VA Wants More Power to Refinance Subprime Loans
More military veterans are turning to the Department of Veterans Affairs for purchase mortgage loans, but VA is limited in its ability to help vets refinance out of unaffordable subprime loans.
Congress recently passed a major housing bill so veterans can get zero-down VA loans with a maximum loan amount of $729,750 for the rest of this year.
This bill (H.R. 3221) puts VA on par with the Federal Housing Administration, according to VA home loan director Judy Caden. On Jan. 1, the maximum VA and FHA loan limit will adjust to $625,000.
"We needed the fix to get our loan amounts the same as FHA, which we now have," she said in an interview last week.
Now VA wants Congress to make it easier for veterans with subprime loans to refinance into a VA loan. Currently, VA cannot refinance a conventional loan with a loan amount above $144,000. Plus, the veteran has to have 10% equity. This forces struggling veterans to turn to FHA for relief.
VA could help a lot more veterans if Congress "fixes" the $144,000 limit and raises it to $625,000. Ms. Caden said.
The home loan director would like to get rid of the 10% equity requirement, too, but VA is not urging its repeal. "In this market with declining house prices, it is going to be hard for someone to have that 10% equity position. In the past, that was not a problem," she added.
VA is hoping Congress will extend its authority to make hybrid adjustable-rate mortgages before it expires Sept. 30. And VA would like to see a fix for refinancings passed at the same time.
"We have asked for both," Ms. Caden said.
Meanwhile, VA is experiencing an uptick in loan demand. VA has seen a 31% increase in loan originations in fiscal year 2008 and it has already surpassed the $25 billion in loans VA guaranteed in FY 2007.
Ms. Caden said veterans are turning to VA mortgages because of tighter underwriting standards in the conventional market. "They are much tighter and the no-downpayment feature has dried up, except for here," she said.
VA has guaranteed $28.6 billion in single-family loans through the first 10 months of FY 2008 and 91% are zero-down loans and 76% are purchase mortgage loans.
"Fixed-rate, purchase mortgages are really our bread and butter," she said.
VA lenders have made only 3,000 ARMs this fiscal year, but the director believes veterans should be able to get an ARM through the VA program.
"They should have the same options with VA as they do with other loan programs," she said. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/