of the VA loans is that 
veterans who might have qualified for VA-backed mortgages are 
now struggling with a subprime mortgage at high risk of 
foreclosure. This is especially unfortunate given that VA-
backed home loans protect the veteran borrower from many of the 
risks associated with the mortgage offered to subprime 
borrowers.
    As the mortgage crisis has expanded, one positive is that 
the popularity of the VA Home Loans Program has increased. The 
renewed interest in VA loans is good news. Veterans are better 
served by VA loans and we have earned our benefit. But there is 
much more to be done to help servicemembers and veterans to get 
the full benefit of the VA Loan Program.
    Congress has already taken some action to improve the 
resources to troops and veterans facing mortgage problems. The 
Housing and Economic Recovery Act of 2008 raised the loan 
ceiling for VA home loans in some areas and gave servicemembers 
9 months of protection from foreclosure after returning from a 
deployment. In addition, VA authority to refinance loans has 
been expanded. But there remains serious concerns about the 
structural limitations of the VA refinancing program and a lack 
of outreach to veterans regarding VA financial counseling.
    The VA Home Loan Guaranty helps thousands of our Nation's 
veterans realize the dream of homeownership each year, but we 
must keep this program secure and ensure that it continues to 
meet the future needs of servicemembers, veterans, and their 
families. Veterans have earned their GI Bill benefits and are 
using this benefit to increase their value to the civilian 
workforce. Currently the money they receive from the VA 
benefits is not taken into consideration when they apply for a 
VA home loan. Without the benefit income on their application, 
veterans can look like an inferior loan candidate. Student 
veterans should not have to choose between taking advantage of 
the new GI Bill Benefit and buying a home.
    Purchasing your first home is not like buying a television. 
There are many steps and hidden costs that can catch the 
potential homebuyer unaware. If we have learned anything from 
the recent housing crisis, it is the importance of the well 
informed homebuyer. The VA Loan Guaranty Program is one of the 
best deals out there, but it is still a complicated process. 
The VA should implement local home purchasing workshops to 
prepare veterans for the complicated process of purchasing a 
home as well as to promote the benefits of the VA Loan Guaranty 
Program. These workshops should be held at local Vet Centers. 
These are welcoming facilities where veterans and their 
families can learn about the many different programs available 
to them as well as meet fellow veterans facing similar 
situations.
    Due to the current financial crisis, interest rates across 
the board have remained low. The limited number of VA-approved 
lenders makes it nearly impossible for a veteran to shop around 
for a better interest rate for a VA loan. This noncompetitive 
environment puts veterans at a great disadvantage. While 
interest rates are artificially low we must encourage more 
lending institutions to take part in this program. Many lenders 
are leery of the process to become an approved VA lender due to 
ignorance of the program and ignorance of the ease of the 
process to become an approved VA lender. The VA must 
aggressively market this program to more lenders across the 
country.
    Although 90 percent of current VA-backed home loans were 
given without a down payment, the VA program has seen 
relatively few foreclosures compared with non-VA lenders 
nationwide. As lenders are becoming more risk averse the VA 
must preach to mortgage lenders the inviolability of the VA 
Loan Guaranty Program.
    Our veterans have earned the VA Home Loan benefit and 
thousands of these veterans are ready to purchase their first 
home. We must update and streamline this phenomenal benefit to 
ensure today's and tomorrow's veterans will be able to purchase 
their own home.
    Thank you for your time today and I look forward to 
answering any questions you may have.
    [The prepared statement of Mr. Embree appears on p. 51.]
    Ms. Herseth Sandlin. Well, thank you all for your 
thoughtful testimony. Let me just pose a question to you that I 
posed to the last panel. I think General Bockel you had 
mentioned you had been in the advertising business, and Mr. 
Embree you indicated the for lack of competitiveness when we do 
not have enough lenders participating. Do you have some ideas 
you prepared the Subcommittee today, or could followup on some 
of what might work effectively for the VA to more effectively 
market this program? I think, as Mr. Adler had mentioned and 
the conversation I was having with Mr. Boozman. I mean if it 
has been underutilized but yet its record is strong as it 
relates to what happened here, within the last 2 years, with 
the housing bubble and sort of the subprime lending. We did not 
have the same kind of problems. Mr. Veissi testified that that 
this program and the borrowers within this program fared better 
than even some of the prime borrowing that was going on. Any 
ideas that you can share with us today on how we might be able 
to market this more effectively, and have more lenders, more 
veterans participating? Particularly some of our National Guard 
and Reservists, if we can level the playing field, General, as 
you indicated?
    General Bockel. Well I would like to say if we had an 
advertising campaign that would probably solve all of our 
problems. Unfortunately, we are dealing with such a small 
segment of the population, probably the best thing that could 
happen is if Department of Veterans Affairs and Department of 
Defense (DoD) were to collaborate to get it down through 
command channels to the serving soldier at the lowest level 
what the advantages are of all of the Veterans Affairs benefits 
to them, not just the Home Loan Guaranties, but GI Bill, and 
other things. I think that is, that really is the best way to 
do it, through counseling and through the command channels.
    Mr. Embree. Yes, ma'am. I think just off the top of my 
head, the first two things I would really like to see to help 
get this program out there, one is to engage the veterans 
service organization (VSO) community actively. If you look at 
the military coalition itself, of all the members, every one of 
our organizations has a very active Web presence. So something 
as simple as reaching out to the veterans service 
organizations, asking them to put some sort of line, or widget, 
or button on their Web sites. Because what happens is, our 
members are the veterans that need this information. These are 
folks that are very active in the community that want to learn 
this kind of stuff. So just one, engaging the veterans service 
organizations. And two, using the Vet Centers. We have seen 
recently that Vet Centers are becoming kind of the go to shop 
for a lot of different things that the current veterans, or new 
veterans are dealing with currently. And it is not just the 
veterans that are using it now, we are seeing some of their 
spouses are actually attending the Vet Centers. So it is a 
really great opportunity to get information in front of not 
just the individual veteran, but their spouses as well.
    Mr. Sharpe. Well we have always been concerned with the 
lack of a comprehensive Transition Assistance Program (TAP) for 
the Reserves and National Guard, that that is still not 
happening and once that takes place I think that will alleviate 
some of those problems.
    Ms. Herseth Sandlin. Thank you, Mr. Sharpe. I was just 
asking counsel for existing TAP programs. Do you know how 
aggressive the information is being shared? Again, a point, a 
source point for people making the transition about all of the 
VA benefits. Mr. Boozman and I have long shared the concern 
about the number of active duty and National Guard and 
Reservists who are not going through TAP. I think that goes to 
the DoD, VA, the U.S. Department of Labor (DOL), collaboration 
making all agencies involved in getting accurate information 
for spouses to participate in those programs. I also think Mr. 
Embree you make a very good point in terms of all the potential 
partners that VA has out there to share information about the 
program with the VSO community as well as with the Vet Centers. 
I thank you for your responses there.
    General Bockel, you had mentioned the issue of the funding 
fees being 25 basis points higher for National Guard and 
Reservists. Do you know if there has been an historic 
justification for this differential in terms of how the fees 
are calculated?
    General Bockel. I am not aware of why that number is 25 
basis points higher than a serving member. I will say this, at 
the rate that Guard and Reserve people are mobilized eventually 
it will not mean that, be that big of a deal. But we do have a 
significant number who will have to pay that 25 basis point 
penalty for being a drilling Reservist as opposed to an active 
component.
    Ms. Herseth Sandlin. All right. Well, we will pursue that 
further. I think in light of a lot of what has been happening 
in the last decade we need to always look for other 
opportunities, as we have done with other benefits, including 
educational benefits and others, to again address some of these 
inequities that have sort of gone either unnoticed or 
unaddressed for a period of time.
    Mr. Sharpe, have you heard of veterans having any problems 
with unscrupulous refinancing firms?
    Mr. Sharpe. Well, we have received a number of complaints 
from Reservists, active duty and veterans, who are currently in 
foreclosure. And they have asked for assistance. And what we 
have done is to refer them to the VA, because it is our 
understanding not only does VA intervene for those 
servicemembers that have loans with them but they will also act 
on behalf of those that do not. And again, a lot of that, from 
what we have been told, is based on the fact that many of them 
have caught up in these subprime loans and the ads are 
supposedly very slick, and have been able to get a lot of 
veterans in trouble.
    Ms. Herseth Sandlin. In addition to when you hear of a 
concern from one of your members, or others, that are brought 
to your attention, of veterans that are experiencing potential 
foreclosure, and need refinancing. This is a question to all of 
you, do you think the VA is doing enough on its own proactively 
to identify and help veterans at risk of becoming delinquent to 
be able to refinance their home loans?
    Mr. Sharpe. I have been surprised how active the VA has 
been. I knew that they intervened for those that had VA loans, 
but I was not aware that they also assisted veterans who were 
having problems that did not have a home loan with them. And 
they have been very responsive. And I have not heard any 
follow-up complaints from veterans that have used them.
    Ms. Herseth Sandlin. Okay. General Bockel.
    General Bockel. The only thing I would say is that if I 
were a lender who had to choose between a veteran as a first 
time buyer, maybe not even a first time buyer, based on the 
delinquency numbers, I would go with that veteran before I 
would go to somebody who might fall into a subprime category.
    Ms. Herseth Sandlin. Okay. Thank you. Mr. Embree.
    Mr. Embree. From hearing from our membership, we have had 
kind of anecdotal evidence of folks that are struggling through 
these programs. But my understanding is our membership does 
divert these folks over to the VA for the VA counseling because 
it is a very robust program.
    Ms. Herseth Sandlin. Very good. Final question, Mr. Embree, 
should veterans and servicemembers negotiate their own fees 
with the sellers instead of the VA requiring certain fees to be 
paid? This relates to some of the points that were made by 
members of the first panel.
    Mr. Embree. I would actually like to look into that a 
little further for you, and if I can submit an answer to you at 
a later time?
    [Mr. Embree provided the response in the Post-Hearing 
Questions and Responses for the Record, which appear on p. 64.]
    Ms. Herseth Sandlin. Certainly. Thank you. Mr. Boozman.
    Mr. Boozman. Thank you, Madam Chair. Mr. Embree, what is 
the source of your statement regarding the foreclosure rates in 
military towns? In your opinion, what is the primary reason for 
the high foreclosure rates?
    Mr. Embree. Well sir, actually----
    Mr. Boozman. Do you remember where you got it from?
    Mr. Embree. Actually, yes sir. I actually got that from our 
report that we wrote recently, in 2009, on veterans coming 
home. We handled homelessness as well as homeownership. There 
is a lot of different anecdotal evidence of why those 
foreclosure rates were so high at the peak. Some of it has been 
explained to be from the, not predatory lending, but because 
the subprime mortgage programs were targeted towards military 
families very often in a lot of these small town environments.
    Mr. Boozman. Mr. Sharpe, your suggestion about a limited 
authority to test market new loan guaranties is interesting. 
What types of products or services are you thinking about?
    Mr. Sharpe. It was an overall recommendation from some of 
our membership that really admire the Home Loan Program. They 
do not want to see the VA tamper with it in any way, and they 
are more concerned with trying to keep the program as it is. 
And if there were any new changes that could be made they would 
like to really keep it limited in nature and have it really 
vented and have Congressional oversight.
    Mr. Boozman. Okay, very good. Thank you, Madam Chair.
    Ms. Herseth Sandlin. Thank you, Mr. Boozman. Again I want 
to thank our witnesses on the second panel. We appreciate the 
service you provide to the members of your organizations, your 
continued service to our Nation's veterans, again, the insight 
you have been able to provide us as it relates to the dynamics 
of the housing market and their impact on your members, and 
your legislative proposals. So again, as with the first panel, 
we will look forward to working with you as we move forward and 
looking at acting on some of the proposals made at the 
Subcommittee hearing today and enhancing the current housing 
benefits that have worked well for our Nation's veterans. So 
thank you very much for joining us today.
    I would now like to invite the third panel to the witness 
table. And as our witnesses come up we are just going to take a 
short one or 2-minute recess.
    [Recess.]
    Ms. Herseth Sandlin. Okay, I appreciate the indulgence of a 
little time between panels. Joining us on our third panel is 
Mr. Thomas Pamperin, Associate Deputy Under Secretary for 
Policy and Program Management, Veterans Benefits 
Administration, U.S. Department of Veterans Affairs. He is 
accompanied by Mr. Mike Frueh, Assistant Director for Loan 
Management, Loan Guaranty Service, Veterans Benefits 
Administration, U.S. Department of Veterans Affairs. So Mr. 
Pamperin, welcome to the Subcommittee. Thank you for being 
here. You are now recognized.

    STATEMENT OF THOMAS J. PAMPERIN, ASSOCIATE DEPUTY UNDER 
SECRETARY FOR POLICY AND PROGRAM MANAGEMENT, VETERANS BENEFITS 
     ADMINISTRATION, U.S. DEPARTMENT OF VETERANS AFFAIRS; 
ACCOMPANIED BY MIKE FRUEH, ASSISTANT DIRECTOR, LOAN MANAGEMENT, 
 LOAN GUARANTY SERVICE, VETERANS BENEFITS ADMINISTRATION, U.S. 
                 DEPARTMENT OF VETERANS AFFAIRS

    Mr. Pamperin. Thank you, Madam Chairman. Madam Chairman, 
Ranking Member Boozman, and Members of the Subcommittee, I 
appreciate the opportunity to appear here before you today to 
discuss the VA's Home Loan Guaranty Program.
    The VA Home Loan Guaranty Program provides an important 
benefit to our veterans and eligible servicepersons. Since the 
crisis in the subprime mortgage markets became evident in the 
summer of 2008, the VA Home Loan Guaranty Program has been a 
model of stability, helping veterans and servicemembers 
continue to realize the dream of homeownership. Since the start 
of the subprime crisis the number of home loans issued by the 
VA Guaranty has actually increased dramatically. This increase 
has been attributed to three factors. First, other forms of 
mortgage financing are presently more difficult to obtain. 
Second, interest rates are at historic lows. And third, changes 
to the VA Home Loan Program enacted in 2008 increased the 
maximum guaranty amount available to individuals purchasing 
homes in high cost areas.
    In 2009, VA guaranteed 335,000 loans, an 82 percent 
increase over 2008. While VA has seen an increase in both 
purchase and refinance loans since 2008, it has been primarily 
the increase in refinance loans that have driven the loan 
volume during this period. From 2008 to 2009, refinance loan 
volume increased 288 percent.
    The continued stability of the VA Home Loan Guaranty 
Program can be attributed to several factors. First, VA's 
adherence to sound credit and underwriting principles 
prohibited the program from engaging in risky or subprime 
lending practices. Second, our strong lender oversight ensured 
that VA's mortgage industry partners complied with these 
policies. Additionally, VA's panel of fee appraisers, who are 
assigned on a rotational basis and monitored by VA, ensures 
that home values are reasonable in light of market conditions. 
VA also attributes the strength of the program to the strong 
sense of commitment that veterans and servicemembers 
demonstrate with regard to their financial obligations. And 
finally, VA has a robust default servicing program to oversee 
loan servicing efforts by private mortgage servicers, and when 
appropriate directly assist veterans and servicepersons in 
avoiding foreclosure. The servicing programs ensure that every 
effort is made to keep veterans and servicemembers in their 
homes while limiting adverse impacts when home retention is not 
possible.
    Although foreclosures of VA loans have increased as a 
result of the poor economy, VA and its private partners have 
worked hard to ensure foreclosure as truly a last resort. Since 
early in the financial crisis, VA's seriously delinquency and 
foreclosure rate have remained the lowest of all mortgage types 
in the industry. According to the most recent data from the 
Mortgage Bankers Association National Delinquency Survey, the 
percent of outstanding VA loans that are considered seriously 
delinquent was 5.29 percent. The percent of outstanding VA 
loans that were in the foreclosure process was 2.63 percent. 
These figures compare favorably to the rates for even prime 
loans, which are 7.8 percent and 3.41 percent, respectively.
    MBA data also illustrates that despite greater difficulties 
that many borrowers are experiencing in making mortgage 
payments, VA borrowers are more likely to reach a positive 
outcome. Although our total default rate, those loans 30 days 
or more delinquent excluding those in the process of 
foreclosure, has actually been slightly higher than the rate 
for prime loans, VA leads the field with the lowest number of 
seriously delinquent loans and foreclosures. This is due to 
VA's robust servicing, which has been very successful in 
helping veterans and servicemembers emerge from the default 
despite the state of the economy and turbulent market.
    Although VA's loan volume has increased and our overall 
default and foreclosure situations compare favorably to others 
in the marketplace since the onset of the financial crisis, 
veterans and servicemembers have been impacted by the overall 
shortage of credit in the marketplace. Potential homebuyers 
have broadly faced stricter requirements for obtaining loans as 
more mortgage investors hedge against losses by establishing 
minimum credit scores for borrowers and by requirement of 
larger down payments. VA does not have the authority to 
prohibit lenders from imposing this extra layer of 
requirements. But additional lender requirements may make it 
more difficult for veterans and servicepersons to obtain homes.
    The VA Home Loan Program provides a valuable benefit to 
veterans and servicemembers who want to obtain, retain, or 
adapt a home. We look forward to working with the Congress and 
our private sector partners to continue and improve our 
program.
    Madam Chairman, this concludes my testimony and I 
appreciate the opportunity to be here today and look forward to 
your questions.
    [The prepared statement of Mr. Pamperin appears on p. 65.]
    Ms. Herseth Sandlin. Thank you, Mr. Pamperin. Well, let me 
first commend you, Mr. Frueh, and others of your team. Given 
the testimony of the prior panels, I think it is quite clear 
the good work that is being done to assist veterans with a 
program that is working quite effectively in meeting the needs 
in this downturn and all of the various economic pressures that 
are being placed on our veterans today and other families. I 
sensed from the witnesses in the second panel that they are 
feeling that the members that they are sending your way that 
are in trouble, underwater, need refinancing, that they are 
getting the attention and looking at their options through all 
of you and your office. I just want to focus my questions on a 
few of the other proposals, or some of the concerns that we are 
hearing about, again, just to make this work as effectively as 
possible. That is a concern that we have heard, that 
information about the program is difficult to find. That each 
region's Web portal is different, and the Web site suffers from 
frequent outages. I am interested to know if you have heard of 
these issues. Is the VA considering any steps to address some 
of these concerns? Any thoughts you have on the suggestions 
made by the prior panel with regard to reaching out to the VSO 
community, working to make sure information is readily 
available through the Vet Centers, you know, other information 
points where veterans can get more information on the program 
as well as encouraging more lenders to participate?
    Mr. Pamperin. Ma'am, I will defer to Mike on the portal 
issue. But I will tell you that VA stood up a Benefits 
Assistance Service at the beginning of this month in VBA whose 
primary focus is on not only general outreach but focused 
outreach on specific demographics, on specific topics. And that 
they are also the people who are directly charged with 
oversight and ensuring that we are responsive with regard to 
our phone centers, and with regard to Twitter, and Facebook, 
and other social media. Mike, do you----
    Mr. Frueh. In regards to the Web site, I understand that 
there have been some outages in the last few months, and 
certainly over time before that there has been periods where 
the main VA or VBA Loan Guaranty portal has been down, where 
lenders communicate with VA, and different people come in to 
see it. We certainly take it seriously. We have it hosted at a 
VA site that is not under our control, under the VA auspices. 
So, but they are putting resources on it to address the up 
time, to make sure it is up when people need it to be up.
    One thing that we did do several years ago to ensure 
consistency across all of the regional loan centers, and the 
offices in stations like Honolulu that administer the Loan 
Guaranty benefit, is to try to focus on principles that every 
single station can apply to veterans consistency. So any 
veteran no matter where they live will have the same 
opportunity to retain their home no matter who they talk to at 
VA. Because I know in the past there were several hundred 
people in my organization in servicing that work in these 
different loan centers. We wanted to make sure that they gave a 
consistent response to the servicers who had the relationship 
with the veterans, and maintain consistency with the veterans 
who call them directly. So we did generate a single toll free 
number for any veteran, whether they have a VA home loan or a 
non-VA home loan to call, so they can reach the nearest person 
in a VA regional loan center who is trained to talk to anyone 
no matter whether they are handling the case or another VA 
technician in another station is handling the case. They can 
access all of the information through the technology we have to 
hopefully provide the same solution to them.
    So we are taking consistency very seriously. We do interact 
with VSOs on a national level. Our Acting Director, Grace 
Cooper, and I met with VSOs in central office last week to talk 
about what we do. We certainly enlist their help in spreading 
the word to all the different aspects, the Reservists, and the 
people who go to only their American Legion representative. And 
I know that happens at the stations as well.
    Ms. Herseth Sandlin. Okay. So tell me a little bit more 
about the Benefits Assistance Service that was stood up this 
month. I mean, is that intended then through outreach to pursue 
even more aggressively some of the ideas that have been shared 
here today? Again, either sharing information to get more 
lenders to participate, to engage, further engage the VSO 
community on a more active basis? If outreach is sort of the 
key objective for standing up this service.
    Mr. Pamperin. A core function of the Benefits Assistance 
Service is service organizations, and veterans, and the 
military. In terms of commercial partners, I believe that it 
would be more appropriate for the technical experts in Loan 
Guaranty to deal with those people.
    Ms. Herseth Sandlin. Let us talk about the approval of the 
condominium loan. We are hearing some of the written testimony 
suggests that the approval for a loan for condominiums is more 
difficult. Have you heard of that concern? Is there any effort 
to review the process to see if we can find some consistency, 
or streamline, or address that concern?
    Mr. Frueh. I have not heard, other than the testimony 
today, of an issue with approval of condominium loans. For a 
veteran who is using their Home Loan Guaranty benefit to 
purchase a condo, it only has to belong in a condo that has 
general approval through FHA and VA. And we are fairly much in 
lock step with them, and there is not a lot of unapproved 
developments. Unless there is something structurally unsafe 
with the development in which many lenders would be on a 
disapprove list to lend for that particular development. So if 
we could get particulars we could take that for the record.
    Ms. Herseth Sandlin. Just two final questions. Has the VA 
considered changes to the VA qualification from net income to 
gross income?
    Mr. Frueh. No, we have not made considerations to that 
aspect of that underwriting.
    Ms. Herseth Sandlin. How about eliminating original 
signatures on certain loan documentation, with the exception of 
the legal closing documents, to speed up the process?
    Mr. Frueh. We are generally in agreement with the industry 
in adopting practices as they become standard in the industry, 
to the extent that it is legally permissible.
    Ms. Herseth Sandlin. So you are open to some of the 
recommendations of the testimony in the first panel as it 
relates to making sure that you are on pace with adopting 
industry standards?
    Mr. Frueh. I think I would say we are open to 
recommendations that improve our processes and certainly make 
the experience better for the veteran.
    Mr. Pamperin. But at the same time, exercising our 
fiduciary responsibility both to the veteran and to the 
taxpayer that we guarantee sound loans that have a high 
probability of being repaid.
    Ms. Herseth Sandlin. Certainly. But if we are moving to a 
process whereby because of all of the documents that are 
required given regulations over time in this process, sometimes 
that can slow things up. And so if we are looking at legal and 
other liability issues, but as long as there are signatures on 
the closing documents, in addition to what you just described 
Mr. Pamperin, I mean, you are open, you do not foresee that you 
would ever sort of put up any barrier to particular 
recommendations that are industry standards given the ongoing 
discussions that are going on? Or the ongoing developments 
within the mortgage lending industry?
    Mr. Frueh. Let me give you an example. One aspect of our 
business is handling REO properties. An REO property is from a 
servicer who eventually forecloses on a loan and VA takes 
possession of the property. We used to send volumes of paper 
across the country to various custodians who control documents. 
We pull recorded notes from county recorders and send it 
somewhere else, and VA counsel will look at that, and send it 
to third counsel. And you have a lot of money and a lot of 
documents. And we have moved that to an entirely electronic 
process. As long as it is legally permissible as a valid and 
executed document, I think that we are open to adopting it as a 
practice. Because it will save the taxpayer money while not 
adding additional risk to the veteran.
    Ms. Herseth Sandlin. Okay. Mr. Boozman.
    Mr. Boozman. Thank you, Madam Chair. The House version of 
the Financial Service Reform Bill exempts VA guaranteed home 
loans from provisions that require loan originators or sellers 
of mortgage-based securities to assume risk retention. The 
Senate version exempts certain organizations but not VA. Based 
solely on the risk retention provisions, which one do you all 
prefer? In other words, are you for the risk retention language 
or not? Or----
    Mr. Pamperin. I think that the President and the 
administration believe that certain financial reforms are 
essential. We can work with either one. To the extent that VA 
is not exempted, in our view the serviceperson or veteran would 
not be disadvantaged in that they would be having the same 
standard as every other borrower. But we would ask to be able 
to clarify that more in response.
    Mr. Boozman. I guess I would say these are earned benefits. 
It does not really have anything to do with every other 
borrower.
    Mr. Pamperin. Yes, sir, understood.
    Mr. Boozman. So----
    Mr. Pamperin. We will provide additional information.
    Mr. Boozman. We have heard concern that this would 
adversely affect the veteran and the lenders. So again, so your 
position right now is that you do not know? Or----
    Mr. Pamperin. Yes, sir. What we would like to do is we 
would like to provide additional comment.
    Mr. Boozman. Okay. The Merkley Amendment--when do you think 
you could provide that to us? We really would like for you to 
go on the record. I think that is important.
    Mr. Pamperin. Absolutely. Would, by the end of the month? 
Or does it have to be faster than that?
    Mr. Boozman. No, I mean, you know, that is, you all need to 
get it done as quickly as you can. I mean, that is----
    Mr. Pamperin. Okay, sir.
    Mr. Boozman. That is up to you guys. But I do think it is 
important that you give us some direction----
    Mr. Pamperin. Okay.
    Mr. Boozman [continuing]. As to what you are thinking in 
that regard. I have some real concerns because there seems to 
be concern in the lending community and the veteran community 
that this could adversely affect. And then again, that gives 
us, well like I say, I have real concerns.
    The Merkley Amendment to the Senate Financial Services 
appears to require VA to revise its underwriting procedures for 
interest rate reduction loans. Those loans currently do not 
require a complete credit review. What is your position on the 
Merkley Amendment?
    Mr. Pamperin. Sir, a refinance to a lower monthly payment 
seems to me to be even less risk than the risk that we had 
before. If we had adequate justification to make the initial 
loan we do not see what is to be gained by requiring a complete 
underwriting of an even lower monthly payment.
    [The VA subsequently provided the following information:]

