Congress is on the verge of potentially crippling the VA loan program and making it increasingly difficult for some military borrowers to take advantage of the benefits earned by their service.
The huge Financial Services bill currently in the Senate aims to boost consumer protection and bring more openness and accountability to the mortgage industry. But in its current form, after a last-minute amendment from Sen. Jeff Merkley (D-Oregon), the bill will ultimately hurt military families and deal a serious blow to their access to home lending.
Like the bill as a whole, the Merkley amendment seems to have good intentions — it prevents the return of the kind of loans that helped lead to the financial meltdown. These loan types include the paper-thin loans that do not require significant documentation and loans made to families even though the terms made them difficult to afford for the long term.
But, in typical Capitol Hill fashion, the amendment winds up going too far while trying to fix things that aren’t broken. Instead of taking the extra effort to ensure the legislation is focused on preventing poor loan products from returning, the Merkley amendment adds additional layers of underwriting and verification to all loan programs, including those that are already safe and protecting consumers — namely the VA Loan Guaranty program, but others such as the USDA Loan program are also negatively affected.
These new layers would likely end up breaking a program that doesn’t need fixing. Piling on needless guidelines will likely trigger at least two major problems for military families:
- Lending costs will rise because stricter underwriting will take up more time and resources. Veterans will pay more to exercise their VA entitlement, which was created to help make homeownership accessible to this deserving demographic.
- Some veterans who would have normally been cleared for a VA loan may now wind up unable to get one.
This would be one thing if VA loans were unsafe or somehow flimsy and on the verge of leading to another mortgage meltdown. But these are among the safest loans in the marketplace. Here’s a breakdown of the percent of loans in foreclosure among the four major types, according to recent figures from the Mortgage Bankers Association:
- Subprime: 15.58%
- FHA: 3.57%
- Prime: 3.31%
- VA: 2.46%
The VA has some of the most stringent underwriting and appraisal standards around. In this case, the system already works and rewards veterans for their service.
Adding new requirements that ultimately make it more costly and more difficult for veterans to become homeowners is a disservice to those who served our country.
We urge you to contact your elected officials in the U.S. Senate and the House and push for a measure that exempts government-backed loan programs like the VA Loan Guaranty.
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When done properly, handwritten letters usually get sent straight to the elected official’s own personal folder of stuff they must read.
Omar Ahmad breaks down exactly how in his six minute TED talk: “Political change with pen and paper”
http://www.ted.com/talks/omar_ahmad_political_change_with_pen_and_paper.html
It is amazing this has not been picked up by vary many sources. It sounds like like it has fine intentions, but it doesn’t seem the Senator’s voting for this realize the un-intended consequence it will have on other loans like the VA loan.
It sounds like the Democrats are running the show, so someone on that side of the floor is going to need to stand up to fight to protect these home loan benefits.