Mortgage Reform Could Hurt, Not Help Veterans

The Financial Services bill making its way through Congress aims to boost consumer protection and make mortgage lending safer for Americans and the economy at large. But a new amendment will likely ensure the bill winds up hurting some of the very consumers it aims to protect — those who have served our country.

Veterans now stand to lose a great deal after an amendment from Oregon Democratic Sen. Jeff Merkley tipped the balance this week. On its face, the amendment takes some important steps by eliminating illicit mortgage broker bonuses and the so-called “liar loans” that required scant verification of a borrower’s ability to afford the loan.

But the measure would also introduce new underwriting and verification requirements — seemingly a good thing. Except that there’s no exemption, at least at this point, for highly regulated government loans that already feature strict underwriting and appraisal guidelines.

That’s likely to spell trouble for veterans, who already have access to one of the safest and most secure loan programs on the market: the VA Loan Guaranty program. Here’s a snapshot of recent default rates for four major loan types, according to recent data from the Mortgage Bankers Association:

• Subprime: 15.58%

• FHA: 3.57%

• Prime: 3.31%

• VA: 2.46%

The VA already utilizes stringent underwriting and appraisal guidelines, helping to make these loans the safest around. Adding new layers of underwriting to the VA process is going to make it more expensive and more difficult for military borrowers. Underwriting and processing costs will go up. Delays will cost veterans time, money and possibly the house they were planning to purchase.

Some veterans who would otherwise qualify now might actually find themselves unable to obtain a VA loan if this proposed legislation goes through.

So much for consumer protection.

Image: Antonin Remond