          The Dodd-Frank Wall Street Reform and Consumer Protection 
        Act, Public Law 111-203, was enacted on July 21, 2010. VA did 
        not issue a formal position on any version of the legislation 
        while the Congress was considering such proposals. However, VA 
        did provide technical assistance with staff of the relevant 
        Committees, with the goal to ensure that there were no 
        unintended consequences from the law that could lessen the 
        benefit to Veterans of VA's Loan Guaranty Program. VA 
        accomplished that goal.

    Mr. Boozman. Okay, good. Thank you very much. In regard to 
the other two, you said that you understood that we needed 
reform based on what was going on. But certainly, the VA 
program has nothing to do with the situation that went on.
    Mr. Pamperin. Absolutely, sir. I completely understand the 
point of view, and America's veterans and servicepersons have 
requited themselves well in this financial crisis.
    Mr. Boozman. There was other testimony about the zero down 
versus having them put some down. Do you all, have you all 
thought about that? I mean, is that something that you could 
give us some direction on? Again, this is something that there 
appears to be real concern in the sense that with that then our 
other panel seemed to indicate that that would preclude a lot 
of veterans from participating.
    Mr. Pamperin. Well over 90 percent of our loans are zero 
down. And I would just have two observations. One is, what 
exactly is the problem that people are trying to solve? It has 
worked well with zero down. And as I understand it, some 
studies that have been done show that veterans who get zero 
down loans have less than $5,000 in liquid cash. And if you 
were to require them to put that down when in fact they are not 
going to lose their house, then what fallback do they have if 
their furnace goes out, or they need a hot water heater, or 
things like that? It seems to me it is more prudent to allow 
the borrower to have some ready cash for those kinds of things 
that inevitably come up when you buy a house.
    Mr. Boozman. No, I think you make a very good point. Well, 
thank you. And again, do not misunderstand. As we have talked 
about earlier, this is a program I think that is a very good 
program. And it is being managed very well. And it is something 
that VA can be very proud of, and has had a very significant 
positive impact on so many veterans for so many years. So we do 
appreciate your hard work, and thank you Madam Chair.
    Ms. Herseth Sandlin. Yes, and I appreciate, you know, the 
very thoughtful response to the last question from the Ranking 
Member, Mr. Pamperin. I just have a couple of other followups. 
You know, I think what we are trying to do here is recognize 
the strengths of this program, protect the program from some of 
the pressures coming to bear based on some of what was 
happening outside of the parameters of this program, but also 
make it work as effectively as we know it can for more veterans 
with maintaining, you know, the conservative underwriting 
standards. Sort of, again, retaining the strengths of the 
program but looking at some modifications just that could make 
it work for more veterans and not put it in any way the risk, 
the program, the way we saw in some other contexts outside of 
the VA. So let me just, a couple of quick followups, when I had 
asked about whether or not the VA had considered any changes to 
VA qualification from net income to gross income, and Mr. Frueh 
said no you had not, does that mean you have not considered 
that question at all? Or you have but you are not going to make 
the change because of certain ramifications that you have 
evaluated?
    Mr. Frueh. I am not aware that we have discussed that 
change at all. Because, again, net versus gross, you are still 
going to compare the outlay that comes out of it. So if you do, 
like, the Treasury's affordable modification program, you are 
taking gross income to get a percentage of affordable payment. 
If you get someone's net income you take it by a factor to get 
their gross income. I think that the change has never been 
discussed.
    Ms. Herseth Sandlin. Okay. I understand the VA has not 
updated its residual income table since 1997 because the VA 
Home Loan Guaranty Program requires that the veteran meet 
residual income. Is there any plan to update this?
    Mr. Frueh. That gets continuous discussion within VA, 
updating the tables. And one of the thoughts around it are if 
we update the tables it is likely that we are going to require 
more income because of inflation in the last 13 years for 
someone to qualify for a loan. You know, our results have been 
very, very good. And we always point to the ability to get a 
lot of veterans in who can afford the payments based on our 
qualifications. And our foreclosure results show that we pick 
good people. We have criteria that allows them to be successful 
in their mortgage. If we were to update it one of our concerns 
is it may become more restrictive. It may become larger, and 
you have to have more income left over at the end of every 
month, and that may preclude some people from coming.
    Ms. Herseth Sandlin. Okay. I appreciate that response. If 
it remains a topic of continuous discussion, we may want to 
revisit with you and have our Committee staff followup in a 
little bit more detail, you know, as it relates to your 
evaluation about the potential restrictions that that might 
bring to bear.
    [The VA subsequently provided the following information:]

          VA uses a debt-to-income ratio and a balance available for 
        family support (aka ``residual income'') approach to evaluate 
        borrowers. Residual income is defined as the amount remaining 
        after deducting debts, obligations and monthly shelter expenses 
        from the borrower's gross monthly income. This amount then 
        reflects the amount remaining to cover family living expenses 
        such as food, transportation, health care, clothing, and other 
        living expenses. The numbers shown in the VA Lender's Handbook 
        and VA regulations are derived from data on consumer 
        expenditures supplied in the Bureau of Labor Statistics (BLS) 
        Consumer Expenditures Survey (CES). VA's residual income 
        figures are organized according to loan size, family size and 
        mirror the CES designations for `region' of the country.
          VA continually evaluates its residual income tables in light 
        of events in the financial markets and overall economy, and the 
        impacts they continue to have on borrower financial health, 
        consumer spending, and on consumer debt. At this time, however, 
        VA does not intend to increase residual income requirements. 
        Current residual income levels allow qualified veterans to 
        obtain VA-guaranteed home loans. These VA loans continue to 
        out-perform even prime loan products in terms of delinquency 
        and foreclosure rates.

    Then a final question for either of you. Based on General 
Bockel's testimony, are either of you aware of any historical 
justification for requiring a 25 basis points higher for 
calculation of fees for National Guard and Reservists?
    Mr. Pamperin. I will defer to Mike as to any historical 
justification. I would merely point out that his statement was 
correct. The law has it scheduled to revert to a much lower 
level next year, but I suspect that that will not be, that will 
be changed. While I also have active duty, I am in fact a 
retired Reservist, I find it troublesome that Reservists would 
have to pay more.
    Mr. Frueh. And although there may be a historical reason 
for it, I am not aware of why they are different.
    Ms. Herseth Sandlin. Well again, and again counsel and I 
were discussing it. You know, because of the combat tempo, a 
lot of our National Guard and Reservists now can, without that 
additional basis points, access the program. We also know that 
we have a number of folks who either have not yet been or will 
not be activated. I think it would be important to evaluate a 
change that appears to me to be one that we could reasonably 
make.
    Mr. Pamperin. We can go back and look at when that was 
introduced and what the basis of that was.
    Ms. Herseth Sandlin. I would appreciate the additional 
information. Well, we thank you both--Mr. Boozman, any final 
questions? For your testimony. We appreciate your work with 
VBA, your dedication to our Nation's veterans. We value your 
expertise on today's topic.
    [The VA subsequently provided the following information:]

          Public Law 102-547 established home loan requirements for 
        members of the Reserves and National Guard. VA researched our 
        historical documents, as well as Congressional committee notes 
        related to the passage of the law, and did not find any 
        information on the rationale behind the disparate funding fee 
        rates.
          Since the funding fee rates are codified in the law, VA can 
        only provide a theory as to why Congress included a higher rate 
        for Reservists and National Guard members. In 1992, when the 
        law was passed, there may have been some resistance to provide 
        equal rates because Reservists and National Guard members were 
        typically required to participate in only one weekend drill a 
        month and serve two weeks of active duty each year, unlike 
        active duty servicemembers who serve daily. This difference in 
        service has been negated by the wars in Iraq and Afghanistan 
        and it should be noted that Reservists and National Guard 
        members who are mobilized to active duty under Title 10, USC, 
        and who serve at least 90 days, are generally eligible for the 
        lower funding fee (2.15 percent versus 2.4 percent for first 
        time users).

    Ms. Herseth Sandlin. Before I conclude, I would like to 
make a few comments in recognition of Memorial Day, coming up 
May 31st. While this extended break is a welcome opportunity to 
reunite with loved ones, we must never forget the meaning of 
Memorial Day, which is to honor our fallen men and women who 
have made the ultimate sacrifice for our country. This includes 
the 22 fallen heroes from my State of South Dakota, who served 
honorably in Iraq and Afghanistan over the past decade since 
the operations began, and over 5,400 servicemembers from across 
the country. So please rest assured that Members of the 
Subcommittee stand united in honoring the memory of our fallen 
servicemembers and committed to ensuring that veterans and 
their families are provided adequate opportunities to live the 
American dream, including owning their own home after their 
military service.
    Thank you again. The hearing stands adjourned.
    [Whereupon, at 3:46 p.m., the Subcommittee was adjourned.]



                            A P P E N D I X

                              ----------                              

   Prepared Statement of Hon. Stephanie Herseth Sandlin, Chairwoman, 
                  Subcommittee on Economic Opportunity

    In the 110th Congress, this Subcommittee held a series of hearings 
focused on the VA's home loan program, including the specially adapted 
housing programs. Since then, we have been able to work in a bipartisan 
manner to: increase the maximum home loan guaranty amount, expand 
expiring adjustable rate mortgage programs, provide foreclosure 
prevention remedies for servicemembers and veterans, enhance specially 
adapted housing benefits, and require the VA to update the guidance it 
provides to veterans on the design and construction of specially 
adapted housing.
    In keeping with our commitment to meet the current needs of 
veterans, today's hearing seeks to review housing benefits that were 
first provided when President Franklin Delano Roosevelt signed the 
Servicemember's Readjustment Act of 1944. For over 65 years, VA's home 
loan program has been an important benefit that has allowed thousands 
of veterans the opportunity to own a home.
    While the overall VA-backed home loan program has proven to be 
successful, today we have the opportunity to address several issues of 
concern. Some of these concerns, such as increasing the maximum loan 
guarantee or expanding the adjustable rate mortgage program, were 
addressed in the 110th Congress and we hope to determine today if 
additional changes are warranted.
    Also, we will hear about veterans who were attracted by non-VA 
backed home loans who have joined the thousands of Americans struggling 
to make housing payments during difficult economic times. Fortunately, 
a growing number of veterans continue to take full advantage of the 
flexible program to refinance into a VA loan, allowing them to access 
the unique protections available through the VA to help ensure they 
remain home owners. I look forward to hearing from all our panelists as 
we continue to improve the VA's home loan benefits.

                                 
  Prepared Statement of Hon. John Boozman, Ranking Republican Member, 
                  Subcommittee on Economic Opportunity

    Good afternoon.
    Madam Chair, it appears that in general, the loan guaranty program 
is working well and I congratulate VA for its management of the 
program. But today I would like to address a broader issue that I will 
illustrate with an issue related to the loan guaranty program.
    That issue is senior VA management's attempt to muzzle VA staff. At 
a recent staff meeting, VBA staff were told they are not allowed to 
speak to Congressional staff without working through the Office of 
Congressional and Legislative Affairs. Rightly or wrongly, VA staff 
informed our staffs that they could not speak directly to them and to 
submit even routine questions through OCLA. That policy is being 
interpreted as applying even to the most routine questions like how 
many people have signed up for the GI Bill.
    This new policy, which I can only describe as short-sighted and 
harmful to veterans, prevents our staffs from conducting even routine 
day-to-day business with not only VA, but also with our constituents. 
Previous administrations on both sides of the aisle have tried this to 
some extent and it always fails because Congress and VA both need open 
two-way communications. Continuing that long-standing cooperative way 
of doing business, even when it is less than comfortable for VA, 
fosters a level of mutual trust that in the long run, is good for 
veterans' programs.
    In my opinion, questions from staff that ask things like details on 
administrative procedure or participation or average times, etc. are a 
legitimate oversight function and VA employees should not be ordered 
not to respond directly to such requests. On the other hand for 
example, my staff has asked VA both directly and through OCLA for VA's 
position on a ``risk retention'' provision in the Senate financial 
services. That is a request that requires the Department to make a 
statement of policy and OCLA should be involved. By the way, we have 
not gotten a reply on that matter and I hope VA explains its position 
today because we have been informed that such a provision may 
negatively impact VA-guaranteed loans in terms of higher fees or 
interest rates.
    Finally, I ask unanimous consent to enter comments provided by Mr. 
Adam Sachs on the risk retention provision in S 3217 and the Merkley 
amendment to that bill in the record. Mr. Sachs is a former member of 
the VA Committee Democratic staff and is now in private practice and 
raises several issues with the provision and amendment.
    Madame Chair, it is imperative that our staffs be able to speak 
directly to VA employees who run these very important programs and I 
look forward to a reversal of the policy. I yield back.

                               __________
                                                      Adam P. Sachs
                                   Partner, Husch Blackwell Sanders
                                              Kansas City, MO 64112

    Here is a response to your request for assistance with respect to 
aspects of the amendment to the Senate Bill offered by Mr. Merkley and 
others (that were forwarded to us last Friday afternoon). First, it 
describes the amendment's ``ability to repay'' language and its 
apparent impact, as drafted, on VA guaranteed IRRRL (and more generally 
on other VA guaranteed loans similarly ``priced''). Second, it provides 
draft amendment language expressly to exempt VA IRRRL (and other VA 
guaranteed loans) from this amendment.
    The Merkley amendment, in Section 1075 (Minimum Standards for 
Residential Mortgage Loans), in Section (b)(1) thereof, generally 
imposes upon creditors originating residential mortgage loans a 
requirement that they determine, ``based on verified and documented 
information,'' that the consumer has the ``reasonable ability to repay 
the loan.'' Section b(3) specifies the detailed underwriting 
requirements the creditor must follow in making this determination.
    Section (b)(5) creates a helpful ``Presumption of Ability to 
Repay'' for certain underwritten loans, but then Section (b)(6) 
(Exceptions to Presumption) takes away that helpful Presumption if, 
among other things, the total points and fees related to the 
underwritten loan (calculated as described under TILA) exceeds ``3 
percent of the total loan amount.'' (More details about the effect the 
Merkley amendment points and fees ``test'' are provided, below.) 
Section b(7) then permits the Board further to revise the Presumption, 
and the Exceptions to Presumption, and establishes certain additional 
statutory exemptions from this ability to repayment determination 
requirement for certain types of loans.
    So, the Merkley amendment, at its core, requires the creditor to 
underwrite the ability of the consumer to repay the loan. Presumptions 
as to that ability to repay may ``come or go'' depending upon certain 
factors described in the amendment and to be described to by the Board, 
but the underwriting requirement is a ``constant.''
    Contrast that with the VA guaranteed Interest Rate Reduction 
Refinancing Loan (VA IRRRL), to which the Merkley amendment ability to 
repay language would be fully applicable as it is currently drafted.
    VA IRRRL are made for the purpose of refinancing an existing 
Department of Veterans Affairs) (VA) loan, at a lower interest rate and 
always to the benefit of the veteran. A VA IRRRL does not permit cash 
out to the veteran; it is the refinanced loan, itself, that must and 
does provide the benefit, in the manner described in the statute 
authorizing the IRRRL program (38 U.S.C. 3710(a)(8)) and the 
regulations and other requirements of the VA (38 CFR 36.4807; VA 
Lender's Handbook, Chapter 6, Section 4-a).
    The most important aspect of a VA IRRRL, however, for purposes of 
the ``ability to repay'' language of the Merkley amendment, is that, in 
a VA IRRRL, under VA requirements, generally ``no underwriting is 
required.'' See VA Lender's Handbook. That is generally because the VA 
IRRRL may only be made if the veteran will benefit from it.
    Accordingly, the premise of the Merkley amendment ability to repay 
determination requirement--that an underwritten loan may or may not 
enjoy a Presumption as to the ability to repay it--has no applicability 
to a VA IRRRL that is not and need not be underwritten in the first 
place. Thus, an entitlement provided by Congress through the Veteran's 
Committee will be eliminated through the Merkley amendment.
    For that reason, it is appropriate that the exceptions in the 
Merkley amendment that already exists for certain types of loans 
(bridge loans and reverse mortgages) be expanded to include VA IRRRL as 
well, as follows:

    Insert in Section 1075(b)(7) (Exemption) a new subsection (D) that 
reads:

          (D) VA GUARANTEED INTEREST RATE REDUCTION LOANS.--This 
        subsection does not apply to an interest rate reduction 
        refinancing loan guaranteed by Department of Veterans Affairs.

