By February 8, 2012 0 Comments Read More →

VA Loan Volume Surges, Remains Safest Mortgage Option

The VA Loan Guaranty program had a big year in FY11, driven by a surge in refinance loans and a tighter lending climate that’s drawing renewed attention to this flexible, government-backed mortgage.

The VA guaranteed nearly 360,000 loans last year, a 14-percent increase from FY10. Since FY07, the number of VA loan guaranties has surged an astounding 168 percent. At the same time, these no-down payment loans have been the safest mortgage products on the market for the better part of three years, according to data from the Mortgage Bankers Association.

“The continued strong performance and high volume of VA loans are a testament to the importance of VA’s home loan program and a tribute to the skilled VA professionals who help homeowners in financial trouble keep their homes,” said Secretary of Veterans Affairs Eric K. Shinseki.

Significant Gains

The sustained growth of VA loans comes as lenders have tightened requirements in the wake of the subprime mortgage meltdown. The program features more flexible credit and underwriting criteria than other loan programs. But far and away the most attractive benefit is 100-percent financing. About 9 in 10 VA borrowers purchase a home with no money down, and sellers often pick up most or all of the veteran’s closing costs.

For VA borrowers, who on average have less than $7,000 in assets, that kind of financial boost is tough to find anywhere else. While FHA loans continue to dominate the overall mortgage environment, even that program’s minimum 3.5-percent down payment can prove challenging for veterans and active service members.

Surprising Security

What’s perhaps even more surprising is the VA loan program’s track record in terms of foreclosure and delinquency. Talk of borrowers needing more “skin in the game” has ebbed some recently, but it’s still a common refrain in industry and legislative circles. Granted, VA loans constitute a small slice of the mortgage market, but these no-down payment loans are turning the “skin in the game” argument on its ear.

The VA’s rates for foreclosure and serious delinquency have been the lowest of all loan types, including prime loans, for the last 14 quarters and 11 quarters, respectively, according to the delinquency survey conducted by the Mortgage Bankers Association.

Much of that success stems from the agency’s commitment to keeping veterans in their homes. The VA incentivizes lenders and servicers to work with borrowers to avoid foreclosure and provides individualized help and assistance to homeowners on the edge. The VA also uses some credit and underwriting standards, in particular its residual income requirement, that help lenders assess an applicant’s true ability to handle the financial burden.

But VA borrowers themselves deserve part of the credit, too.

With interest rates still hovering near record lows, not to mention thousands of soldiers set to return home from Iraq and Afghanistan, the VA loan program is likely to see continued growth through FY12 and beyond.


About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, from Lenderama and Bigger Pockets to the Huffington Post and Motley Fool. A former newspaper and magazine writer, he is also content director for a leading VA lender. Follow him on Google+.

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