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VA home loans underused, real estate experts say

Jun. 20, 2014 - 11:37AM   |  
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Too many troops and veterans either don’t know about their VA home loan benefit or are being discouraged from using it, experts say.

The Veterans Affairs Department should modernize the program and fund outreach efforts to educate real estate professionals and loan counselors — as well as troops and vets — about the benefit, said Son Nguyen, who heads the nonprofit Veterans Association of Real Estate Professionals.

Nguyen said defense officials also need to do a better job of educating troops about the benefit.

About 100 real estate and lending professionals recently attended VAREP’s first national policy conference in Washington, D.C., to discuss ways to further the group’s mission of increasing the use of VA home loans by troops and veterans.

Nguyen questioned why only 1.9 million of the 16.4 million veterans who own homes obtained their loans through VA. More than 1 million troops and 22 million veterans are eligible for the program, which has guaranteed loans on more than 20 million homes since its creation 70 years ago.

A $200,000 VA home loan saves a veteran about $200 a month compared to any other type of home loan, said John Bell III, VA’s assistant director of loan policy and valuation loan guaranty service. Although far more troops and veterans are eligible for the benefit than are using it, the usage rate has increased, according to VA data. Six or seven years ago, when the subprime market was at its peak before the mortgage market downturn, VA loans comprised about 1 percent to 2 percent of the mortgage market. Today, they comprise about 13 percent of the market, Bell said.

The median income of buyers using the program — about 17 percent on active duty — is $71,064; the average loan, which requires no down payment, is $234,000.

Experts say military and veteran home buyers often don’t identify themselves as such, so their real estate agents and lenders don’t know they’re entitled to the benefit. Mark Connors, VA’s lender liaison for loan policy and valuation loan guaranty services, encouraged real estate agents and lenders to ask buyers if they are veterans.

Nguyen suggested adding a box to the loan application asking if the buyer is serving or has ever served in uniform.

He also cited a VA survey that found 4 percent of veterans who used another type of home loan said their lender and/or real estate agent also discouraged them from using the VA loan program, while 8 percent said they didn’t know about the benefit.

Those figures may actually be understated, according to VAREP. Because professionals say VA loans often take longer to finalize than other loans, many sellers in today’s competitive market are more inclined to accept offers from buyers who aren’t using the VA program.

Retired Army Brig. Gen. Robert Hipwell, a real estate broker and president of the Greater Sacramento VAREP chapter, said one veteran family finally moved to another school district because they had such trouble getting sellers to accept their offer.

They wanted to stay in the same district where they were renting because of their four children. But “every time they put an offer on a house, the seller took another offer because of the VA loan,” Hipwell said.

One real estate agent said he met a veteran whose agent required him to pay a monthly fee to find a home because it was more trouble to use a VA loan.

Connors said he, too, has experienced reluctance regarding VA home loans. When he was negotiating for his house in 2012, the seller’s agent “came back to me and said VA loans are too complicated, can we do it conventional? “I said, ‘The deal would be off.’ ”

His real estate agent subsequently told the buyer that Connors works for VA.

Bell said VA is taking steps to ease these issues. The loan review process now takes about 4½ business days; Bell said the goal is to shorten that to 24 to 48 hours. Because of complaints about the appraisal process, they’ve also been pushing to recruit more VA-approved appraisers.

Nguyen said borrowers would benefit from seeing a broader comparison of loans. He noted that lenders now must provide comparisons of Federal Housing Administration loans and conventional loans, but suggested VA loans be added to the mix “for more informed decision-making.”

Some VAREP members would like to see more standardization and specifics in VA loan regulations, to prevent problems from lenders who have more onerous regulations on top of VA regulations. Bell said lenders need the latitude to be able to make decisions “on the fly” to enable a veteran to get a loan.

“It’s not just a great loan product. It’s something our military and veterans have earned,” said Megan Booth, senior policy representative for the National Association of Realtors.

Noting that the default rate on VA loans is only about one-fourth the default rate on VHA loans, she said, “The military are going to be responsible citizens.”

While the VA can do a number of things administratively to help improve the program, there are some things that require legislation, she said. And because of the attention on the VA in other areas — the medical staffing issues, Booth said, there’s a “great window” of opportunity to make the case for these changes.

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