    With respect to the points and fees test of the Merkley amendment, 
that provision does not ``fix'' this anomaly. Even if a loan had under 
3 percent total points and fees (and thus could enjoy the benefits of 
the Presumption), such a loan still would have to be underwritten under 
the Merkley amendment.
    Moreover, VA IRRRL would not, as currently offered, meet the 3 
percent total points and fees test, and nor may certain other VA 
guaranteed loans. That is because veterans obtaining VA guaranteed 
loans generally may be charged VA-approved reasonable and customary 
itemized fees and charges, plus a VA-approved 1 percent origination 
fee, plus reasonable discount points, plus a 0.5 percent VA funding 
(mortgage guaranty) fee. As a result, for a VA guaranteed loan, 1.5 
percent (the sum of the VA-permitted 1 percent origination fee and the 
0.5 percent VA funding fee) of the 3 percent total points and fees test 
of the Merkley amendment are ``used up'' or ``consumed'' before VA-
permitted itemized fees and discount points are even considered.
    And, with respect to VA IRRRL, in particular, as the VA expressly 
permits up to 2 percent in discount points to be financed or included 
in the VA IRRRL loan amount, the total of such VA-permitted points and 
fees (again even before any VA-permitted itemized fees are even 
considered) will almost always be above the Merkley amendment 3 percent 
total points and fees test, since that total would equal 3.5 percent (1 
percent origination fee + 0.5 percent VA funding + 2 percent permitted 
financeable discount points).
    In short, then, the Merkley amendment ability to repay language 
should have no applicability to VA IRRRL, which VA guaranteed loans 
already must be for the benefit of the veteran as required by the VA 
and which are not and need not be underwritten. Language to make VA 
IRRRL exempt from the ability to repay determination language of the 
Merkley amendment is provided above. Indeed, if the Merkley amendment, 
as drafted, if not changed to so exempt VA IRRRL, it would not appear 
that VA IRRRL would or could be offered at all.
    In addition, any VA guaranteed loan with at least 1.5 percent in 
VA-permitted discount points also would meet the 3 percent total points 
and fees test of the Merkley amendment (given the 1.5 percent in 
origination fees and 0.5 percent in funding fees associated with such 
loans), even before considering VA-permitted itemized fees. 
Accordingly, an overall exemption in Section 1075(b)(7), for all 
mortgage loans guaranteed by the Secretary of Veterans Affairs (and not 
just for VA IRRRL), from the ability to repay determination language of 
the Merkley amendment, also would appear to be appropriate.

                                 
       Prepared Statement of James B. Barber, Chairman and Chief
   Executive Officer, Acacia Federal Savings Bank, Falls Church, VA,
               on behalf of American Bankers Association

    Chairwoman Sandlin, Ranking Member Boozman, and Members of the 
Subcommittee, my name is James Barber. I am Chairman and CEO of Acacia 
Federal Savings Bank, Falls Church, VA. Acacia Federal is a federally 
chartered savings bank with approximately $1.3 billion in assets. I am 
pleased to be here today on behalf of the American Bankers Association 
(ABA). The American Bankers Association represents banks of all sizes 
and charters and is the voice for the Nation's $13 trillion banking 
industry and its two million employees.
    The subject of today's hearing is an important one for the millions 
of veterans who have taken advantage of this opportunity for 
homeownership. The Veterans Administration (VA) Loan Guaranty Program 
is unique in the mortgage lending industry, in that it allows a veteran 
to obtain a mortgage with no downpayment and no requirement to obtain 
private mortgage insurance (PMI). Maintaining the strength of this 
program will ensure that millions more of our servicemembers can access 
this valuable program.
    There are two points we would like to make today:

      The VA Loan Guaranty Program is a valuable program that 
should be continued.
      Updates to the program may help in some situations.
I. The VA Loan Guaranty Program is Valuable and Should be Continued
    There is no better demonstration of the value of a program than its 
use, and the VA loan guaranty program is being used. One ABA member 
reported an increase in applications through the VA program at the same 
time applications in other areas were going down. This should not be 
surprising, given that it is the only program on the market today that 
can offer 100 percent financing. There are simply no comparable 
conventional or FHA insured options that can offer this kind of support 
and opportunity.
    While zero downpayment loan programs have come under increased and 
deserved scrutiny, anecdotal evidence shows that the VA program is 
working well, in large part because of particular features and 
circumstances that make it unique. One ABA member reported that, while 
increased unemployment has caused an increase in delinquency rates in 
its loan portfolio generally, the delinquency and foreclosure rates for 
its VA guaranty loans have remained lower than private market loans. 
Where there have been issues, the VA is uniquely prepared to address 
them. The VA monitors the delinquent loan servicing process through the 
VA loan electronic reporting interface. Although the VA only directly 
handles delinquent loan cases that are exceptions and require special 
analysis, it will perform oversight of the process to help veterans 
avoid foreclosure on delinquent loans and reduce losses to the 
government.
    One might be tempted to wonder how such a program could possibly 
work in the current economic environment. The answer is threefold:

    1.  The Veterans Administration (VA)--and the banks that work with 
them--have clung to strict underwriting standards.
    2.  The VA is supportive of the program and has worked to 
constantly improve in support of its lenders and its borrowers.
    3.  The men and women who access this program have a strong 
commitment to meeting their financial obligations, despite economic 
difficulties they may encounter.

    The VA Loan Guaranty Program has underwriting standards that have 
not varied over the years. The required documentation has never been 
streamlined nor have there been any stated income or stated assets 
options. Currently, non-VA backed product guidelines have changed and 
become more stringent than in times past. Ironically, they are now more 
in line with VA-backed products. Though a few minor changes could be 
made, which I will mention a little later, the current reliance on 
strict underwriting has certainly contributed to the success of the VA 
Loan Guaranty Program.
    Even with the stringent underwriting requirements, from the 
perspective of banks in today's market, a VA loan is the easiest form 
of mortgage to originate, process and close. In a time when many 
government programs are still working to streamline and simplify, the 
ease of use of the VA loan guaranty is high praise. The VA is 
constantly working to support the Loan Guaranty Program and the lenders 
who participate. Just last year, a number of regional lenders 
participated in a conference with the VA to discuss ways the program 
could be enhanced. These efforts on the part of the VA are what make 
the program very usable.
    Acacia Federal is fortunate to work with many servicemen and women 
in addition to veterans, because of our location near Washington, DC. 
We have placed these customers in many loan products, including 
mortgages backed by the VA guaranty. We find that the people associated 
with the armed forces have a strong commitment when they enter into a 
contract. Although these borrowers are not immune to the economic 
difficulties our country is facing, they are more likely to contact the 
bank to let us know they may be having difficulty making payments. This 
enables us to work with them to find solutions for their particular 
situation.
II. Improvements Can be Made That Will Reach More Veterans More 
        Efficiently
    Although the program is working well, there are some improvements 
that will help it to work better for lenders and for borrowers. Before 
I address these improvements, I want to encourage Congress to avoid 
putting global requirements on lending that would severely hamper the 
good work of this program. Recent legislative proposals have 
contemplated requiring some downpayment for any mortgage. This would be 
a mistake that would take away one of the main benefits of this program 
for our veterans--the ability to access homeownership even though the 
downpayment may be difficult to obtain. The risks in this program are 
mitigated by the strict underwriting, the good management by the VA, 
and the quality of the borrowers themselves. To require some 
downpayment for all customers is to cut off this avenue to home 
ownership for an otherwise qualified segment of our society that 
deserves an extra chance.
    The VA has made an effort to improve and upgrade the program over 
the years. Notably, in recent years VA has modified its guides for high 
cost areas, a move that has had lasting implications. Our bank is 
located in such a region, and many qualified borrowers have been able 
to purchase homes because of this change. Despite these improvements, 
there is still more that can be done. A few ideas follow.

      Nationwide Consistency. The VA Loan Guaranty Program is 
organized by regions. Unfortunately, all regional offices do not have 
the same requirements, which make it difficult and more time-consuming 
to underwrite, especially for national lenders. One good example is the 
appraisal process. Certain regional offices require specific verbiage 
regarding septic systems. If we do not conform to the regional office 
requirement, a deficiency letter will be issued on that appraisal. One 
way to improve this situation would be to allow nationwide originators 
to have a single point of contact, a sort of account representative. 
That would ensure that an individual lender received consistent advice 
on the details of the program.
      Communication Issues. The VA has made a commitment to 
have information available to lenders. For example, the 1-800 customer 
service line actually works. Representatives that are knowledgeable and 
helpful are always available, and they will go out of their way to 
offer options and solutions. The VA also makes good information 
available via the Internet, although it is often difficult to find. 
Each region has its own Web portal, and these differ from one another. 
In addition, the Web sites suffer from frequent outages. Perhaps the 
Web sites could be centralized and the system upgraded. Also, the 
addition of a nationwide database that would allow both regional 
offices and the national office to be aware of information even down to 
the level of a single application.
      Automation. The VA has made improvements in the 
automation of many processes in the past few years. We encourage the VA 
to continue this work. One area that might benefit from automation is 
the assignment of a Builder ID. Many builders either are unaware of or 
find it difficult to obtain. When this happens, the process is so time-
consuming that often customers are unable to obtain the home through 
that builder. Perhaps more important for banks is to automate the 
process for signatures. The elimination of original signatures on 
certain documentation--with the exception of legal closing documents--
would significantly speed up the process.
      Underwriting. As I mentioned previously, the underwriting 
of VA loans has been consistent, and VA loans have experienced fewer 
delinquencies. However, there are some updates that could be made. One 
example is that the expiration date of documents on new construction VA 
properties is still at 180 days, while most lenders have a 30-day 
expiration period. These time frames should be standardized and 
reconciled. Another, perhaps more serious issue is that there is no 
formal process for managing Loan to Value (LTV) in areas where the 
market is declining. This is particularly dangerous for active-duty 
personnel who will experience permanent change of station (PCS) within 
2-3 years.
      Interest Rate Reduction Refinancing Loan. A change has 
been made to Interest Rate Reduction Refinancing Loan (IRRRL) 
guidelines that now exclude veterans from qualifying for a refinance 
under this program if they have had a single late payment in the last 
12 months. This is a change from previous requirements that the veteran 
only had to be current at the time of the refinance. This impacts many 
veterans that may have suffered during the recent recession but managed 
to get current on their payments. These veterans now cannot benefit by 
lowering their interest or payments under this program. Another related 
issue is the VA process of ``no-bid'' or buy-down actions. Because of a 
lender's risk in the ``no-bid'' and buy-down process, this can result 
in some lenders accepting IRRR (Interest Rate Reduction Refinance) 
applications only from their own portfolio. This can limit availability 
for a veteran to obtain IRRR financing.
      Certificates of Eligibility. Borrowers are required to 
obtain a certificate of eligibility to show whether and to what extent 
they are eligible for a VA Loan Guaranty. The entitlement requirements 
on Certificates of Eligibility are confusing for both veterans and 
lenders in certain situations. It would be beneficial for the VA to 
have an intuitive online calculator to determine what would be 
acceptable according to each veteran's profile and the county that the 
property they are purchasing is located. This would eliminate concerns 
and confusion for both the veteran and the lender and speed up the 
process for veterans.
      Condominium Loans. The approval process for a condominium 
complex is a long, manual and time-consuming process for the veteran, 
the lender and the VA. Perhaps this could be automated through the VA's 
Web site to speed up the process of approval and focus on key areas of 
concern. Alternatively, the process could make use of a questionnaire 
similar to the one that Fannie Mae requires.
III. Conclusion
    The banking industry appreciates the work that has been done over 
the years to make the VA Loan Guaranty Program a useful one for 
military personnel. We hope that the program will continue to offer 
unique opportunities to our servicemen and women. We hope to work 
together with Congress and the VA to make improvements so that the 
program can serve its customers better.

                                 
     Prepared Statement of James H. Danis II, CMB, AMP, President,
          Residential Mortgage Corporation, Fayetteville, NC,
             on behalf of the Mortgage Bankers Association

    Chairwoman Herseth Sandlin, Ranking Member Boozman, and Members of 
the Subcommittee, thank you for the opportunity to testify on behalf of 
the Mortgage Bankers Association (MBA) \1\ on the status of the U.S. 
Department of Veterans Affairs (VA) loan guaranty program. I am James 
H. Danis II, and President of Residential Mortgage in Fayetteville, 
North Carolina, a Certified Mortgage Banker, and MBA member.
---------------------------------------------------------------------------
    \1\ The Mortgage Bankers Association (MBA) is the national 
association representing the real estate finance industry, an industry 
that employs more than 280,000 people in virtually every community in 
the country. Headquartered in Washington, D.C., the association works 
to ensure the continued strength of the Nation's residential and 
commercial real estate markets; to expand homeownership and extend 
access to affordable housing to all Americans. MBA promotes fair and 
ethical lending practices and fosters professional excellence among 
real estate finance employees through a wide range of educational 
programs and a variety of publications. Its membership of over 2,400 
companies includes all elements of real estate finance: mortgage 
companies, mortgage brokers, commercial banks, thrifts, Wall Street 
conduits, life insurance companies and others in the mortgage lending 
field. For additional information, visit MBA's Web site: 
www.mortgagebankers.org.
---------------------------------------------------------------------------
    I have been in the mortgage business for 17 years and have worked 
with the VA Home Loan Guaranty Program since 1993. Approximately 70 
percent of the loans my company closes are VA loans. In North Carolina, 
loans guaranteed by VA are an important part of our market and their 
use is increasing. During fiscal year (FY) 2008, 13,152 VA loans were 
originated in our state and in fiscal year 2009, 20,548 loans were 
closed. On a personal note, I am a beneficiary of the VA Home Loan 
Guaranty Program. The homes my parents purchased to raise me and my 
siblings were bought with VA loans. In keeping with our family 
tradition, my first home was financed with a VA loan. For many reasons, 
I am a strong advocate of this guaranty program.
    Congress established the VA Home Loan Guaranty Program, under which 
an eligible veteran could obtain a low-interest, 100 percent loan-to-
value (LTV) mortgage loan to buy a house, in 1944. The program was one 
of the major innovations and an important part of the original 
Servicemen's Readjustment Act of 1944, commonly known as the ``GI 
Bill.'' Since its inception, the objective of the program has been to 
assist eligible veterans and active duty servicemembers in becoming 
homeowners. The VA program is designed to benefit men and women because 
of their service to the United States, and is not intended to fulfill 
general economic or social objectives.
    MBA has always been a staunch supporter of the VA Loan Guaranty 
Program and we believe it remains an important and viable program for 
veterans and active duty military personnel. As credit markets have 
tightened and loan underwriting has become stricter, finding zero-down 
payment mortgages has become increasingly difficult. Providing 100 
percent LTV loans is a tremendous benefit to our veterans who have 
dedicated their lives to serving our country, and is crucial in 
military communities.
    Through FY 2009, VA has guaranteed more than 18.7 million 
mortgages, totaling over $1 trillion, to purchase or construct a home, 
or refinance an existing home loan. Constituting 4.2 percent of all 
originations in 2008 (the most recent data available), VA lending is 
still a relatively small percentage of the overall housing market, 
although the number of eligible borrowers who take advantage of the 
benefit is steadily increasing. In FY 2008, VA loans totaled 179,648, 
but in 2009, that number nearly doubled to 325,673 home loans. The 
borrowers who use the VA program for their homeownership financing are 
as varied as the U.S. population. According to VA's Annual Benefits 
Report FY 2009, African Americans comprised 13.5 percent of VA loans, 
Hispanics comprised 8.2 percent, and Asians comprised 1.9 percent. The 
homeownership rate among veterans is astounding; according to Census 
data published in 2009, the veteran homeownership rate was 82 percent, 
compared to 67 percent for the general population.
    VA guaranteed loans are made by private lenders to eligible 
veterans for the purchase of owner-occupied homes. These loans are 
comprised of both fixed- and adjustable-rate mortgages and can be used 
for purchase or refinance. If the loan is approved, and the veteran is 
eligible, VA will guaranty a portion of the loan to the lender. The 
basic guaranty is $36,000, although for loans that exceed $144,000, a 
guaranty of 25 percent of the particular county loan limit is possible. 
The VA loan limits are 125 percent of the area median price for a 
single family residence. This guaranty protects the lender against 
losses up to the amount guaranteed and allows a veteran to obtain 
favorable financing terms.
I. VA Loan Performance
    Despite most of these borrowers not having ``skin in the game,'' VA 
loans have outperformed their counterparts throughout the recent 
housing crisis (see chart below, based on MBA data). Although serious 
delinquencies have risen from 2.88 percent in the first quarter of 2008 
to 5.42 percent in the fourth quarter of 2009, the VA portfolio has 
been able to weather the turbulent market, largely due to its 
historically conservative underwriting standards. VA mortgages have 
always been fully documented and fully underwritten loans on owner-
occupied properties.

