A spokesperson for the Mortgage Bankers Association (MBA) told a House subcommittee on Thursday that Veterans Administration (VA) loans have performed better during the financial crisis than almost any other type of loan and care should be taken to avoid including the VA and other guaranteed loan programs in proposed new lending measures "that might make the program less strong."
James H. Danis, President of a North Carolina mortgage company, represented the MBA at a hearing on "The Status of the Loan Guarantee Program" before the House Veterans Affairs Subcommittee on Economic Opportunity. He told the members that VA loans are providing a valuable service to veterans at a time when finding affordable low-down payment mortgages is very difficult.
Through FY 2009, he said, VA guaranteed more than 18.7 million mortgages worth $1 trillion for purchasing, constructing, or refinancing a home. While VA loans are just a fraction of the market - 4.2 percent of originations in 2008 - the number is growing with the 325,673 loans made in 2009 nearly doubling the number a year earlier. "The VA program has been a tremendous success," he said, "and the numbers pretty much speak for themselves. The homeownership rate among veterans is astounding - 82 percent compared to 67 percent for the general population."
Danis said that VA loans have outperformed their counterparts through the recent housing crisis even though most of the borrowers have no "skin in the game." According to MBA data, he said, the serious delinquency rate for VA loans during the first quarter of 2010 was 5.29 percent, well below the 7 percent delinquency rate for prime loans.
He credited the ability of the VA portfolio to weather the turbulent market because of its conservative underwriting standards which have always allowed only fully documented and underwritten loans on owner-occupied properties.
Danis said to keep the VA program strong 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 are considering financial reform bills with provisions that would require lenders to retain a 5 percent ownership in any mortgage they originate, sell, or securitize. He said this provision will directly hurt both the VA program and small independent lenders such as his company which serve military communities. Not only should VA loans be specifically exempted from this requirement, he said, so should other loans or securities insured or guaranteed by the government including FHA and USDA Rural Housing. "Failure to exclude the VA and other safe and properly underwritten loans," he said, "will negatively affect the housing recovery and veterans' opportunities to secure affordable home mortgages."
Congress should also continue the higher loan limits that have been available to VA borrowers for the last two years. The higher limits, he said, along with a second provision of the Veterans Benefits Improvement Act of 2008 which allows borrowers to refinance 100 percent of their home, ensure that veterans who reside in high-cost areas can enjoy their much deserved housing benefits.
Another improvement suggested by Danis and the MBA is to review and update the VA program and align it with prudent industry standards that would give management the flexibility to make changes to keep the program competitive and relevant in a rapidly changing market. Among the specific suggestions he made was that the VA should review its fees and charges and align them with FHA and conventional products and simplify its policy to allow borrowers to pay reasonable and customary fees to make the loans more competitive. He also told that members that the adoption of the Home Valuation Code of Conduct (HVCC) has essentially made The Appraisal System (TAS) unnecessary as HVCC has "raised the bar" for the entire appraisal industry. Still a third area for improvement, according to Danis, would be to update the VA's residual income tables to reflect new economic realities.