[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
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Printed for the use of the Committee on Veterans' Affairs
______
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57-024 WASHINGTON : 2010
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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
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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
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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.
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\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.
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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.
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\3\ 38 CFR Sec. 36.4801 (2009).
\4\ FHA Mortgagee Letter 2010-04 ``Loss Mitigation for Imminent
Default'' (Jan 22, 2010).
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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\
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\5\ 38 CFR Sec. 36.4815(d) (2009).
\6\ FHA Mortgagee Letter 2009-35 ``Loan Modifications: FHA Loss
Mitigation Incentives--Update'' (Sept. 23, 2009).
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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\
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\7\ 38 CFR Sec. 36.4815(f) (2009).
\8\ FHA Mortgagee Letter 2008-21 ``FHA Loss Mitigation Program
Updates'' (Aug. 14, 2008).
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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\
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\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.
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\1\ National Delinquency Survey, Mortgage Bankers Association, Q409
(March 2010).
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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.
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\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.
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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).
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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
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\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.
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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
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\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.
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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.''
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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.