------------------------------------------------------------------------
                      Seriously Delinquent 4th   Foreclosure Starts 4th
                            Quarter 2009              Quarter 2009
------------------------------------------------------------------------
VA                              5.42                      0.81
------------------------------------------------------------------------
FHA                             9.42                      1.28
------------------------------------------------------------------------
Subprime                       30.56                      3.66
------------------------------------------------------------------------
Prime                           7.01                      0.86
------------------------------------------------------------------------
U.S. Total                      9.67                      1.20
------------------------------------------------------------------------

    Although VA does not require private mortgage insurance, there is a 
funding fee that most borrowers finance into the loan. The fee ranges 
from 2.15 to 3.3 percent of the loan amount on purchases and 0.5 to 3.3 
percent of the loan amount on refinances. The fee depends on the 
borrowers' type of military service (regular versus Reserves or 
National Guard) and if the borrower makes a down payment. If a borrower 
is refinancing to lower the rate, the fee is 0.5 percent. First time 
users' fees are less than subsequent users. If a borrower receives 
service-connected disability payments each month, then he or she is 
exempt from the fee. This fee is a critical part of the VA loan 
guaranty program; it helps the program have a negative credit subsidy 
and allows it to maintain funding for future generations of military 
families.
II. Concerns
    Although the VA Guaranty Loan Program has had an excellent track 
record of providing benefits to veterans and active duty military 
personnel, MBA would like to recommend four ways to further improve 
this important program:

    1.  Congress should avoid mandating new risk retention 
requirements, which could cripple the VA loan program and harm our 
economic recovery.
    2.  VA's higher loan limits need to be extended until the housing 
crisis has subsided.
    3.  The VA loan program should be reviewed and updated to be better 
aligned with prudent, industry standards. VA management should have the 
flexibility to make programmatic changes that keep the program 
competitive, current, and relevant for future generations.
    4.  The VA loan program needs servicing enhancements to keep it 
effective and relevant in the marketplace today. Servicers encounter 
programmatic challenges unique to servicing VA loans. Changes that 
would simplify processes and be cost-effective would encourage more 
lenders to participate in the VA program, which would directly benefit 
military families.
1. Risk Retention
    One of the most harmful proposals pending in Congress is the 
requirement that mortgagees and securitizers retain a 5 percent (or 
other percentage) interest in any mortgage they originate, sell or 
securitize. Both the House and Senate financial regulatory reform bills 
would apply such a risk retention requirement to VA (and FHA) loans, 
despite their underlying government guaranty. In the Senate, Senators 
Mary Landrieu and Johnny Isakson successfully offered an amendment to 
S. 3217, the Restoring American Financial Stability Act, that would 
exempt a class of prudently underwritten (or ``qualified'') mortgages 
from these requirements. The House, meanwhile, passed an amendment 
offered by Representatives Walter Minnick and Gary Miller that would 
give federal regulators greater discretion to reduce or eliminate such 
risk retention requirements. While both amendments were significant 
improvements over the more onerous provisions in the underlying bills, 
MBA continues to believe that all loans insured or guaranteed by the 
government or sold to a government-sponsored enterprise (GSE) should be 
specifically exempt from the bill's risk retention mandate.
    Congress should retain the Landrieu/Isakson amendment that provides 
an exemption for risk retention requirement for prudently underwritten 
mortgages with low-risk characteristics. The exemption should be 
expanded to include government loan programs, including VA. Such an 
exemption is critical to ensure the continued availability and flow of 
VA's program to veterans. Failure to exclude the VA and other safe and 
properly underwritten loans will negatively affect the housing recovery 
and veterans' opportunities to secure affordable home mortgages.
2. Loan Limits
    The VA program does not impose a specific maximum limit on VA 
loans. Rather, these ``limits'' are established as a result of the 
maximum guaranty the VA will provide for a VA home loan in a particular 
location. Generally, a qualified borrower with full entitlement may 
borrow up to the loan limit with no downpayment. The word ``limit'' 
denotes the maximum loan amount on a zero-down VA loan.
    The Veterans Benefits Improvement Act of 2008 provided, among other 
things, a temporary increase in the maximum guaranty for loans closed 
through December 31, 2011. Without this bill, borrowers living in 
relatively high-cost areas would have had to make a large downpayment 
for higher priced loans. This bill also allows borrowers to refinance 
100 percent of the value of their home. Prior to this legislation, 
refinances were generally limited to 90 percent of the established 
value. MBA supports these changes and we thank this Subcommittee and 
Congress for supporting the extension of these loan limits, so that 
veterans who reside in high-cost areas can enjoy their much deserved 
housing benefits. We would ask that Congress consider extending these 
limits until the housing crisis has subsided.
3. Alignment with Industry Origination Standards and Programmatic 
        Flexibility
    MBA urges Congress and the VA to consider the following 
recommendations to ensure the competitiveness and continued success of 
the guaranty home loan program.
    VA's standard policies are inconsistent with other industry 
programs in ways that add complexity and cost to the origination of VA 
products. These differences deter some lenders from participating in 
the program, thus limiting veterans' access to mortgage financing. MBA 
urges Congress and the VA to consider changes that would allow VA to 
align its policies and procedures to industry standards, thus making 
the program friendlier to both lenders and consumers. MBA and its 
members are willing and eager to work with VA staff to develop 
recommendations and implement changes that would increase the 
attractiveness of the VA program.
Closing Costs
    VA should review all of its fees and charges and align them with 
FHA and conventional products. The closing fee policy, in particular, 
is complex and inconsistent with what is customary in today's mortgage 
industry. VA needs to simplify its policy to allow borrowers to pay 
reasonable and customary fees in order to make VA loans more 
competitive in the marketplace. Currently, VA limits the amount 
veterans can be charged for closing costs. Anecdotally, a common 
rejection of VA financing by a veteran is because VA will not allow 
certain closing costs to be paid by the veteran, when the seller is not 
willing to pay these costs. Although the intent is to protect the 
veteran, this structure ultimately puts the veteran at a disadvantage 
in the homebuying process and may cause these borrowers to lose bids 
when a seller is unwilling to pay the additional fees. Moreover, the 
fee itemization that VA requires is not aligned with new RESPA 
standards. VA should review all of its fee policies to ensure that they 
are current and in sync with current regulations and expectations of 
the market.
Appraisals
    An example where greater alignment would be helpful is how 
appraisers are assigned to VA loans. VA does not allow mortgage 
companies to assign appraisers to VA cases. Appraisers are randomly 
assigned through The Appraisal System (TAS), which is a VA computer-
generated program that randomly assigns appraisers to loan cases. This 
method was developed to discourage collusion among appraisers, realtor 
estate brokers, mortgage companies, and/or borrowers, and was quite 
ahead of its time. New appraisal standards (specifically dictated by 
the Home Valuation Code of Conduct), however, have ``raised the bar'' 
for the entire industry and now mandate procedures that limit undue 
influence of the appraiser and greatly minimizes the risk that the VA 
was trying to prevent. Standard industry practices in place today, for 
all loan products, control more for the highest risk transactions (high 
LTVs); thus, it may be unnecessary for VA to so tightly manage its 
appraisal process. The current VA process negatively impacts lender 
efficiencies and can negatively impact borrowers by increasing their 
costs. VA should consider reevaluating its appraisal process.
Programmatic Updating
    VA qualifies veterans based on net income and not gross income, as 
is the case with FHA and conventional loans. VA requires that the 
veteran meet residual income guidelines and acceptable ratios; FHA and 
conventional loan programs do not impose residual income requirements. 
Residual income is the amount of net income remaining--after the 
deduction of debts, obligations and monthly shelter expenses--to cover 
other family living expenses, such as food, health care, clothing and 
gasoline. VA's residual income guidelines vary according to loan size, 
family size and geography. The VA program is the only loan program that 
requires the calculation of residual income.
    The tables that guide lenders on acceptable residual income amounts 
have not been updated since 1997 and are outdated. VA should update its 
tables to reflect new economic realities. Some of those figures need to 
be adjusted up or down depending on family size.
Programmatic Flexibility
    The laws and regulations governing the VA program are very 
prescriptive. Many changes that make the VA loan program competitive 
and current must be congressionally approved. For example, it was only 
with the enactment of the Veterans Benefits Improvement Act of 2008 
that veterans were able to take advantage of the ``extra'' entitlement 
available for loans in excess of $144,000. Prior to that, refinance 
loans were limited to a $36,000 guaranty which meant that refinance 
loans in excess of $144,000 would not have the 25 percent backing 
typically required in the secondary market. That same law also removed 
the 90 percent limit on refinances, by authorizing VA to guaranty the 
loans up to 100 percent of the value. These changes make it easier for 
veterans to combine a first and second mortgage and pay off the loan. 
When rates came down, a veteran with a loan amount above $144,000 was 
not able to take advantage of the lower rates and refinance. Until the 
law was changed, VA was unable to permit its borrowers from reaping the 
benefits that the typical, non-VA borrower could enjoy.
    Similarly, VA has temporary authority for adjustable rate and 
hybrid ARMs through 2012. MBA encourages Congress to authorize VA 
adjustable-rate products permanently. ARMs are especially useful loans 
for active duty military, since these families move often. The VA does 
not allow lenders to charge borrowers a prepayment penalty, and so the 
risk is low for the veterans if they move or choose to refinance. 
Programmatic flexibility within its product offerings is crucial for 
helping VA maintain its relevancy.
    Lastly, VA introduced a very large regulation change in 2008 when 
it created the VA Loan Electronic Reporting Interface (VALERI) system. 
This reporting system was a significant improvement in VA reporting 
system and continues to be extremely valuable to lenders originating VA 
loans. VA, however, was unable to make these systems changes in a more 
timely and flexible manner because so much of the reporting was 
codified in regulation. We recommend that VA managers be given the 
flexibility to modify their loan programs and reporting guidelines 
without the need for new laws or regulation changes. This flexibility 
is crucial in helping VA to be relevant and competitive in a fast-
changing market.
4. Servicing VA Loans
    MBA appreciates VA's continued support of veterans through its 
servicing guidance. VA maintains a close relationship with veteran 
borrowers and serves as an effective advocate for them. The following 
are several features of the VA loan program that are positive for both 
servicers and borrowers.
    Streamlined processes: Our members find, as a general rule, VA has 
more streamlined processes for servicing, loss mitigation and property 
conveyance than other loan programs. This benefits the program by 
creating efficiencies within key processes.
    Refunding authority: The VA has the unique authority to purchase a 
loan from the lender in an effort to assist a borrower who is severely 
delinquent. When a purchase occurs, the VA takes over full service of 
the loan and the remaining mortgage payments. This option is not often 
used in part due to the servicer's preference for utilizing existing 
workout options, where appropriate, and retaining servicing rights, but 
also because of reluctance on the part of VA to purchase seriously 
delinquent loans from servicers. Our recommendation for partial 
refunding are discussed below.
    MBA offers the following servicing recommendations needed to keep 
the loan program effective and relevant in the market place today.

  Modernize the VA Loan Guaranty Program to Provide a Full 
        Guaranty to Ensure the Availability and Affordability of the VA 
        Loan Program for our Nation's Veterans
    Despite VA's lower delinquency rate, the VA's loan guaranty program 
is the most expensive program for lenders to administer, especially 
during periods of declining real estate prices. This is because a VA 
loan carries the highest level of credit risk exposure of any 
government-related loan program. The VA partial guaranty exposes 
servicers who administer the loans to principal losses that can range 
up to 50 percent or more. Conversely, the FHA program provides 
insurance for 100 percent of the outstanding principal amount. Under 
Fannie Mae and Freddie Mac programs, the GSEs purchase the loans and 
retain 100 percent of the principal risk associated with such 
ownership.
    To illustrate the impact of the VA partial guaranty, when a VA loan 
goes through the default process, and the servicer transfers custody of 
the property to the VA after foreclosure sale, VA pays the servicer an 
amount that reflects VA's current appraised value plus the guaranty 
amount--which in many cases is significantly less than the amount of 
the veteran's indebtedness. VA requires any remaining indebtedness 
above the claim payment to be written off and for the servicer to waive 
the right to seek a deficiency judgment. This write-off results in a 
principal loss for the servicer that averages between $25,000 and 
$40,000 per instance and in many cases exceeds 50 percent of the loan 
amount. Our members indicate that 35 to 40 percent of all recent 
foreclosures on VA guaranteed loans result in a principal loss.
    We believe the risk of principal loss is a major reason why the VA 
program is far less vibrant than other government and private programs. 
Not all lenders are capable of originating and servicing VA products 
because it is almost impossible to guard against credit losses during 
large cyclical economic downturns. The implications of VA principal 
losses discourage lender participation and result in increased costs 
and/or reduced availability of affordable home financing to veterans. 
Changes to underwriting and program requirements cannot fully 
compensate for the risk of default and certainly cannot do so without 
extremely limiting access of this important veteran benefit or 
destroying the very essence of the program, namely the zero percent 
down payment feature that our veterans have earned.
    Absent modernization of the VA Loan Guaranty, lenders will be 
forced to react to the increased risk of principal losses and the 
growing cost of the program through price adjustments. While VA pricing 
varies, historically VA loans have priced approximately 25 basis points 
higher than FHA-insured loans in part to offset the risk of principal 
loss. In addition, purchases of Ginnie Mae servicing that include 
material levels of VA loans in the pools price far worse than pools 
with less VA servicing. Clearly, such pricing is imprecise and based on 
historical losses, which fail to recognize the current magnitude of the 
decline in home values across the country. As lenders and servicers 
continue to accumulate losses in this program, we believe pricing will 
be adversely affected and some originators and servicers will be forced 
to limit or discontinue VA loan production and servicing altogether. 
Realistic pricing adjustments and further tightening of the credit 
market for VA products will result in higher interest rates or costs 
and reduce the availability and affordability of home financing options 
for many veterans.
    Now, more than ever, it is critical to modernize the VA Loan 
Guaranty program to ensure that the VA loan remains a financially 
relevant option and a true benefit for active duty and veteran 
families. The loan guaranty should be revised to eliminate the risk of 
principal loss to lenders so that the VA Loan Guaranty program will 
provide the same high-quality government backing as other government-
sponsored loan programs. Such changes can be made with no disruption of 
VA's operations, systems, or employment base. With these recommended 
changes to VA's Loan Guaranty Program, the VA loan will be transformed 
from the least attractive loan product to the most attractive. Lenders 
will be encouraged to utilize the program and veterans will derive a 
true benefit from the VA loan program and be assured lasting access to 
affordable, low down payment home financing.
  Increased Guaranty Ensures Improved Loan Modification 
        Sustainability
    Increasing the VA guaranty will also facilitate and promote 
increased modification options for veterans experiencing financial 
hardship. VA currently allows servicers to modify loans to help 
delinquent borrowers retain their homes. MBA and our members support 
such modifications, especially given the entitlement to our veterans. 
Most, if not all, modifications involve some level of 
``capitalization'' of arrearages,\2\ which allows the loan to be 
brought current. Capitalization increases the principal balance of the 
loan and, unfortunately, the risk of principal loss to the servicer. We 
appreciate VA's current policy to increase the guaranty to reflect the 
increased principal amount. Such capitalizations nonetheless increase 
the risk of loss to the servicer by 75 percent of the arrearage 
(assuming a 25 percent guaranty) should the borrower re-default. In the 
current housing climate, these types of losses make the modification 
more risky to servicers. Congress should authorize higher guaranty 
amounts as recommended to promote and facilitate increased loan 
modifications for veterans.
---------------------------------------------------------------------------
    \2\ Capitalization of arrearages allows the borrower to add the 
delinquent amount to the balance of the loan to bring it immediately 
current. Under current VA rules, the new principal balance is 
reamortized over the remaining term of the loan or the maturity date 
can be extended to the earliest of: (1) 360 months from the due date of 
the first installment required under the modification or (2) 120 months 
after the original maturity date. 38 CFR Sec. 36.4815. Capitalization 
and reamortization benefits the borrower, who would otherwise have to 
cure the delinquency through a lump sum reinstatement or repay the 
arrearage over a shorter period of time.
---------------------------------------------------------------------------
  Grant the VA ``Partial Refunding'' Authority
    MBA believes that the VA should expand its loss mitigation options 
to be consistent with other government programs. Specifically, the VA 
should be granted authority to make ``partial refundings'' similar to 
FHA's partial claim authority. A partial refunding would allow the VA 
to use its refunding authority without having to purchase the entire 
loan. The process could work similarly to FHA's partial claim in that a 
servicer would advance funds on behalf of a borrower in an amount 
necessary to reinstate a delinquent loan. The borrower, upon acceptance 
of the advance, would execute a promissory note and subordinate 
mortgage payable to the VA. Identical to the FHA program, the 
promissory note could carry no interest and not be due and payable 
until the borrower pays off the first mortgage or no longer owns the 
property.
    A partial claim or refunding option is an attractive loss 
mitigation option for veterans and ensures robust usage. The borrower's 
delinquency is cured without the servicer having to purchase the loan 
out of a Ginnie Mae pool, which is often prohibitive for servicers that 
must bear the interest rate risk, have secondary market authority and 
capacity to redeliver to Ginnie Mae, and have the capital or warehouse 
capacity to fund the repurchases.
    For the partial refunding to be successful, it is critical that 
VA's guaranty not be reduced by the amount of the refunded amount; 
otherwise the servicer suffers significant financial detriment for 
helping a veteran who later redefaults. A partial refunding option 
would eliminate a gap in VA's loss mitigation program and ensure that 
veteran borrowers have the same loss mitigation assistance that is 
available in other loan programs.
  Enhancements to VA's Loss Mitigation Programs
    Forbearances: The VA should consider eliminating the requirement 
that borrowers must be 61 days delinquent in order to qualify for a 
special forbearance.\3\ The VA should consider adopting an imminent 
default standard similar to FHA's. FHA defines imminent default as a 
``borrower that is current or less than 30 days past due on the 
mortgage obligation and is experiencing a significant reduction in 
income or some other hardship that will prevent him or her from making 
the next required payment on the mortgage during the month that it is 
due.'' \4\ The elimination of the 61-day wait time would especially 
assist veterans who become unemployed, have wages cut, or have other 
hardships such as illness or death in the family.
---------------------------------------------------------------------------
    \3\ 38 CFR Sec. 36.4801 (2009).
    \4\ FHA Mortgagee Letter 2010-04 ``Loss Mitigation for Imminent 
Default'' (Jan 22, 2010).
---------------------------------------------------------------------------
    Modification of the Maturity Date: VA regulations currently provide 
that the maturity date of a modified loan cannot be extended to exceed 
360 months from the due date of the first installment required under 
the modification or 120 months past the original maturity date, 
whichever comes earliest.\5\ In some cases, therefore, the term cannot 
be extended to 30 years to improve affordability. MBA recommends that 
the VA remove the 120-month restriction and allow servicers to reset 
the maturity date to 360 months from the first modified installment. 
This change is consistent with current FHA policies.\6\
---------------------------------------------------------------------------
    \5\ 38 CFR Sec. 36.4815(d) (2009).
    \6\ FHA Mortgagee Letter 2009-35 ``Loan Modifications: FHA Loss 
Mitigation Incentives--Update'' (Sept. 23, 2009).
---------------------------------------------------------------------------
    Capitalization of Foreclosure Fees: VA should allow foreclosure 
fees incurred by the borrower to be capitalized as part of a 
modification \7\ as is permitted by FHA. Today, such foreclosure fees 
must be paid by the veteran prior to modification, which can create an 
unnecessary hardship for the veteran. FHA currently permits legal fees 
and related foreclosure costs related to a canceled foreclosure action 
to be capitalized into the loan modification or partial claim.\8\
---------------------------------------------------------------------------
    \7\ 38 CFR Sec. 36.4815(f) (2009).
    \8\ FHA Mortgagee Letter 2008-21 ``FHA Loss Mitigation Program 
Updates'' (Aug. 14, 2008).
---------------------------------------------------------------------------
    Relocation Assistance: The VA should consider developing a ``cash 
for keys'' program that provides the borrower with funds to cover 
relocation expenses in connection with a compromise sale (short sale) 
or deed in lieu. Such programs provide the veteran borrower a graceful 
and organized exit from the home if he or she is unable to retain it. 
FHA provides such incentives for pre-foreclosure sales (short sales) 
and deeds-in-lieu of foreclosure.\9\
---------------------------------------------------------------------------
    \9\ FHA Mortgagee Letter 2008-43 ``Pre-Foreclosure Sale (PFS) 
Program--Utilizing the PFS Loss Mitigation Option to Assist Families 
Facing Foreclosure'' (Dec. 24, 2008); FHA Mortgagee Letter 2000-05 
``Loss Mitigation Program--Comprehensive Clarification of Policy and 
Notice of Procedural Changes'' (Jan. 19, 2000).
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III. Conclusion
    We thank this Subcommittee for giving MBA the opportunity to voice 
our appreciation and dedication to the VA Home Loan Guaranty Program. 
This program is invaluable to the brave men and women who have 
sacrificed so much for this country, and the enhancements suggested 
here would make it even more attractive and beneficial to veterans and 
their families. We look forward to working with you and the VA to help 
sustain the VA Home Loan Guaranty Program for many generations of 
veterans to come.

                                 
  Prepared Statement of Moe Veissi, Broker/Owner, Veissi & Associates 
  Inc., Miami, FL, and First Vice President, National Association of 
                          REALTORS'

                           Executive Summary
    The National Association of REALTORS' strongly believes 
the Veterans Affairs home loan guarantee program, created under the GI 
bill, is a vital homeownership tool that provides veterans with a 
centralized, affordable, and accessible method of purchasing homes as a 
benefit for their service to our Nation. This program encourages 
private lenders to offer favorable home loan terms to qualified 
veterans. As a result, today the VA has guaranteed nearly 19 million 
loans to American veterans, with a total loan volume of just over one 
trillion dollars.
    VA's strong yet flexible underwriting allows veterans the ability 
to purchase a home of their own without depleting their savings. More 
than 90 percent of veterans utilize the zero-downpayment option 
provided by VA. Yet, despite this, VA's 2009 fourth quarter delinquency 
rate is low. According to the recent delinquency survey published by 
the Mortgage Bankers Association, VA's delinquency rate was 7.41 
percent, and the foreclosure rate was 2.46 percent. In contrast, sub-
prime delinquency rates for the same period were a staggering 25.26 
percent, and foreclosure rates were 15.58 percent. Even prime loans had 
higher rates than VA at 6.73 percent for delinquencies and 3.31 for 
foreclosures.\1\ NAR believes that despite talk about ``skin in the 
game'' being critical to successful homeownership, this program 
demonstrates that strong yet flexible underwriting is the key to a 
viable low or no downpayment loan program.
---------------------------------------------------------------------------
    \1\ National Delinquency Survey, Mortgage Bankers Association, Q409 
(March 2010).
---------------------------------------------------------------------------
    While the VA program has been successful in addressing veterans' 
housing needs, a number of enhancements are needed to better serve 
today's veterans. As a result, the NAR recommends the following 
enhancements to the VA Home Loan Guarantee Program:

      Make the Current Loan Limits Permanent

          Sixty (60) percent of veterans live in urban areas, 
        which are generally higher cost housing markets. We urge 
        Congress to make the current higher VA loan limits permanent, 
        to ensure that veterans are not penalized for geographic 
        differences in housing market costs.

