Recent proposals to require down payments on home loans in the wake of the mortgage crisis could seriously curtail the ability of service members and veterans to get home loans under the Veterans Affairs Department loan guaranty program, experts and officials say.
Lenders, a realtor, veterans advocates and Veterans Affairs Department officials who testified before Congress on May 20 said VA loans should be exempt from down payment requirements being proposed as part of broader financial reform legislation.
The witnesses expressed concern to the House Veterans' Affairs Committee's economic opportunity panel that the proposed reform legislation would apply to home loans, including VA and Federal Housing Authority loans, despite their underlying government guaranty.
A "significant percentage" of veterans and service members would not be able to qualify for VA loans if they had to make a down payment of 5 percent or 10 percent, said James Barber, chairman and chief executive officer of Acacia Federal Savings Bank in Falls Church, Va., testifying on behalf of the American Bankers Association.
"Over 90 percent of our loans are zero-percent down," said Thomas Pamperin of the policy and program management office in VA's Veterans Benefits Administration.
He said the no-down-payment feature is a cornerstone of the VA home loan guaranty program and is critical to ensuring that veterans and service members can get a mortgage.
Studies have shown that veterans getting VA loans have less than $5,000 in cash, he added.
He said there have been reports that some lenders are considering requiring a down payment on VA loans to help protect them from loan losses beyond the VA guaranty.
And some have instituted minimum credit score requirements for borrowers, although VA does not have such a requirement.
"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 service members to obtain homes," Pamperin said.
Lenders, realtors and veterans advocates alike praised VA's home loan program, which guaranteed 325,671 loans nationwide in 2009, valued at $68 billion.
That is 81 percent more loans than in 2008, when VA guaranteed 179,649 mortgages valued at $36 billion.
Overall, VA loans have lower rates of serious delinquencies than any other type of loan — 5.4 percent compared with 7 percent for prime loans nationwide in the fourth quarter of 2009, according to the Mortgage Bankers' Association.
And VA has fewer loans in the foreclosure process — 2.5 percent compared with 3.3 for prime loans.
Veterans advocates raised questions at the hearing about why VA's loan funding fee is a quarter-percentage point higher for National Guard and reserve members than for active-duty members.
Rep. Stephanie Herseth Sandlin, D-S.D., who chairs the subcommittee, said lawmakers will look into that issue "in light of … the increased reliance on the Guard and reserve" over the past decade.