The 69-year-old home loan program run by the Department of Veterans Affairs is on track to have its best year ever.
Department officials estimate that VA lenders will originate 640,000 loans in fiscal year 2013, which ends Sept. 30.
That would top the current record of 600,000 VA loans set in FY 1994 during a huge refinancing boom.
“Last year we were guaranteeing 2,400 loans a day. This year, it’s around 2,900 loans each [business] day,” according to Michael Frueh, the director of the VA Loan Guaranty Service.
At this rate, “it will be our biggest year ever,” he said in an interview.
The director noted the VA is the last national no-downpayment program standing. Nearly 90% of VA borrowers put no-money down to purchase a home.
“That is a huge driver of VA loans in the past several years. The average veteran or servicemember comes to the closing table with $7,000 in liquid assets,” Frueh said.
VA used to have a loan limit of $144,000. But Congress relaxed the loan limit in 2003 and now veterans can purchase $1 million homes. Today, California is VA’s biggest state in terms of number of loans.
As of Aug. 13, VA had guaranteed 543,385 single-family loans totaling $122.7 billion in FY 2013. Nearly 53% of the loans are refinancings.
While VA serves a deserving but risky population with generally limited financial resources and low credit scores, it manages through its loss mitigation regime to keep foreclosure starts and actual foreclosures low.
VA keeps watch over its servicers and intervenes when necessary to help a veteran who’s getting too far behind in their payments.
“We prevent foreclosures much better than anyone,” the VA director said.
And this record shows up in the quarterly delinquency reports issued by the Mortgage Bankers Association.
The foreclosure starts on VA loans was 0.47 basis points in the second quarter, compared to 39 bps for prime loans and 81 bps for Federal Housing Administration-insured loans.
However, looking at completed foreclosures or foreclosure inventory, VA has a lower rate than prime loans.
Foreclosure inventory as of June 30 was 1.88% for VA, 2.13% for prime and 3.68% for FHA loans.
Looking at the foreclosure inventory, “we have been in front of prime for the past 21 quarters,” the VA director stressed.
Due to this loan performance, VA is drafting a qualified mortgage rule that will largely reflect the agency’s current underwriting standards.
“We basically believe that our underwriting standards as they stand should qualify a mortgage for the QM standard,” Frueh said.
At the same time, VA is reviewing its restrictions on fees and charges so they don’t hinder a veteran’s ability to purchase a home.
“We are trying to make it more negotiable between the veteran borrower and seller,” the VA director said. For example, a veteran can’t pay for a termite inspection. VA also has limitations on what the seller can pay.
“We don’t want VA borrowers to be overcharged,” he said. But the limitations should be reasonable so veterans are not disadvantaged compared to other buyers.