      Permanently Authorize ARM programs

          ARMs can be a reasonable choice for military families 
        who move frequently, and can anticipate promotion and salary 
        increases. We urge Congress to permanently authorize these 
        programs.

      Provide Veterans With Flexibility in the Purchase 
Transaction

          VA currently limits the fees that can be paid by 
        veterans in a home purchase transaction. This can place 
        veterans at a disadvantage when sellers refuse--or are unable--
        to pay fees customarily paid by buyers. In addition, veterans 
        are virtually excluded from purchasing distressed properties 
        and investor owned, when there is no ``seller'' to pay the 
        required fees. In today's marketplace, these distressed 
        properties make up a significant proportion of many areas most 
        affordable housing. We urge VA to provide additional 
        flexibility that would allow veteran borrowers to pay a portion 
        of fees traditionally paid by buyers when it would be in their 
        financial interest to do so. Veterans should not be precluded 
        from buying the most affordable home that best suits their 
        family's needs simply because rules intended to protect them in 
        fact penalize them.

                               __________
    Madam Chairwoman, Ranking Member Boozman, and Members of the 
Subcommittee, My name is Moe Veissi. I have been a REALTOR' 
for 40 years, and am broker/owner of Veissi & Associates Inc., in 
Miami, Florida. I have been active within the National Association of 
REALTOR' (NAR), holding significant positions at both the 
state and national levels. Since 2002, I have been the President of the 
Florida Association, an NAR Regional Vice President, and a member of 
the NAR Board of Directors. Most recently, I was elected NAR First Vice 
President for 2010. I am here representing 1.1 million 
REALTORS' working in all aspects of the real estate 
transaction.
    The NATIONAL ASSOCIATION OF REALTORS' is a strong 
supporter of housing opportunities for veterans. We commend the 
Subcommittee for its attention to issues impacting American veterans. 
The homeownership rate for veterans is significantly higher than the 
national average--as high as 80 percent. The Department of Veterans 
Affairs (VA) Home Loan Guarantee program deserves much of the credit.
    I am also here representing American families who are making the 
sacrifice for our freedom. My son is on active duty with the Army in 
Iraq. And when he comes home, the VA will be there for him, making good 
on the promises our Nation made when he joined the military.
The VA Home Loan Guarantee Program
    The VA home loan guarantee program, created under the GI bill, 
encourages private lenders to offer favorable home loan terms to 
qualified veterans. The VA home loan guarantee program made its first 
loan for a home in Washington, DC in 1944. Today, the VA has guaranteed 
nearly 19 million loans to American veterans, with a total loan volume 
of just over one trillion dollars. We believe this program is a vital 
homeownership tool that provides veterans with a centralized, 
affordable, and accessible method of purchasing homes as a benefit for 
their service to our Nation.
    The VA home loan guarantee program is designed to provide veterans 
who are unable to qualify for a conventional loan with favorable loan 
terms. In fact, a study conducted in 2004 found the program did just 
that. The percentage of VA borrowers who could not qualify for a 
conventional loan was 82 percent for first-time homebuyers, and 78 
percent for repeat borrowers. In addition, the typical VA borrower 
could also not qualify for an FHA loan. Sixty-one percent (61%) of VA 
first-time borrowers could not meet either the downpayment and/or 
maximum debt-to-income ratios required to obtain an FHA loan.\2\ The VA 
program, therefore, offers unique and important benefits for helping 
our military families achieve the dream of homeownership--even with no 
downpayment.
---------------------------------------------------------------------------
    \2\ Evaluation of VA's Home Loan Guarantee Program, Final Report. 
Economic Systems Inc.; ORC Macro; The Hay Group; Department of Veterans 
Affairs, July 2004.
---------------------------------------------------------------------------
    VA's strong yet flexible underwriting allows veterans the ability 
to purchase a home of their own without depleting their savings. More 
than 90 percent of veterans utilize the zero-downpayment option 
provided by VA. Yet, despite this, VA's 2009 fourth quarter delinquency 
rate is low. According to the recent delinquency survey published by 
the Mortgage Bankers Association, VA's delinquency rate was 7.41 
percent, and the foreclosure rate was 2.46 percent. In contrast, sub-
prime delinquency rates for the same period were a staggering 25.26 
percent, and foreclosure rates were 15.58 percent. Even prime loans had 
higher rates than VA at 6.73 percent for delinquencies and 3.31 for 
foreclosures.\3\
---------------------------------------------------------------------------
    \3\ National Delinquency Survey, Mortgage Bankers Association, Q409 
(March 2010).
---------------------------------------------------------------------------
    How does VA have such a successful program with zero down? VA 
requires participating lenders to ensure that the loan payments are 
appropriate for the veteran's present and anticipated income and 
expenses. They have solid underwriting using debt-to-income ratios and 
credit history. However, VA also requires the use of manual 
underwriting for those veterans who marginally qualify. Then, lenders 
must look at non-traditional factors and give veterans the benefit of 
the doubt when making a decision.
    This program shows that accurate and proper underwriting is the key 
to successful low-downpayment lending programs. Despite all the talk 
about ``skin in the game'', loans with appropriate underwriting and 
zero down can successfully balance risk and provide sustainable 
homeownership.
    In addition, the VA home loan program offers protections for 
veteran borrowers when unexpected financial difficulties occur by 
offering a variety of supplemental loan servicing programs to help 
military families avoid foreclosure. VA offers financial counseling and 
can serve as a conduit between the veterans and the private lender 
holding the loan. VA will try and negotiate repayment terms for 
borrowers in financial difficulty. Under some specific conditions, VA 
may also purchase the loan and allow the borrower to make payments 
directly to the VA at a reduced interest rate.
    These interventions not only help the veteran retain their home, 
but save the VA money by avoiding the payment of a guarantee claim. 
Since 2000, VA has been able to help more than 144,000 veterans, 
active-duty members, and survivors keep their homes, at a savings to 
the Government of over $3.1 billion
    We want to thank the Subcommittee for their help to veterans who 
may have been victim to the subprime loan crisis. The Veterans' 
Benefits Improvement Act of 2008 made changes to VA's home loan 
refinancing program. VA has never guaranteed subprime loans. However, 
as a result of the work of this Subcommittee, veterans have been able 
to refinance in a safe, affordable VA loan if their non-VA loan is in 
distress. Previously, veterans who wished to refinance their subprime 
or conventional mortgage were limited to 90 percent of the value. 
Increasing the loan-to-value ratio and raising the maximum loan amount 
allows more qualified veterans to refinance through VA, allowing for 
savings on interest costs or even potentially avoiding foreclosure. We 
thank the Subcommittee for their work in this area.
VA Home Loan Guarantee Outreach
    The combination of mortgage market conditions and the changes 
provided in the Veterans' Benefits Improvement Act of 2008, have made 
the VA home loan guarantee program more important than ever. As a 
result, NAR has stepped up its efforts to educate our members about 
this valuable program.
    Just last fall the National Association of REALTORS' 
partnered with the Department of Veterans Affairs to produce 
``Unlocking the Future'', a VA Toolkit for REALTORS' and 
homeowners. This comprehensive informational DVD and brochure complete 
with videos and Frequently Asked Questions, provides 
REALTORS' with all the information they need to successfully 
guide a veterans through the home loan process. It includes information 
about veteran eligibility, qualifications, and all the different VA 
home loan programs including the 30-year fixed mortgage, Adjustable 
Rate Mortgages (ARMs), refinancing and foreclosure help, and even the 
Specially-adapted Housing Program for disabled veterans. This toolkit 
is available free for our members on our Web site, and has been used by 
thousands of REALTORS' to work with veterans in their 
communities.
Changes to the VA Home Loan Guarantee Program
    As we have discussed, this Subcommittee was instrumental in making 
a number of changes to the VA home loan guarantee, making this program 
even more useful for veterans. One of these changes was an increase in 
the VA loan limits to help veterans wherever they live be able to 
purchase a home under this program.
    Approximately 60 percent of veterans live in urban areas. States 
with the largest veteran population are California, Florida, Texas, 
Pennsylvania, New York and Ohio, respectively. These six states account 
for about 36 percent of the total veteran population. Of these, 
California, Florida, Pennsylvania and New York all include areas where 
the median prices of homes are well above the national average. The 
current loan limits, which provide loans up to 125 percent of local 
area median price, expire in 2011. We urge the Subcommittee to take 
action to make these limits permanent. Veterans in high costs areas 
should not be penalized for geographic differences in the housing 
market.
    The law also extended authority for adjustable rate and hybrid ARMs 
through 2012. ARMs are especially useful loan products for active duty 
military. Since military families tend to move often, an ARM or hybrid 
ARM can be a very reasonable choice. These soldiers can purchase a home 
with a low interest ARM, and will likely get orders to relocate prior 
to the first rate adjustment. In addition, many military families can 
anticipate promotions and salary increases, making payments on the 
adjusted interest on an ARM possible. The VA does not allow lenders to 
charge borrowers a prepayment penalty, and so the risk is low for the 
veterans if they move or choose to refinance. We encourage Congress to 
authorize these products permanently.
VA Fee Requirements
    To ensure the veterans do not have to pay excessive fees in the 
home purchase transaction, VA rules limit the amount veterans can be 
charged for closing costs and even fees like termite and other 
inspections. While we fully support VA's efforts to limit fees paid by 
veterans, our members report that veterans using the VA Home Loan 
Guaranty program have found themselves at a disadvantage when 
purchasing a home because of these rules. Some sellers have refused to 
accept offers from VA borrowers, due to the inability of VA buyers to 
pay certain customary buyer-paid fees. NAR believes that VA borrowers 
should be allowed to negotiate fees with sellers as a normal part of 
home purchase transactions.
    In some purchase transactions, special certifications and 
inspections stemming from VA policy guidance are required by lenders. 
Today, these certifications and inspections involve fees that must be 
paid by the seller, as VA limits the fees veterans can pay in a home 
purchase transaction. If the seller refuses, the veteran is denied the 
opportunity to purchase the home of his or her choice. And, in 
instances where there are multiple bids, this certainly puts veterans 
at a disadvantage to the non-veteran purchaser.
    This issue is exacerbated by the current proliferation of 
distressed properties on the market. On a national level, foreclosed 
homes and short sales make up 35 percent of all home sales today, and a 
number of communities have rates that are significantly higher. 
Veterans are virtually cut out of this market, because there is no 
``seller'' on the other side to pay the necessary fees. These homes are 
often the most affordable option in many housing markets; however, 
because VA policy restricts the fees that veterans can pay, the veteran 
home loan purchaser is clearly disadvantaged from utilizing his 
certificate of eligibility for a VA loan to purchase a home.
    We urge VA to provide veterans with the flexibility to negotiate 
fees, so they aren't disadvantaged when trying to buy a home.
Conclusion
    I thank the Subcommittee for this opportunity to share the views of 
NAR regarding veterans housing. The NATIONAL ASSOCIATION OF REALTORS 
strongly supports housing opportunities for our Nation's veterans and 
active duty military professionals. It is our hope that the 
Subcommittee will support our recommendations for enhancing and 
improving the VA home loan guarantee program, so it may be a real 
benefit to those who have so bravely served our country.

                                 
         Prepared Statement of Joseph C. Sharpe, Jr., Director,
             National Economic Commission, American Legion

    Chair Herseth Sandlin, Ranking Member Boozman and Members of the 
Subcommittee.
    Thank you for the opportunity to present The American Legion's 
views on the Status of the Loan Guaranty Program.
VA HOME LOANS
    VA's Home Loan Guaranty Program has been in effect since 1944 and 
has afforded over 18 million veterans the opportunity to purchase a 
home. The home loan programs offer veterans a centralized, affordable 
and accessible method of purchasing homes in return for their service 
to this Nation. In the last five fiscal years (2005-2009), VA has 
assisted more than 947,000 veterans in obtaining home loan financing 
totaling almost $180 billion. In FY 2009, VA guaranteed 325,690 loans 
with the average loan being at $209,404.
    The American Legion has been very pleased to watch the performance 
of VA loans during the unprecedented downturn in the mortgage 
marketplace over the last two and a half years. Historically, the 
Mortgage Bankers Association has tracked the performance of Prime, 
Subprime, Federal Housing Administration and VA loans using its 
National Delinquency Survey. The most recent available survey is for 
the 4th quarter of 2009 and it shows the serious delinquency rate for 
these loan types is as follows:

                          Prime                       7.01%
                          Subprime                   30.56%
                          FHA                         9.42%
                          VA                          5.42%


    This data clearly shows that VA loans are performing better than 
all other mortgage loan types in the marketplace. This favorable 
performance during a difficult economic period can likely be attributed 
to several factors: (1) VA has continued to maintain its prudently 
crafted credit underwriting standards, while other players in the 
mortgage industry compromised their standards to generate more 
business; (2) VA selects the appraiser that will be used for a VA loan 
from its list of approved appraisers and does not allow lenders to make 
the selection as is typical in the rest of the mortgage industry; (3) 
VA has always maintained a comprehensive and aggressively administered 
program of assisting veterans who encounter trouble making their loan 
payments; and, (4) the fact that veterans and servicemembers are 
generally more responsible borrowers as a result of the maturity and 
discipline they develop while serving their country.
    VA has a longstanding program of assisting veterans who encounter 
financial difficulty and have trouble making their mortgage payments. 
This program involves a partnership with the servicers of VA loans 
under which VA aggressively monitors the efforts of these servicers in 
assisting veterans with repayment plans, loan modifications and the 
granting of forbearance. VA often intervenes directly with the veteran 
to assure that he/she has the opportunity to take advantage of one of 
these options. When it is not possible to affect one of these options, 
servicers are required to consider alternatives to foreclosure, such as 
a deed in lieu of foreclosure or a short sale. Also, in 2008, VA 
finished the development of a leading edge information technology 
system known as the VA Loan Electronic Reporting Interface (VALERI) as 
well as a comprehensive change to the business processes and 
regulations involved in the servicing of VA loans. This has given VA an 
even greater opportunity to assure that veterans are given every 
reasonable chance to keep their homes during times of financial 
difficulty.
    The VA loan program remains relevant and flexible in today's 
marketplace as it nears its 66th year of providing no down payment 
loans to veterans. Until the mid-1990s this program was virtually alone 
in the mortgage industry in offering a no down payment product. 
Gradually, during the 1990s and up until the mortgage crises that began 
around 2007-2008, many players in the industry aggressively marketed 
highly risky products such as payment option ARMS, interest only loans, 
as well as many versions of subprime loans. Some even ventured into the 
no down payment mortgage arena. The aggressive marketing of these 
products caused the VA Home Loan Program to experience a fall-off in 
loan origination volume as some veterans were lured away from using 
their VA benefit by the aggressive marketing of these products. When 
the ``subprime crisis'' was well underway in 2008, most lenders ceased 
offering these highly risky products. Since that time there has been a 
significant increase in VA loan volume as, once again, the VA program 
assumed the posture of being virtually the only source of no down 
payment loans. This resurgence is dramatically illustrated by looking 
at VA's diminished loan volume in Fiscal Year 2007 when it guaranteed 
only 133,297 loans, but followed in 2008 with 179,648 and 325,673 in 
2009. It looks like VA is on track to match last year's high volume 
during Fiscal Year 2010.
    VA presently has the statutory authority to offer a wide variety of 
mortgage products to veterans for the purpose of buying or refinancing 
a home, to include: fixed rate mortgages; adjustable rate mortgages or 
ARMS (both traditional and hybrid ARMS); growing equity mortgages; 
graduated payment mortgages; direct loans to Native American veterans; 
and, energy efficient mortgages. These products enable veterans to buy 
homes (new and existing), condominiums, manufactured homes and 
cooperative housing units. The American Legion believes that limiting 
VA to only those products for which specific statutory authority has 
been provided by Congress has generally been an effective process. 
While there have been instances over time when providing VA with 
authority to guarantee a new product was not accomplished in a timely 
manner, e.g. traditional and hybrid adjustable rate mortgages, on 
balance the process has worked well. As a test, Congress might wish to 
consider providing limited authority to the Secretary of Veterans 
Affairs to engage in geographically and time limited pilot programs as 
a means of testing a new product. This authority could include a 
requirement that VA report to Congress on the results. Congress could 
then decide whether to provide statutory authority for an ongoing 
program.
    VA has always believed that veterans should be given every 
opportunity to use their earned home loan benefit. Consequently, they 
employ a multi-faceted approach to credit underwriting that includes 
the following: (1) VA uses the residual approach to underwriting in 
which all of the veteran's obligations (consumer credit obligations, 
proposed housing expense, tax obligations, etc.) are subtracted from 
his/her gross income to determine the net effective income available to 
support the veteran's family. The net effective income is compared with 
guidelines obtained from the Bureau of Labor Statistics on what is 
required to support a family of varying sizes in different parts of the 
country; (2) debt-to-income ratios; and, (3) credit history obtained 
from credit reports. VA's credit underwriting guidelines require 
lenders to consider all aspects of a veteran's financial situation when 
making the decision to approve or disapprove a loan application. At the 
same time, lenders are directed to not consider the guidelines to be 
``hard and fast'' rules. Consequently, if a veteran does not meet one 
aspect of these guidelines, VA encourages lenders to look at the 
veteran's whole financial make-up to determine if there are any 
positive offsetting factors that would justify approving the loan.
    Furthermore, VA has approved several automated underwriting systems 
(AUS) for use in processing veterans' loan applications. For example, 
VA allows lenders to use Fannie Mae's Desktop Underwriter System and 
Freddie Mac's Loan Prospector System. AUS's are only approved after 
companies incorporate VA's underwriting standards into the algorithms 
contained in the software and VA subsequently tests the systems to 
assure that the decisions rendered are consistent with VA standards. 
These systems have significantly decreased the time frame for obtaining 
a VA loan while maintaining the integrity of the underwriting process. 
The American Legion believes that use of these automated underwriting 
systems has resulted is greater willingness of lenders to participate 
in the VA Home Loan Program.
    Currently, VA loans appear to be readily available in both high and 
low cost areas of the country. However, this has not always been the 
case. Prior to enactment of Public Law (P.L.) 108-454 in December of 
2004, VA loans were sometimes difficult to obtain in high cost areas of 
the country because the statutory maximum guaranty was insufficient to 
permit all veterans in these areas to purchase the home of their 
choice. With the enactment of this law, Congress indexed the guaranty 
amount to 25 percent of the conventional conforming loan limit. Since 
this amount automatically adjusts every year based on the increased 
cost of housing, the maximum VA guaranty should always be high enough 
to allow veterans in high cost areas to purchase the home of their 
choice.
    In 1982, P.L. 97-253 was enacted and imposed a \1/2\ percent 
funding fee (\1/2\ percent of the loan amount) on all veterans using 
the loan program, with the exception of those veterans in receipt of 
compensation for a service connected disability. This was considered to 
be a temporary measure to help reduce the national debt. Unfortunately, 
this fee has become a fixture of the home loan program and, even more 
unfortunately, it has been raised numerous times by Congress since 
1982. Presently, veterans using the program for the first time pay 2.15 
percent of the loan amount and those using it for a second or 
subsequent time pay 3.3 percent. Although veterans are permitted to 
include the fee in the loan amount, it constitutes an added financial 
burden. For example, a veteran using the program for the first time 
obtaining a $200,000 loan will pay $4,300. For a second time user, the 
fee on this loan amount would be $6,600. While this is substantial in 
and of itself, it is even more significant when you consider the amount 
of interest the veteran will pay on these amounts as a 30 year mortgage 
is amortized. The American Legion strongly urges Congress to consider 
either eliminating this fee or significantly reducing it. Veterans 
should not have to make such a significant financial sacrifice in order 
to use a benefit that they have earned as a result of their service to 
America.
    In addition, The American Legion supports that all spouses of 
deceased veterans gain eligibility for the VA Home Loan program. The 
current eligibility for a home loan for spouses is: an unremarried 
spouse of a veteran who died while in service or from a service-
connected disability; or, are a spouse of a servicemember missing in 
action or a prisoner of war. It is unfair for a veteran's spouse only 
to become eligible for the home loan if the veteran dies of a service-
connected disability. Moreover, veterans are more likely than not to be 
the primary income provider for the household and contribute the 
majority of payments to mortgages for the family. Upon death of a 
veteran, the mortgage payments must continue to be paid and the burden 
falls on the widow/widower. Many times the spouse elects to relocate to 
a smaller, more economical establishment that is within their means. By 
allowing spouses to gain eligibility, many elderly widows/widowers will 
be able to enter the VA Loan Program.
    Finally, as the mortgage crisis continues to unfold, the VA needs 
to do more to promote their excellent home loan program, and to 
encourage veterans facing housing problems to contact a VA financial 
counseling center.
    I would like to thank the Chair, Ranking Member and the rest of the 
Subcommittee for giving The American Legion the opportunity to speak on 
this important issue.

