When he purchased a Washington, D.C.-area home in 1944, U.S. Army Capt. Miles Myers made history. The World War II veteran became the first recipient of a new loan program through the U.S. Department of Veterans Affairs (VA).
Since then, 24 million mortgages, mainly to veterans and active-duty military personnel, have been financed through the VA loan program. The low-cost loan program is one of the benefits of the GI Bill, which was signed into law 75 years ago this month by President Franklin Delano Roosevelt.
VA loans are proving to be increasingly popular with veterans. Prior to 2007, only 30 percent of veterans used the loans to finance their first home purchase. That share increased to 78 percent in 2016, according to the Consumer Financial Protection Bureau.
“It’s just as important for a veteran to stay in the home as it is to get into one,” said John Bell III, deputy director of loan guaranty service at the VA. “There’s a lot of safety nets and protocols that we put in place to help veterans navigate that home-loan experience.”
Bell spoke to Scotsman Guide about history of the VA loan program and what it offers veterans.
Why should a veteran choose this over another loan?
First and foremost, there is a little to no downpayment. If they qualify for these loans, they can be approved all the way up to 100 percent [loan-to-value ratio]. When veterans are heading toward trouble, we can get involved early.
Veterans are offered one of the lowest interest rate programs out there. A lot of that is attributed to the performance of the [loan] portfolios [and] the ability for veterans to make their payments. The other major advantage is safe, sound and sanitary [standards of the VA appraisal program]. We want to make sure that veterans aren’t moving into homes that are falling down around them.
How has the program changed over the years?
In efficiency gained. The knowledge base. The communication and messaging. The time it takes to provide the benefit. Let me give you a couple of examples. Six years ago, because of our systems and processes, for us to make an eligibility determination, it took upward of 24 business days. Now, in most cases, that can be done within 48 hours. A really good stat is 65 percent of the time (eligibility determination) requires no human intervention. In other words, the [loan-processing] system will automatically determine eligibility.
Do you agree with Ginnie Mae that there have been instances of lenders churning VA loans, needlessly refinancing the loans for profit?
Anytime where there is an environment that reduces or restricts the lender’s ability to make money, there are going to be those companies that try other ways to make money. I think what is relevant to us and to Ginnie is to ensure that, when we know those situations are occurring, that we’re able to act and strike proactively in the process to ensure that it doesn’t happen moving forward.
Is the VA still contemplating any measures to combat this, such as a tangible benefit test, to eliminate the practice?
We have. We went out with what we call the AQ42 cash-out regulation a couple of months ago. That actually had, for the first time in the industry, established a net tangible benefit test for cash-out refinance loans. We consider ourselves a leader when it comes to those type of things. It might not be as popular to the industry, but we think that we owe it to the veteran community to make sure that the decisions that they are making are the best decisions, and [that] they’re given all the options that they need to make those informed decisions.
What else should people know about VA loans?
One of the biggest issues that we still have is overcoming perceptions of what VA lending was like 10, 15 or even 20 years ago. There are still Realtors out offering homes and, especially on the listing side, that may not know that we close loans just as quick as everybody else. Our performance is in line with or better than conventional [loans] in most cases. And I will also say one more thing: I do believe that if you’re a veteran out looking for a home and you’re not utilizing your benefit, that is costing you money.