                                 
    Prepared Statement of Major General David R. Bockel, USA (Ret.),
Executive Director, Reserve Officers Association of the United States, 
           and also on behalf of Reserve Enlisted Association

Executive Summary--recommended changes
    The Reserve Officers Association and the Reserve Enlisted 
Association make the following recommendations:

      Make permanent Reserve Component VA Home Loan Guarantees 
expiring in Oct. 2012.
      Eliminate the .25 percent fee differential between Active 
Component and Reserve Component programs on VA Home Loan.
      Reduce the VA funding fee to a lower percentage for 
subsequent financing and for down payments higher than 10 percent.
      Lower the higher VA Funding Fee for repeat use by a 
veteran of VA Home Loan program.
      Allow occupancy by any other immediate family relatives 
(parents, siblings) as a substitute for personal occupancy by the 
veteran.
      Make it easier for serving Active and Reserve Component 
members to rent their homes, if they are unable to sell the property 
following a change of permanent duty station assignment.
      Raise the guaranty dollar levels permitting veterans to 
afford more home in a potentially rising real estate market; if not 
nationally, an audit needs to be done to enable adjustment of county 
guaranty levels.
Introduction

    ROA and REA believe that the VA Home Loan Guaranty Program is more 
financially relevant in today's market place as conventional loan 
qualifications standards have tightened since the real estate bubble 
collapsed over 2 years ago. In 2009, there were about 1.3 million 
active home loans that used the VA's Home Loan Guaranty Program. The VA 
Loan Guaranty Program is one of the few remaining programs that require 
zero down payment with more than 90 percent of VA-guaranteed loans are 
made without a down payment, VA reports. It allows easier qualification 
for the veteran who is a first time buyer, and is assumable by the new 
buyer at the time of resale.
    Key to any economic environment is the fact that this program 
provides veterans a backup plan should other options fall through. As 
some 57 million American's are eligible for the program, if anything, 
it demonstrates that it is under-utilized, likely because most of these 
veterans are unaware of this program. Veterans Affairs is dependent 
upon the Real Estate and mortgage industry to help get the word out. 
Certainly, there are means, other than having veterans go to the VA's 
Web site, to help put the word out.
    The ROA and REA feel it is important to authorize this program 
beyond 2012, and we are appreciative that this committee is holding a 
hearing on this early in the legislative cycle to take a look at the 
program.
Advantages
    The VA loan guaranty program is one of the few remaining programs 
that require zero down payment. Prime conventional loans may require up 
to a 20 percent down payment.
    For Real Estate agents, having an eligible veteran for the VA Loan 
Guaranty Program provides more versatility to the agent, when it comes 
to buying a home by having an option of a conventional loan and a VA 
loan, which makes negotiations easier. It also provides leverage to the 
veterans during a period of dynamic interest change.
    With a VA Loan, the veteran can have the seller pay as much as 6 
percent of the borrower's closing costs, while most conventional loans 
will only permit the seller to pay up to 3 percent of the loan.
    VA Home Loan Guarantee program has competitive interest rates.
    For a first time, younger buyer, the VA loan program makes it 
easier to purchase a house. The VA loan program can finance up to 100 
percent without requiring mortgage insurance which positively changes 
the calculus for loan qualification to favor the veteran. It is also 
easier to qualify as the VA doesn't base approvals solely on credit 
like many conventional lenders.
    Veterans receiving VA disability benefits are exempt from the VA 
Funding Fee.
    It helps in the selling of houses, as a VA loan is transferable to 
a non-veteran. The only risk to doing this is the veteran loses access 
to the guarantee while the mortgage remains to be paid.
    The veteran has the right to prepay without penalty.
Disadvantages
    Reservists pay a \1/4\ of a percent higher VA Funding Fee than 
serving members or veterans from Active Duty. (Guard or Reserve members 
with a DD-214 confirming active service qualify for the active rate.)
    VA Funding Fees are higher if a veteran wishes to subsequently 
reuse the VA loan program paying a 1.15 percent higher funding fee.
    In conventional loans, the higher the down payment the smaller the 
closing costs are, yet the VA Funding Fee remains 3.3 percent for a 
down payment of 10 percent or more.
    For the buyer, the VA Loan program is more stringent when it comes 
to appraisal and building inspection requirements, so for the 
individual selling the house to a veteran, the requirement to make 
repairs make the transaction more expensive, and a VA loan takes longer 
to close, putting a veteran at a disadvantage in having a bid initially 
being accepted. These standards also create duplicate paperwork; VA 
documents in addition to conventional documents.
    VA Loan program has stricter underwriting guidelines in terms of 
debt to income ratios and residual income (qualify by using net income 
versus gross income), yet the loan program has a very low delinquency 
rate, and the lowest foreclosure rate.
    Lenders can only charge certain fees to veterans (lender must 
absorb the unallowable costs or in a purchase transaction, the seller 
can pay).
    Mortgage brokers will try to qualify veterans in conventional loans 
before utilizing the VA program.
    The VA offers Adjustable Rate Mortgages (ARM). While this allows 
for easier qualification upfront, as rates rise (1 percent per year up 
to 5 percent higher) veterans risk an inability to make payment. At a 
minimum the VA needs to provide financial counseling for those veterans 
selecting ARMs.
    Losing access to the guaranty is also a problem for active duty 
members who purchase a home using the VA loan program, because upon 
transfer to a new station many are unable to sell the first house. They 
lose their eligibility for a new VA loan until the first property is 
sold.
    Condominiums are subject to great deal of regulation/red tape, 
making it hard to finance condos through VA Home Loan Program.
    VA Loan ceilings are determined by counties within the state with 
most locations being limited to $417,000. The down payment is required 
to close the gap. While there are exceptions, the veterans still has to 
qualify for the higher amount, and in many locations the program hasn't 
kept up with the real estate market.
    The law requires that you certify that you intend to occupy the 
property as your home when you are applying for the loan. If an active 
duty member is deployed, a spouse can occupy, but the law makes no 
provision for occupancy by any other relatives as a substitute for 
personal occupancy by the veteran.
    While there are no restrictions on renting out a primary residence 
after living in it, the VA can prove to be a little difficult when one 
lives in the home a very short time and then tries to rent it out. Many 
Active (and in some cases Reserve) members are transferred after a 
short duration. With some mortgage companies, one may have to submit a 
letter requesting permission to rent out a VA loan house.
Delinquency rates
                   First Qtr 2009      Third Qtr 2009 
Prime Loans    6.41 percent......  6.73 percent......
Subprime       25.35 percent.....  25.26 percent.....
 Loans
FHA loans      14.42 percent.....  13.57 percent.....
VA loans       8.06 percent......  7.41 percent......Source: Mortgage Bankers Association.

    Foreclosures decreased by nearly half between 2001 and 2008.
    VA says its percentage of loans in foreclosure is the lowest of all 
measured loan types--lower even than prime loans. When a VA-guaranteed 
home loan becomes delinquent, VA provides supplemental servicing 
assistance to help cure the default. Veteran borrowers may be able to 
request relief pursuant to the Servicemembers Civil Relief Act (SCRA). 
Court permission is usually necessary to foreclose a loan that falls 
under the provisions of the Act.
    VA's loan specialists can intervene on a veteran's behalf to help 
pursue home-retention options such as repayment plans, loan 
modifications and forbearance. Additionally, under certain 
circumstances, VA can refund a loan, which involves purchasing the loan 
from the mortgage company and modifying the terms to make a new 
mortgage plan more affordable.
Suggested Improvements
      In the past, some Veterans Service Organizations have 
recommended a repeal of the VA Funding Fee. This fee is not out of line 
with the mortgage market, which often includes ``points'' up to 3 
percent of the loan amount, if not more. The VA Funding Fee also 
eliminates private mortgage insurance (PMI) which is required on 
conventional loans with less than 20 percent down. Changes that ROA and 
REA recommend include:

          Parity between Active and Reserve VA Funding Fees.
          Reduction of the VA Funding Fee secured by a down 
        payment greater than 10 percent.
          Reduction of the higher VA Funding Fee for subsequent 
        use by a veteran of the VA Home Loan Guaranty program.

      VA counseling should warn about the possible risks of the 
Adjustable Rate Mortgage options.
      Allow occupancy by any other immediate family relatives 
(parents, siblings) as a substitute for personal occupancy by the 
veteran should members deploy.
      As eligibility is limited prior to a mortgage being paid 
off, make it easier for serving Active and Reserve Component members to 
rent their homes, if they are unable to sell the property.
      Raise the guaranty dollar levels permitting veterans to 
afford more home in a potentially rising real estate market; if not 
nationally, an audit needs to be done to enable adjustment of county 
guaranty levels.
Conclusion
    The VA Home Loan Guaranty program has a very low delinquency rate, 
and the lowest foreclosure rate when compared to FHA, prime and 
subprime conventional loans. In addition, the program has the assurance 
that serving Active or Reserve members who default on any home type of 
mortgage will put their security clearances at risk, which can 
terminate careers.
    Because of the success of this program, it should be continued 
beyond 2012, and many of the fees, underwriting standards and 
guarantees should be reexamined and reduced to encourage both serving 
members and veterans to utilize this program for both initial and 
subsequent home purchases.
    Both ROA and REA again thank the Committee for this opportunity to 
testify.
FAQ
What is the VA Home Loan Guaranty Program?
    VA guaranteed loans are made by private lenders, such as banks, 
savings & loans, or mortgage companies to eligible veterans for the 
purchase of a home which must be for their own personal occupancy. The 
guaranty means the lender is protected against loss if you fail to 
repay the loan. The guaranty replaces the protection the lender 
normally receives by requiring a down payment allowing you to obtain 
favorable financing terms.
Who qualifies?
    More than 57 million Americans currently qualify for a VA Home 
Loan. Veterans with DD-214, and serving Active, Guard and Reserve 
members are eligible. Reservists w/o active duty time must serve 6 
years to qualify. These loans are also available for the widows or 
widowers who have not remarried and the spouses of the veterans and 
active military personnel.
How does one qualify?
    It requires a VA Certificate of Eligibility. One needs to complete 
a VA Form 26-1880, Request for a Certificate of Eligibility. The 
process to obtain a VA Certificate of Eligibility used to take weeks 
through the VA to have it delivered, delaying the house buying process, 
but most lenders have access to the Web LGY system, allowing 
eligibility to be established in minutes.
What is the VA Funding Fee?
    The VA funding fee is required by law and is what the VA charges to 
guarantee the loan. This fee is simply added to a base loan amount and 
is paid over the life of the loan, replacing more expensive mortgage 
insurance.
    The active duty veteran will have to pay a 2.15 percent funding fee 
of the loan amount if it is a first time loan.

------------------------------------------------------------------------
                                                          Subsequent Use
                                                          for Loans From
  Type of Veteran      Down Payment       1st Time Use   1/1/04 to 9/30/
                                                               2011
------------------------------------------------------------------------
Regular Military    None                      2.15%            3.3%*
                    5% or more (up to         1.50%            1.50%
                     10%)
                    10% or more               1.25%            1.25%
------------------------------------------------------------------------
Reserves/National   None                      2.4%             3.3%*
 Guard
                    5% or more (up to         1.75%            1.75%
                     10%)
                    10% or more               1.5%             1.5%
------------------------------------------------------------------------
* If the first loan is paid off, the VA loan program can be used again,
  but the fee increases to 3.3 percent the next time.


                                 
      Prepared Statement of Tim S. Embree, Legislative Associate,
                Iraq and Afghanistan Veterans of America

    Madam Chairwoman, Ranking Member, and Members of the Subcommittee, 
on behalf of Iraq and Afghanistan Veterans of America's one hundred and 
eighty thousand members and supporters, I would like to thank you for 
inviting IAVA to testify today. My name is Tim Embree. I am from St. 
Louis, MO and I served two tours in Iraq with the United States Marine 
Corps Reserves.
    Veterans housing and home ownership is a critical issue facing many 
Iraq and Afghanistan veterans and the ``Loan Guaranty Program'' is a 
valuable benefit that helps many veterans and their families. IAVA 
welcomes the opportunity to discuss this program with you.
    Due to the current housing crisis, we are beginning to see some of 
the shortfalls of the VA Loan Guaranty Program. This popular benefit is 
well administered, and since 1944, the VA has made 18 million homes 
affordable for troops and veterans by acting as a guarantor of their 
mortgage loans. But the number of new VA loans has declined every year 
between 2004 and 2007, and ``in 2006, at the peak of U.S. subprime 
lending, the number of VA loans fell to barely a third of the level 2 
years earlier.'' i
---------------------------------------------------------------------------
    \i\ Howley, ``Foreclosures in Military Towns Surge at Four Times 
U.S. Rate.'' With the collapse of the subprime mortgage market, and the 
decline in house values, VA loans are again gaining popularity. Tom 
Philpott, ``Help for Vets in Mortgage Mess,'' Military.com, June 5, 
2008.
---------------------------------------------------------------------------
    In 2007, over 1.3 million American homes were in foreclosure, up 
almost 80 percent from the year before. For military families, the 
foreclosure crisis is even more dire. In early 2008, foreclosure rates 
in military towns were increasing at four times the national average. 
One cause of this is lenders selling subprime mortgages had targeted 
military families.
    Tragically, the marketing of subprime mortgages seems to have drawn 
troops and veterans away from the VA Home Loan Program.
    Furthermore, during the height of the housing bubble, technical 
limitations on VA home loans made the program less beneficial to many 
homebuyers in expensive areas due to soaring housing prices. Until the 
cap was raised in mid-2008, veterans could not receive a zero or no 
down payment loan over the limit of $417,000. The cap was above the 
2008 median home sale price, but it failed veterans looking to buy 
homes in the more expensive regions of the country. For instance, in 
San Francisco, California, the median home sale price during November 
2008 was $648,000. A veteran looking to buy a home in the city by the 
bay could not receive a no down payment loan from the VA and would have 
to pay a down payment out of pocket.
    Many vets were also deterred from applying for a VA loan by the 
funding fee, ranging from 0.5 percent for an Interest Rate Reduction 
Refinancing Loan to 3.3 percent for a general VA home 
loan.ii
---------------------------------------------------------------------------
    \ii\ For more information, visit ``VA Home Loans--A Quick Guide for 
Homebuyers and Real Estate Professionals,'' www.homeloans.va.gov/vap26-
91-1.htm.
---------------------------------------------------------------------------
    The net effect of the widespread, targeted advertising of subprime 
loans and the deterrence of the limits and fees of VA loans is that 
veterans who may have qualified for VA-backed mortgages are now 
struggling with a subprime mortgage at high risk of foreclosure. This 
is especially unfortunate given that VA-backed home loans protect the 
veteran-borrower from many of the risks associated with the mortgages 
offered to subprime borrowers.
    As the mortgage crisis has expanded, the popularity of the VA home 
loan program has increased. After guaranteeing only 130,000 loans in 
2007, the VA guaranteed about 180,000 loans in 2008, totaling $36 
million.iii The renewed interest in VA loans is good news; 
veterans are better served by VA loans and we have earned the benefits. 
But there is much more to be done to help servicemembers and veterans 
get the full benefit of the VA loan program. Congress has already taken 
some action to improve the resources available to troops and veterans 
facing mortgage problems. The Housing and Economic Recovery Act of 2008 
raised the loan ceiling for VA home loans to $729,750 in some areas and 
gave servicemembers 9 months of protection from foreclosure after 
returning from a deployment.iv In addition, VA authority to 
refinance a loan has been expanded.v But there remain 
serious concerns about the structural limitations of the VA refinancing 
program and the lack of outreach to veterans regarding VA financial 
counseling.
---------------------------------------------------------------------------
    \iii\ Bob Tedeschi, ``VA-Backed Loans on the Rise,'' New York 
Times, June 29, 2008. Department of Veterans Affairs, ``Enhanced VA 
Mortgage Options Now Available for Veterans,'' October 24, 2008.
    \iv\ Department of Veterans Affairs, ``VA Raising Home Loan 
Ceilings in Many Areas.'' See also: Summary of the ``Housing and 
Economic Recovery Act of 2008,'' Senate Banking Committee, 
banking.senate.gov/public/_files/
HousingandEconomicRecoveryActSummary.pdf.
    \v\ Department of Veterans Affairs, ``Enhanced VA Mortgage Options 
Now Available for Veterans.''
---------------------------------------------------------------------------
    The VA Loan Guaranty Program helps thousands of our Nation's 
veterans realize the dream of home ownership each year, but we must 
keep this program secure and ensure that it continues to meet the 
future needs of servicemembers, veterans and their families.
    IAVA recommends the following steps to ensure that veterans have 
every opportunity to continue turning dreams of home ownership into a 
reality:

      Allow for the consideration of VA benefits (such as the 
GI Bill) as income for VA home loan eligibility determination;
      Develop home purchasing workshops at local Vet Centers;
      Aggressively market the VA Loan Guaranty Program to more 
lending institutions; and
      Reinstate the $8,000 first time homebuyer tax credit for 
veterans and current servicemembers.
VA benefits are income that we have earned
    Veterans have earned their GI Bill benefits and are using this 
benefit to increase their value to the civilian workforce. Many 
veterans use the old and new GI Bills to go to school and, unlike many 
younger non-veteran students, veterans are ready to put down permanent 
roots in a community. Veterans want to begin the next chapter of their 
lives with a place to call home, but currently the money they receive 
from their VA benefits is not taken into consideration when they apply 
for a VA home loan. Without the benefit income on their application, 
veterans can look like an inferior loan candidate. Student veterans 
should not have to choose between taking advantage of their new GI Bill 
benefit and buying a home.
Buying a home is likely the most complex purchase a person will ever 
        make
    Purchasing your first home is not like buying a television. There 
are many steps and hidden costs that can catch the potential homebuyer 
unaware. If we have learned anything from the recent housing crisis, it 
is the importance of being a well-informed homebuyer. The VA Loan 
Guaranty Program is one of the best deals out there, but it is still a 
complicated process. The VA should implement local home purchasing 
workshops to prepare veterans for the complicated process of purchasing 
a home as well as to promote the benefits of the VA Loan Guaranty 
Program. These workshops should be held at the local Vet Center. These 
are welcoming facilities where veterans and their families can learn 
about the many different programs available to them, as well as meet 
fellow veterans in similar situations.
Great program, too few lenders
    Due to the current financial crisis, interest rates across the 
board have remained low. As of submitting this testimony, the current 
fixed mortgage rate is 4.625 percent, while the VA 30-year fixed rate 
is 4.875 percent. The limited number of VA approved lenders makes it 
nearly impossible for a veteran to shop around for better interest 
rates for a VA loan. This noncompetitive environment puts veterans at a 
great disadvantage. If they want the benefits of a VA loan they need to 
accept a bloated interest rate. While interest rates are artificially 
low, we must encourage more lending institutions to take part in this 
program. Many lenders are leery of the process to become an approved VA 
lender due to ignorance of the program and ignorance of the ease of the 
process to become an approved VA lender.
    The VA must aggressively market this program to more lenders across 
the country. Although 90 percent of current VA-backed home loans were 
given without a down payment, the VA has seen relatively few 
foreclosures, compared with other lenders nationwide. In the fourth 
quarter of 2007, the share of VA mortgages in foreclosure was only 
slightly higher than the share for prime borrowers; those with the 
highest credit scores. Even in the midst of the housing crisis, VA 
foreclosures in 2008 were down more than 50 percent from the same 
months in 2003, according to the VA. As lenders are becoming more risk 
adverse, the VA must preach to mortgage lenders the inviolability of 
the VA Loan Guaranty Program.
Veterans are leaders in their communities
    Veterans of past wars have been a positive addition to our 
communities and our newest veterans are no different. We are the next 
``Greatest Generation.'' We are leaders and we care deeply about our 
neighborhoods and our neighbors. As we pass the 2 million mark of 
servicemembers having served in Operations Enduring and Iraqi Freedom, 
we have more and more veterans looking for new neighborhoods in which 
to begin the next chapter of their lives. Our veterans have earned the 
VA home loan benefit and thousands of these veterans are ready to 
purchase their first home. We must update and streamline this 
phenomenal benefit to ensure today's and tomorrow's veterans will be 
able to purchase their own home.

    Thank you for your time and attention.

                                 
    Prepared Statement of Thomas J. Pamperin, Associate Deputy Under
    Secretary for Policy and Program Management, Veterans Benefits 
          Administration, U.S. Department of Veterans Affairs

    Madam Chairwoman, Ranking Member Boozman, and Members of the 
Subcommittee, I appreciate the opportunity to appear before you today 
to discuss the Department of Veterans Affairs (VA) Home Loan Guaranty 
Program. Accompanying me today is Mike Frueh, Assistant Director for 
Loan Management in VA's Loan Guaranty Service.
    The VA Home Loan Guaranty Program provides an important benefit to 
our Veterans and eligible Servicemembers. Since the crisis in the 
subprime mortgage markets became evident in the summer of 2008, the VA 
Home Loan Guaranty Program has been a model of stability, helping 
Veterans to continue to realize the dream of homeownership, despite the 
decreasing number of opportunities in the current marketplace.
    VA offers the country's largest mortgage program with a zero-
downpayment option. The no-downpayment feature is a cornerstone of the 
VA home loan guaranty program and is critical to ensuring that Veterans 
and Servicemembers can secure a mortgage. Ninety percent of VA loans in 
fiscal year (FY) 2009 were no-downpayment mortgages. While most no- or 
low-downpayment mortgage options have become scarce in the market, 
federally guaranteed VA loans have become more attractive to banks and 
mortgage investors.
    VA's Home Loan Guaranty Program has maintained stability for 
several reasons. VA's adherence to sound credit and underwriting 
principles prohibited the program from engaging in risky or subprime 
lending practices. Our strong lender oversight ensured that VA's 
mortgage-industry partners complied with these policies. Additionally, 
VA's panel of fee appraisers, who are assigned on a rotational basis 
and monitored by VA, ensures that home values are reasonable in light 
of market conditions. VA also attributes the strength of the program to 
the strong sense of commitment that Veterans and Servicemembers 
demonstrate with regard to their financial obligations. Finally, VA has 
a robust default-servicing program to oversee loan-servicing efforts by 
private mortgage servicers and, when appropriate, directly assists 
Veterans and Servicemembers in avoiding foreclosure. The servicing 
program ensures that every effort is made to keep Veterans and 
Servicemembers in their homes, while limiting adverse impacts when home 
retention is not possible.
Program Activity Since the Financial Market Crisis
    The number of home loans issued with a VA guaranty has increased 
dramatically since the start of the subprime crisis for three main 
reasons: Other forms of mortgage financing are more difficult to 
obtain; interest rates are at historic lows; and changes to the VA home 
loan program enacted in 2008 increased the maximum guaranty amount 
available to individuals purchasing homes in high-cost areas.
    Overall, in FY 2009, VA guaranteed 325,671 loans nationwide, valued 
at over $68 billion. That represents an 82 percent increase over FY 
2008, in which VA guaranteed 179,649 mortgages valued at over $36 
billion. In fiscal year 2010, the program is on track to match the 
volume and value of loans guaranteed in FY 2009. VA has nearly 
surpassed the FY 2008 loan volume already this fiscal year, 
guaranteeing 175,446 loans totaling approximately $36 billion through 
the end of April.
    Increases in both purchase loans and refinance loans have driven 
this growth since 2008. An increase in refinancing loans primarily 
caused the increase in VA's overall loan volume. In FY 2008, purchase 
loans made up 79 percent of VA-guaranteed loans. As refinancing became 
more popular, purchase loans decreased to 55 percent of VA-guaranteed 
loans in FY 2009. Refinancing loans increased from 21 percent of all VA 
loans in FY 2008 to 45 percent of all VA loans in FY 2009. For the 
current fiscal year through May 4, 2010, 40 percent of the program's 
loans are refinancing loans. Historically, interest-rate-reduction 
refinance loans have constituted roughly 80 percent of the refinance 
loans, and historically low interest rates since the start of the 
financial crisis sparked increased activity for these loans.
Delinquency and Foreclosure Rates
    Veterans and Servicemembers, like all other Americans, face serious 
economic difficulties. Rising unemployment and under-employment have 
led to lost wages and rapid depreciation of home values, making it 
difficult for homeowners to relocate for work or sell a home they can 
no longer afford. VA and its partners in the mortgage industry employ a 
number of servicing options to help struggling Veterans and 
Servicemembers. These efforts have been very successful in keeping 
Veterans' and Servicemembers' home loans from going into foreclosure, 
as demonstrated by industry data.
    The Mortgage Bankers' Association (MBA) conducts a quarterly survey 
of approximately 44 million home loans of all types, including VA-
guaranteed, Federal Housing Administration (FHA) insured, conventional 
market prime rate, and conventional market subprime rate mortgages. VA 
believes the MBA data show that the servicing efforts by VA and its 
private-sector partners have been extremely effective in preventing 
foreclosure for Veterans and Servicemembers, despite the state of the 
economy and a turbulent market. Table 1 included with this statement 
summarizes this information.

                                                     Table 1: Delinquency and Foreclosure Information (Source: Mortgage Bankers Association)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                       Total Delinquencies                                              Serious Delinquencies                                           Foreclosure Inventory
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                    Prime      Subprime        FHA         VA                          Prime      Subprime       FHA         VA                       Prime      Subprime      FHA         VA
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    4Q 2008          5.06%       21.88%       13.73%       7.52%       4Q 2008          3.74%       23.11%       6.98%      4.12%      4Q 2008         1.88%      13.71%       2.43%      1.66%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    1Q 2009          6.06%       24.95%       13.84%       8.21%       1Q 2009          4.70%       24.88%       7.37%      4.42%      1Q 2009         2.49%      14.34%       2.76%      1.93%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    2Q 2009          6.41%       25.35%       14.42%       8.06%       2Q 2009          5.44%       26.52%       7.78%      4.69%      2Q 2009         3.00%      15.05%       2.98%      2.07%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    3Q 2009          6.84%       26.42%       14.36%       8.08%       3Q 2009          6.26%       28.68%       8.67%      5.06%      3Q 2009         3.20%      15.35%       3.32%      2.29%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    4Q 2009          6.73%       25.26%       13.57%       7.41%       4Q 2009          7.01%       30.56%       9.42%      5.42%      4Q 2009         3.31%      15.58%       3.57%      2.46%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

     According to the MBA data, in the fourth quarter of FY 2009, the 
percentage of outstanding VA loans that were in the foreclosure process 
was 2.46 percent. This was the lowest in the industry. In comparison, 
for the entire population, the foreclosure inventory was 3.31 percent 
for prime mortgages and 15.58 percent for the sub-prime mortgages.
    VA's rate of serious delinquency (those loans 90 or more days 
delinquent, or in the process of foreclosure) was also lower than any 
other type of loan according to the MBA data. VA's serious delinquency 
rate was 5.42 percent in the fourth quarter of 2009, while serious 
delinquency rates were 7.01 percent for prime mortgages and 30.56 
percent for sub-prime mortgages.
    Although our total default rate (those loans 30 or more days 
delinquent, excluding those in the process of foreclosure) has actually 
been slightly higher than the prime rate, VA leads the field with the 
lowest numbers of seriously delinquent loans and foreclosures. This 
illustrates that despite greater payment difficulties, VA borrowers are 
more likely to reach a positive outcome due to VA's robust servicing 
policy. VA is proud that our policies with respect to mortgage 
servicing, loss mitigation options, and alternatives to foreclosures 
have been very successful in helping Veterans and Servicemembers emerge 
from default, even though they face the same financial difficulties as 
all Americans.
Effects of the Slower Economy
    Although VA's Home Loan Guaranty Program continues to provide an 
important benefit to Veterans and Servicemembers, the slower economy 
has had its effects on the program. As previously described, the VA-
guaranteed loan volume has risen over the past 2 years because of more 
stringent credit standards and the constrained state of credit in the 
mortgage market, which make other types of financing more difficult to 
obtain. Since the financial crisis began, the VA home loan program has 
enabled lenders to finance loans for Veteran borrowers who may not 
otherwise have been able to purchase a home due to these market 
conditions.
    Veterans and Servicemembers have had fewer opportunities for 
homeownership due to overall market conditions. Potential home-buyers 
have faced stricter requirements for obtaining loans as more mortgage 
investors hedge against losses by establishing minimum credit scores 
for borrowers and requiring larger downpayments.
    VA has received anecdotal evidence and reports from industry 
partners that stricter requirements are being imposed on their VA loans 
as well. For example, although VA does not require that borrowers have 
a minimum credit score to qualify for a VA-guaranteed home loan, many 
lenders have instituted such a requirement as part of their own 
underwriting policies. Some lenders have also considered requiring a 
downpayment on VA loans to help protect them from loan losses beyond 
the VA guaranty. VA does not have the authority to prohibit lenders 
from imposing this extra layer of requirements, but additional lender 
requirements may make it more difficult for Veterans to obtain homes.
    Like many other Americans, Veterans and Servicemembers who already 
own homes have been affected by financial problems. Although VA loans 
continue to out-perform all other types of mortgages in avoiding 
serious delinquency and foreclosure, trouble in the broader economy has 
led to a slight rise in these numbers. Serious delinquencies have risen 
steadily from 4.12 percent in the fourth quarter of FY 2008 to 5.42 
percent in the fourth quarter of FY 2009. The inventory of loans in 
foreclosure has risen as well, from 1.66 percent in the fourth quarter 
of FY 2008 to 2.46 percent in the fourth quarter of FY 2009.
    Private-sector VA home loan partners, including banks and mortgage 
servicing companies, are the first source of assistance for a borrower 
in trouble, and under VA loan program guidelines, these partners are 
required to pursue all realistic alternatives to foreclosure. These 
alternatives include extended payment plans, forbearance, loan 
modifications, short sales, and deeds in lieu of foreclosure. VA 
instituted an incentives program to ensure that servicers explore these 
options before considering foreclosure. VA also reviews each loan that 
is referred for foreclosure and attempts to contact the borrower 
directly to provide financial counseling and assistance in developing 
repayment plans with the private servicers if needed. These efforts 
protect the American taxpayer by avoiding claim payments on loans that 
can avoid foreclosure. In FY 2009, VA helped nearly 72 percent of those 
who defaulted on their VA mortgages, or over 38,000 families, avoid 
foreclosure.
    VA adopted measures to provide greater assistance to struggling 
homeowners in the midst of the financial crisis. VA's Home Affordable 
Modification Program (VA HAMP) went into effect in February 2010. VA 
HAMP is part of the President's Home Affordable Modification Program 
(HAMP) to make home ownership affordable, or when that is not possible, 
to mitigate losses. Under HAMP, the servicer may offer the borrower a 
modification of the mortgage terms to make the payments manageable. If 
the servicer is not willing to offer the borrower a HAMP modification 
that could make the loan affordable, VA will consider whether it is in 
the Government's best interest to purchase the loan from the bank or 
mortgage servicer and offer terms that are more favorable to the 
homeowner. VA HAMP has seen very little activity in the past few months 
as servicers continue to ramp up their special review processes to 
address loans that cannot be helped through traditional loss-mitigation 
options.
    Although foreclosures of VA loans increased as a result of the poor 
economy, VA and its private-industry partners have worked hard to 
ensure foreclosure is truly the last resort.
Conclusion
    We look forward to working with Congress to improve our service. 
The VA Home Loan Guaranty Program provides a valuable benefit to 
Veterans and Servicemembers who want to obtain, retain, or adapt a 
home. VA plans to continue to provide world-class service by focusing 
on prevention of foreclosures. We aim to bolster our relationships with 
our private-sector partners that help fulfill our mission through 
training and outreach to lenders.
    Madam Chairwoman, this concludes my testimony. I appreciate the 
opportunity to be here today, and I look forward to answering the 
Subcommittee's questions.
                   MATERIAL SUBMITTED FOR THE RECORD

                                     Committee on Veterans' Affairs
                               Subcommittee on Economic Opportunity
                                                    Washington, DC.
                                                       May 24, 2010

Mr. James B. Barber
Chairman and Chief Executive Officer
Acacia Federal Savings Bank, Falls Church, VA
American Bankers Association
1120 Connecticut Ave., NW
Washington, DC 20036

Dear Mr. Barber:

    I would like to request your response to the enclosed questions for 
the record I am submitting in reference to our House Committee on 
Veterans' Affairs Subcommittee on Economic Opportunity hearing on The 
Status of the Loan Guaranty Program on May 20, 2010. Please answer the 
enclosed hearing questions by no later than Tuesday, July 6, 2010.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all Full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres by fax at (202) 225-2034. If you have any questions, 
please call (202) 226-5491.

            Sincerely,

                                          Stephanie Herseth Sandlin
                                                         Chairwoman

JL/ot

                               __________
    House Committee on Veterans Affairs, Hearing in the Subcommittee
 on Economic Opportunity, ``The Status of the Loan Guaranty Program'',
    May 20, 2010, Responses to Questions for James Barber, Chairman
           and CEO, Acacia Federal Savings Bank, On Behalf of
                    the American Bankers Association

    Question 1: What is your view of the Senate Banking Committee 
seeking to require a mortgage securitizer ``to retain 5 percent of the 
credit risk for any asset that is transferred, sold, or conveyed 
through the issuance of an asset-backed security by the securitizer?'' 
(Note: House provided a specific exemption for VA loans to the credit 
risk requirement.)

    Response: Our principle concern with regard to this type of 
requirement is that it not hamper the good work of this program. 
Legislation that would make a global requirement for down payments 
would be a mistake that would take away one of the main benefits for 
our veterans--the ability to access homeownership even though the down 
payment may be difficult to obtain.
    Because our military servicemembers are required to relocate every 
couple of years, they lose the opportunity to build equity in their 
property. VA loans are designed to allow servicemembers to own a home 
even absent significant equity accumulation. The lack of a down payment 
and a requirement to obtain private mortgage insurance is a big 
benefit. A 5 percent mortgage secuitizer for VA loans would take away 
the main benefit of the program and would make it difficult for 
servicemembers to own their home.

    Question 2: Can you provide this Subcommittee a list of items that 
lack nationwide consistency and the rationale for needing uniformity?

    Response: The appraisal process is one important item. Certain 
regional offices require specific verbiage regarding septic systems. If 
we do not conform to the regional office requirement, a deficiency 
letter will be issued on that appraisal. Another item is appraisal 
deficiencies. Regional offices have different viewpoints. For example, 
one regional VA loan center sent a deficiency letter because the 
appraiser did not attach the sales contract to the appraisal. When 
asked about the source of the deficiency, the VA regional office sent a 
copy of a policy announcement that was a newsletter to the appraiser 
but not sent to lenders.

    Question 3: Can you elaborate on your point of having a nationwide 
database and the benefits of such a database?

    Response: The addition of a nationwide database would allow both 
regional offices and the national office to be aware of information 
even down to the level of a single application. This would help to 
eliminate inconsistencies between regional offices.

    Question 4: What would be the ramifications if VA were to eliminate 
the original signatures on certain loan documentation?

    Response: It would be a process improvement to eliminate the 
requirement for a wet signature on sales contracts and documents that 
the lender signs. There are very few risks to eliminating the 
requirement for a wet signature on these types of documents.

    Question 5: On average how much of a cost does a private mortgage 
insurance premium add to a loan?

    Response: Private mortgage insurance typically costs between 0.78 
percent to 0.98 percent for the monthly MI premium. The fee range is 
given for high LTV's over 90 percent with satisfactory to excellent 
credit scores.

    Question 6: How much time would be saved by the elimination of 
signatures on certain loan documents?

    Response: Most lenders today use some form of paperless process. 
When a wet signature is required, the user has to key the document for 
print, go to the printer, sign the document and fax it back to the 
paperless server, so this process would be significantly streamlined.

    Question 7: You state that in the VA process of ``no bid'' or buy 
down actions, that due to the lender's risk, a lender may seek to 
accept applications from their own portfolio. Can you give us an 
example of a ``no bid'' or buy down action, the risk for the lender and 
the rational why a lender may focus on their own portfolio?

    Response: It becomes a pricing issue. Bankers are more apt to do 
Interest Rate Reduction Refinance to retain loans from our own 
portfolio. Banks don't want to lose loans to another institution 
because of rate.

    Question 8: Can you submit to the Subcommittee your ideas on 
improving the condominium loan process?

    Response: The current approval process to purchase a condominium is 
manual and time-consuming for the veteran, the lender and the VA. The 
main issue about the VA condo process is the legal review/attorney 
certification. VA's legal form is very long (16 pages). Although 
lenders have the option to submit without that form, that requires the 
VA to do their own review which does slow down the process. Our 
recommendation is to streamline the legal review as FNMA did. In 
addition the VA Condo/Builder Web site could be updated to include more 
details such as phases and to impose expiration dates on the approved 
condos.

                                 

                                     Committee on Veterans' Affairs
                               Subcommittee on Economic Opportunity
                                                    Washington, DC.
                                                       May 24, 2010

Mr. James H. Danis II, CMB, AMP
President, Residential Mortgage Corporation, Fayetteville, NC
Mortgage Bankers Association
1331 L Street, NW
Washington, DC 20005

Dear Mr. Danis:

    I would like to request your response to the enclosed questions for 
the record I am submitting in reference to our House Committee on 
Veterans' Affairs Subcommittee on Economic Opportunity hearing on The 
Status of the Loan Guaranty Program on May 20, 2010. Please answer the 
enclosed hearing questions by no later than Tuesday, July 6, 2010.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all Full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres by fax at (202) 225-2034. If you have any questions, 
please call (202) 226-5491.

            Sincerely,

                                          Stephanie Herseth Sandlin
                                                         Chairwoman

JL/ot

                               __________
 Questions for the Record from the House Committee on Veterans' Affairs
                  Subcommittee on Economic Opportunity
           Hearing on The Status of the Loan Guaranty Program

    Question 1: Can you provide examples of the way the VA Loan 
Guaranty Program should be reviewed and updated to be aligned with 
industry standards?

    Response: As stated in MBA's written testimony, there are several 
examples of how the VA program could be updated and aligned with 
industry standards.

 i..................................  Closing costs: VA should review all
                                      of its fees and charges and align
                                      them with FHA and conventional
                                      products. The closing fee policy,
                                      in particular, is complex and
                                      inconsistent with what is
                                      customary in today's mortgage
                                      industry. VA needs to simplify its
                                      policy to allow borrowers to pay
                                      reasonable and customary fees in
                                      order to make VA loans more
                                      competitive in the marketplace.
ii.................................  Residual tables: The tables that
                                      guide lenders on acceptable
                                      residual income amounts have not
                                      been updated since 1997 and are
                                      outdated. VA should update its
                                      tables to reflect new economic
                                      realities. Some of those figures
                                      need to be adjusted up or down
                                      depending on family size.
iii................................  Adjustable rate and hybrid ARMs:
                                      ARMs are especially useful loans
                                      for active duty military, since
                                      these families move often;
                                      however, VA only has temporary
                                      authority for adjustable rate and
                                      hybrid ARMs through 2012. MBA
                                      encourages Congress to authorize
                                      VA adjustable-rate products
                                      permanently.
iv.................................  Full guaranty: The VA partial
                                      guaranty exposes servicers who
                                      administer the loans to principal
                                      losses that can range up to 50
                                      percent or more. The FHA program
                                      provides insurance for 100 percent
                                      of the outstanding principal
                                      amount, while under the Fannie Mae
                                      and Freddie Mac programs the GSEs
                                      purchase the loans and retain 100
                                      percent of the principal risk
                                      associated with such ownership. We
                                      believe the risk of principal loss
                                      is a major reason why the VA
                                      program is far less vibrant than
                                      other government and private
                                      programs.
v..................................  Partial refundings: The VA should
                                      be granted authority to make
                                      ``partial refundings'' similar to
                                      FHA's partial claim authority. A
                                      partial refunding would allow the
                                      VA to use its refunding authority
                                      without having to purchase the
                                      entire loan. For the partial
                                      refunding to be successful, it is
                                      critical that VA's guaranty not be
                                      reduced by the amount of the
                                      refunded amount; otherwise the
                                      servicer suffers significant
                                      financial detriment for helping a
                                      veteran who later redefaults.
vi.................................  Forbearance: The VA should consider
                                      eliminating the requirement that
                                      borrowers must be 61 days
                                      delinquent in order to qualify for
                                      a special forbearance.
vii................................  Modification of the maturity date:
                                      VA regulations currently provide
                                      that the maturity date of a
                                      modified loan cannot be extended
                                      to exceed 360 months from the due
                                      date of the first installment
                                      required under the modification or
                                      120 months past the original
                                      maturity date, whichever comes
                                      earliest. MBA recommends that the
                                      VA remove the 120-month
                                      restriction and allow servicers to
                                      reset the maturity date to 360
                                      months from the first modified
                                      installment, which would make its
                                      policy consistent with current FHA
                                      policies.
viii...............................  Capitalization of foreclosure fees:
                                      VA should allow foreclosure fees
                                      incurred by the borrower to be
                                      capitalized as part of a
                                      modification as is permitted by
                                      FHA. FHA currently permits legal
                                      fees and related foreclosure costs
                                      related to a canceled foreclosure
                                      action to be capitalized into the
                                      loan modification or partial
                                      claim.

    Question 2: In your opinion, should there be anything done to help 
veterans who are underwater to refinance?

    Response: The current VA Interest Rate Reduction Refinancing Loan 
(IRRL) does not require an appraisal to refinance. The borrower is 
allowed to refinance the payoff of the home and roll in all closing 
cost and include up to two discount points to buy the rate down. As 
long as the borrower is current, being underwater does not affect the 
borrowers' ability to refinance. Veterans are not able to take full 
advantage of this program, however, because many investors require 
appraisals, thus making it difficult for lenders to originate these 
loans.

    Question 3: Your fourth recommendation is that the VA loan program 
needs servicing enhancements. How can the loan process be better 
simplified?

    Response: Our suggestions for making servicing enhancements are 
outlined above in our response to question number one.

    Question 4: In your testimony you ask that the VA loan be modified 
to eliminate risk of principal loss to lenders. How does the VA loan 
currently compare to other loans regarding the risk of principal to 
lenders?

    Response: As stated in our testimony, VA provides only a partial 
guaranty. Below is a chart showing the amount of the guaranty.

------------------------------------------------------------------------
                            Maximum Potential
      Loan Amount                Guaranty           Special Provisions
------------------------------------------------------------------------
Up to $45,000            50% of the loan amount.  Minimum guaranty of
                                                   25% on IRRRLs.
------------------------------------------------------------------------
$45,001 to $56,250       $22,500                  Minimum guaranty of
                                                   25% on IRRRLs.
------------------------------------------------------------------------
$56,251 to $144,000      40% of the loan amount,  Minimum guaranty of
                          with a maximum of        25% on IRRRLs.
                          $36,000
------------------------------------------------------------------------
$144,001 to $417,000     25% of the loan amount   Minimum guaranty of
                                                   25% on IRRRLs.
------------------------------------------------------------------------
Greater than $417,000    The lesser of: 25% of    Minimum guaranty of
                          the VA county loan       25% on IRRRLs
                          limit, or                          25% of the
                          loan amount
------------------------------------------------------------------------

    However, most VA loans originated today carry a guaranty of 25 
percent of the loan balance. This means that if a $150,000 loan goes 
into default, the guaranty is $37,500. A foreclosure loss of more than 
$37,500 is borne by the servicer.
    On the other hand, if an FHA loan with the same balance experiences 
a loss greater than $37,500, the servicer does not bear any principal 
loss. This is because FHA provides 100 percent insurance for the 
principal balance.
    Likewise, with Fannie Mae and Freddie Mac, the servicer does not 
absorb any principal losses. This is due to the GSEs' loan purchase and 
securitization structure, whereby the GSEs or their securitization 
trusts own the underlying assets and bear the risk (of loss) of such 
ownership. The GSE's however protect themselves against principal loss 
by purchasing private mortgage insurance. The servicer, however, does 
not bear this principal loss risk.

    Question 5: If VA were to review and consider changes to the 
process on how appraisers are selected, what changes should the VA 
consider?

    Response: VA should consider reevaluating its appraisal process and 
allow lenders to manage the appraisal process, similar to how they 
manage the process for conventional or FHA loans. Currently, VA does 
not allow mortgage companies to assign appraisers to VA cases. 
Appraisers are randomly assigned through The Appraisal System (TAS), 
which is a VA computer-generated program that randomly assigns 
appraisers to loan cases. This method was developed to discourage 
collusion among appraisers, realtor estate brokers, mortgage companies, 
and/or borrowers, and was quite ahead of its time. New appraisal 
standards (specifically dictated by the Home Valuation Code of 
Conduct), however, have ``raised the bar'' for the entire industry and 
now mandate procedures that limit undue influence of the appraiser and 
greatly minimizes the risk that the VA was trying to prevent. Standard 
industry practices in place today, for all loan products, control more 
for the highest risk transactions (high LTVs); thus, it may be 
unnecessary for VA to so tightly manage its appraisal process.

                                 

                                     Committee on Veterans' Affairs
                               Subcommittee on Economic Opportunity
                                                    Washington, DC.
                                                       May 24, 2010

Mr. Maurice Veissi
Broker/Owner, Veissi & Associates Inc., Miami, FL
First Vice President
National Association of REALTORS'
500 New Jersey Avenue, NW
Washington, DC 20001

Dear Mr. Veissi:

    I would like to request your response to the enclosed questions for 
the record I am submitting in reference to our House Committee on 
Veterans' Affairs Subcommittee on Economic Opportunity hearing on The 
Status of the Loan Guaranty Program on May 20, 2010. Please answer the 
enclosed hearing questions by no later than Tuesday, July 6, 2010.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all Full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres by fax at (202) 225-2034. If you have any questions, 
please call (202) 226-5491.

            Sincerely,

                                          Stephanie Herseth Sandlin
                                                         Chairwoman

JL/ot

                               __________
    Response of the National Association of REALTORS' on
 Questions for the Record from the House Committee on Veterans' Affairs
                  Subcommittee on Economic Opportunity

    Question 1: Do you have any concern that if a veteran buys a 
property in a ``as is'' condition they will have no recourse if it is 
worse than originally perceived and be stuck with no home and a big 
bill?

    Response: The National Association of REALTORS' believes 
in sustainable homeownership. We are not suggesting that veterans 
should not elect to have a home inspection or any other inspections 
that they so chose. However, we believe veterans should have the same 
choices as purchasers using conventional or FHA financing. Currently VA 
mandates a number of inspections and certifications that are not 
required in conventional financing or with an FHA loan. VA rules 
require the seller to pay for this inspection, and in many cases, the 
seller will refuse. This leaves the veteran with no alternative but to 
walk away from that home.
    Similar to FHA, VA Appraisers are trained to look for health and 
safety issues, and can require certain repairs to be completed prior to 
a loan closing. We have no objection to this, and feel this insures 
homes meet minimum standards. However, REALTORS' also 
encourage all buyers to get a home inspection. We believe veterans 
should be on a level playing field with other buyers and provided the 
ability to choose which inspections they want when buying a home. 
Similarly, those repairs that are above and beyond conventional 
requirements should be negotiated between the buyer and seller, as is 
done with all other types of transactions.

    Question 2: Should any of the VA loan guaranty program requirements 
or qualifications for veterans be changed?

    Response: We believe the program is working well, and do not 
propose any changes to qualifications. However, we believe the rules 
dictating fees should be changed to provide veterans with flexibility 
in the home purchase transaction. Veterans using the VA Home Loan 
Guaranty program have found themselves at a disadvantage when 
purchasing a home. In some purchase transactions, lenders require 
special certifications and inspections stemming from VA policy 
guidance. These certifications and inspections involve fees that must 
be paid by the seller, as VA limits the fees veterans can pay in a home 
purchase transaction. Some sellers have refused to accept offers from 
VA borrowers, due to the inability of VA buyers to pay these fees. 
While we fully support VA's efforts to limit fees paid by veterans, VA 
borrowers should be allowed to negotiate these fees with the seller as 
a normal part of the home purchase transaction. Veterans should not be 
precluded from buying the most affordable home that best suits their 
family's needs simply because rules intended to protect them, in fact, 
penalize them.

    Question 3: How many veterans have lost homes because they were 
unable to negotiate fees with sellers?

    Response: We do not have any data on how many veterans have lost 
homes due to the rules. We are seeing a rise of home sale listings that 
include the words ``no VA offers.'' Sellers are unable or unwilling to 
pay the fees required of a VA loan, and so they may deny offers from 
these borrowers. As a result, veterans aren't able to even consider 
these homes if they plan to utilize their VA home loan entitlement.

    Question 4: Are distressed properties a good bargain, keeping in 
mind that they require work and in some cases a lot of work?

    Response: Distressed homes can be a good bargain-depending upon the 
purchaser. Some purchasers have the capabilities and/or finances to 
complete the necessary repairs on a home. Others may not, so a 
distressed home may not be the right choice for them. However, veterans 
are not being provided the opportunity to make that decision for 
themselves.
    On a national level, foreclosed homes and short sales make up 35 
percent of all home sales today, and a number of communities have rates 
that are significantly higher. Veterans are virtually cut out of this 
market, because there is no ``seller'' on the other side to pay the 
necessary fees. These homes are often the most affordable option in 
many housing markets; however, because VA policy restricts the fees 
that veterans can pay, the veteran home loan purchaser is clearly 
disadvantaged from utilizing his certificate of eligibility for a VA 
loan to purchase a home.
    Again, we believe veteran borrowers should be on a level playing 
field with other home purchasers, and not be denied opportunities that 
may be best for their families.

                                 
                                     Committee on Veterans' Affairs
                               Subcommittee on Economic Opportunity
                                                    Washington, DC.
                                                       May 24, 2010

Mr. Tim S. Embree
Legislative Associate
Iraq and Afghanistan Veterans of America
308 Massachusetts Avenue, NE
Washington, DC 2002

Dear Mr. Embree:

    I would like to request your response to the enclosed deliverable I 
am submitting in reference to our House Committee on Veterans' Affairs 
Subcommittee on Economic Opportunity hearing on The Status of the Loan 
Guaranty Program on May 20, 2010. Please answer the enclosed hearing 
deliverable by no later than Tuesday, July 6, 2010.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all full 
committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres by fax at (202) 225-2034. If you have any questions, 
please call (202) 226-5491.

            Sincerely,

                                          Stephanie Herseth Sandlin
                                                         Chairwoman

JL/ot

                               __________
                Iraq and Afghanistan Veterans of America
TO: House Committee on Veterans' Affairs Subcommittee on Economic 
    Opportunity

RE: Follow-Up questions from IAVA's testimony on May 20, 2010

PREPARED BY: Tim Embree, Legislative Associate

    Question 1: Should veterans and servicemembers negotiate their own 
fees with the sellers instead of the VA requiring certain fees to be 
paid?

    Response: IAVA does not recommend veterans and servicemembers be 
allowed to negotiate their own fees with the seller. We believe 
veterans and servicemembers should abide by the current VA required 
fees.
    Purchasing your first home is not like buying a television. There 
are many steps, complexities, and hidden costs that can catch the 
potential homebuyer unaware. If we have learned anything from the 
recent housing crisis, it is the importance of being a well-informed 
homebuyer. IAVA is concerned that potential sellers would look to prey 
upon veterans and servicemembers with hidden financing costs if they 
are able to negotiate their own fees.
    The VA Loan Guaranty Program does offer pre-purchasing counseling 
to assist the veteran through the home buying process. This counseling 
assists the potential homebuyer by walking them through the process 
from finding a VA approved lender to negotiating an interest rate. 
However, this pre-purchasing counseling is not mandatory and this 
potential homebuyer can opt out of this counseling program despite not 
having a complete understanding of the home loan process.
    The VA Loan Guaranty Program is one of the best deals out there, 
but it is still a complicated process and there should be provisions to 
protect veterans and servicemembers.

                                 

                                     Committee on Veterans' Affairs
                               Subcommittee on Economic Opportunity
                                                    Washington, DC.
                                                       May 24, 2010

Mr. Thomas J. Pamperin
Associate Deputy Under Secretary for Policy and Program Management
Veterans Benefits Administration
U.S. Department of Veterans Affairs
810 Vermont Avenue, NW
Washington, DC 20420

Dear Mr. Pamperin:

    I would like to request your response to the enclosed questions for 
the record I am submitting in reference to our House Committee on 
Veterans' Affairs Subcommittee on Economic Opportunity hearing on The 
Status of the Loan Guaranty Program on May 20, 2010. Please answer the 
enclosed hearing questions by no later than Tuesday, July 6, 2010.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all full 
committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres by fax at (202) 225-2034. If you have any questions, 
please call (202) 226-5491.

            Sincerely,

                                          Stephanie Herseth Sandlin
                                                         Chairwoman

JL/ot

                               __________
    Questions for the Record, House Committee on Veterans' Affairs,
       Subcommittee on Economic Opportunity, Chairwoman Stephanie
     Herseth Sandlin, Hearing on ``The Status of the Loan Guaranty 
                        Program'', May 20, 2010

    Question 1: Under the VA's Home Affordable Modification Program, 
how does the VA determine whether it is in the government's best 
interest to purchase a home loan from the bank or mortgage servicer?

    Response: VA requires mortgage servicers to exert all reasonable 
efforts to assist Veteran borrowers in retaining ownership of their 
homes. This includes reviewing all defaulted loans for traditional loss 
mitigation, such as repayment plans, forbearance, and loan 
modification. If financial information indicates insufficient income to 
support a traditional loss mitigation option, servicers must evaluate 
the loan for a possible Home Affordable Modification Program (HAMP)-
style modification.
    Loans that servicers determine are eligible for HAMP-style 
modifications, but the servicer cannot retain, must be referred to VA 
for refund consideration. VA mimics the Department of the Treasury 
guidance of using a net present value model to determine the outcome. 
When the model results in an equal or smaller claim payable to acquire 
the loan and modify it under HAMP, as opposed to the claim payable if 
the loan went to foreclosure, VA will refund the loan and implement a 
HAMP-style modification.

    Question 2: Does the VA need a national central database to better 
track each application? [HVAC staff further clarified the question to 
mean: ``each home loan application that lenders receive from 
Veterans.'']

    Response: VA does not believe the Department needs a central 
database to track each home loan application that lenders receive from 
Veterans. The Home Mortgage Disclosure Act (HMDA) requires lenders to 
annually submit a variety of data on each home loan application they 
receive. The Federal Financial Institutions Examination Council 
(maintains this information, which is available for public use. Since 
VA-guaranteed loans can be extracted from the HMDA raw data, VA is able 
to use it to assess many facets of VA loan applications, namely reasons 
the lender cited as basis for denial of the application.

    Question 3: Some of the changes being proposed are to make the VA 
loan more similar to the FHA loan. Do you think that the VA loan needs 
to be similar to the FHA loan?

    Response: VA does not believe the VA Home Loan Program needs to be 
similar to the FHA program. Although both are Government programs, the 
mission and targeted beneficiary are different. Furthermore, the 
continued good performance of the VA Home Loan Program in the mortgage 
marketplace does not warrant a change from currently established 
standards.
    The VA Home Loan Program has historically fulfilled its mission 
through its distinct features, which beneficially serve both Veterans 
and taxpayers alike. For example, VA loans use residual income 
guidelines, in addition to debt-to-income ratio. These factors have 
been shown to more accurately represent the true financial abilities of 
borrowers to handle monthly mortgage obligations. Additionally, VA 
credit guidelines, in general, are prudent and require full 
documentation of income and assets. Finally, properties that secure VA-
guaranteed loans are appraised using a rotational assignment of 
appraisers, rather than the lender-select method. We consider this 
rotational appraiser assignment, established by statute, to be the gold 
standard in ensuring independent and unbiased determinations of 
property values.

    Question 4: Should Veterans be permitted to purchase distressed 
properties with the VA home loan? What concerns does the VA have on 
this issue?

    Response: The term ``distressed property'' can refer to a property 
that is offered at a distressed price, and/or one that is in distressed 
condition. The VA Home Loan Program does not place restriction on 
Veteran borrowers seeking to purchase homes offered at ``distressed 
prices.'' While there is no guaranty of price appreciation, properties 
that are being sold at a distressed price can potentially be good 
investments for Veteran borrowers. VA believes that borrowers should be 
permitted to purchase a home of their choosing, so long as it meets its 
established minimum property requirements (MPRs). VA would not support 
restricting borrowers' choice with regard to ``distressed properties.''
    For those properties being sold in ``distressed condition,'' VA 
requires that the home be in conformity to basic MPRs in order for the 
property to qualify as security for a VA guaranteed loan. MPRs exist to 
ensure the home is safe, sound and in an acceptable sanitary condition. 
Where repairs are required to bring a property into compliance with 
MPRs, the seller of a distressed property is often not in a financial 
position to be able to pay for such repairs. The issue becomes whether 
or not the Veteran purchaser is permitted, or has the ability, to pay 
for such repairs.
    Under the acquisition and rehabilitation provisions of the VA Home 
Loan Program, VA permits Veterans to pay for said repairs as long as 
they are able to provide plans and specifications and cost estimates 
for required repairs prior to loan closing, and so long as the 
appraised value of the property supports the proposed loan amount. In a 
transaction of this type, the property is appraised bearing in mind the 
proposed repairs and the impact those repairs would have on its value. 
However, it is often the case that a one-for-one relationship does not 
exist between repair dollars spent and dollars realized in the 
appraised value. For example, in a scenario where the proposed loan 
amount of $160,000 included $40,000 allotted for repairs, the property 
may only appraise for $140,000, even after factoring in the proposed 
repairs. This would mean that VA could only guarantee a loan for 
$140,000, and if the Veteran borrower desired to purchase the home, he 
or she would need to come up with an additional $20,000.

    Question 5: Should the VA modify its requirement that borrowers 
must be 61 days delinquent in order to qualify for special forbearance 
to allow the VA to detect homeowners who may need help early in this 
stage?

    Response: VA has a longstanding policy of encouraging servicers to 
extend forbearance to Veteran borrowers in order to help them retain 
ownership of their homes. VA has never adopted or promulgated a minimum 
delinquency requirement after which servicers could enact loss 
mitigation, and by changing its reportable default date from more than 
90 days delinquent to 61 days delinquent, we expressed our perspective 
that early intervention is far more beneficial than late intervention.
    VA does require a loan to be delinquent for 61 days or more in 
order to pay a servicer an incentive for successfully curing such a 
default. This time frame was introduced because many delinquencies are 
cured within the first 2 months of default without the need for 
establishing a repayment plan, forbearance agreement, or modification 
agreement.

    Question 6: Why is it that the VA does not have nationwide 
guidelines which make the program consistent rather than having varying 
guidelines for each region? [HVAC staff provided this further 
clarification: ``It is our understanding that each regional office 
operates differently. Each region has different requirements that make 
it difficult and more time consuming to underwrite. An example is that 
certain regional offices require specific verbiage regarding septic 
systems. If the lender lacks the specific verbiage, in essence [they] 
fail to conform then the regional office will issue a deficiency 
letter. Hence we are asking why there are differences and why there is 
a lack of nationwide guidelines to make the program more consistent.''

    Response: VA does have nationwide guidelines for underwriting and 
for property requirements. All Regional Loan Centers (RLCs) operate 
using the same administrative guidance and the same Lenders' Handbook. 
Local variances are the exceptions, rather than the rule, and are 
granted to comply with State and local governmental building or 
property requirements. From a legal standpoint, these State or local 
governmental requirements control real estate transactions.

    Question 7: A witness provided testimony that many builders find it 
difficult to obtain a Builder ID or are unaware of it. Have you heard 
any concerns on this issue?

    Response: No, VA has not received any great number of complaints 
from builders, or identified a pattern of complaints regarding builder 
IDs. Information regarding Builder IDs is available to the public on 
our Web site: www.homeloans.va.gov.

    Question 8: Does VA lack of a formal process for managing Loan to 
Value in a declining market?

    Response: In light of the testimony given by the American Bankers 
Association (ABA), we believe this question relates to a concern 
expressed for active-duty Servicemembers who receive permanent change-
of-station orders and must move quickly to another duty location. These 
Servicemembers may find it difficult to sell their homes, especially in 
a short period of time, when housing values in the area have declined.
    VA has the ability to address declining market values and high loan 
to value by paying compromise claims for the difference between the 
proceeds of a private sale and the amount owing on a VA-guaranteed 
loan. VA's compromise sale process helps Veteran borrowers by providing 
an alternative to foreclosure, and also ensures that the Government 
receives adequate compensation for the property. In addition, we note 
that the American Recovery and Reinvestment Act of 2009 expanded the 
Department of Defense's Homeowner Assistance Program to compensate 
Servicemembers who sell their home at a loss or suffer foreclosure 
because they were forced to move after a base closure, reassignment, or 
combat wound which necessitated their relocation near a health 
facility. The program also covers surviving spouses of those killed in 
combat.

                                 
