With Refinance Booming, VA Loan Volume Hits 18-Year High

VA loan volume hit an 18-year high in the fiscal year that ended in September, according to data recently released by the Department of Veterans Affairs.

The significant increase — both historical and year-over-year — is another sign that military borrowers are moving away from the tighter conventional lending space and toward the VA loan program’s more flexible credit and income requirements. Loan volume jumped 51 percent from FY11 to FY12, spurred in large part by a boom in refinance loans.

VA loan growth

Record-low interest rates have made the VA’s Streamline and Cash-Out refinance programs increasingly attractive. In some cases VA-approved lenders are able to process Streamlines without an appraisal, which continues to help qualified underwater homeowners take advantage of low rates.

Here’s a look at how VA loan volume has changed in the last five years alone:

FY12: 539,884
FY11: 357,592
FY10: 314,011
FY09: 325,690
FY08: 179,670
FY07: 133,313

The continued growth of the VA loan program comes as consumers continue to face tighter lending requirements in the wake of the subprime mortgage meltdown. Generally, VA lenders are looking for a credit score of at least 620, and the program offers financial benefits such as $0 down, no private mortgage insurance and higher allowable debt-to-income ratios.

Flexible requirements

Many military borrowers can struggle to hit the credit and/or down payment requirements necessary to secure conventional or even FHA financing. The average credit score on an FHA denial in May was 669, according to the National Association of Realtors. More than half the conventional loans issued in August went to borrowers with at least a 740 score.

Every state experienced at least a 25 percent increase in loan volume. Some military-dense states posted big gains in particular, including Hawaii (89 percent), Virginia (69 percent) and California (65 percent).

Dog Days of Summer Likely to See Deluge of Short Sales

Housing and finance experts are predicting the dog days of summer are likely to produce a deluge of short sales.

“We’re seeing a rush already,” Daren Blomquist of RealtyTrac told Reuters. “There was a big increase in the first quarter and we’re expecting that to continue.”

The crush of short sales comes as more and more banks opt for a portion of what they’re owed rather than have a property go into foreclosure. The Obama administration has advocated short sales as a solution for both financial institutions and sellers.

RealtyTrac data shows short sales in the first quarter of 2012 were up 25 percent compared to the year prior. The total — 109,521 — represented a three-year high. In fact, 2012 may serve as the high-water mark for short sales.

Tax Break Ending

Homeowners considering whether to pursue a short sale are also staring down the calendar. Normally sellers in a short sale see their forgiven loan amount counted as taxable income. A temporary governmental provision suspended that to help unclog the foreclosure pipeline, but the tax break comes to an end this year. Short sales can often take months, which means prospective sellers need to move soon in order to retain the tax break.

They also need to begin the process with their bank. Most sellers will take a credit hit of anywhere from 85 to 160 points and be precluded from obtaining home financing for several years. Veterans and other VA-eligible borrowers will have to wait two years before being eligible for a VA-backed mortgage.

Short Sale Market

Short sales continue to be a great deal for buyers with the credit and income to secure home financing. Prices on distressed properties are often 2o to 25 percent less than non-distressed properties, but there’s increased competition on short sales, which tend to be in better shape than foreclosures.

Buyers expecting to land a deal may need to rein in their optimism and come prepared with a serious offer.

VA Loans Still Safest Product on the Market

The Department of Veterans Affairs issued a news release this week trumpeting the continued growth of the VA Loan Guaranty program. The agency backed just under 360,000 loans last year, a 14-percent increase from FY10 and a whopping 168-percent increase since FY07.

But that wasn’t the only good news. The release also noted that VA loans have had the lowest rates of foreclosure and serious delinquency for the past 14 quarters and 11 quarters, respectively, according to the Mortgage Bankers Association National Delinquency Survey.

Those figures are even more surprising considering that about 90 percent of VA loans come with no down payment.

“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,” Secretary of Veterans Affairs, Eric K. Shinseki said in the release.

The VA works closely with borrowers and their servicers to avoid foreclosure. Veterans in jeopardy should always contact their loan servicer first, but the VA provides services and staff to help borrowers pursue options like modifications, forbearances and repayment plans. Homeowners can call 877-827-3702 to talk with a VA specialist.

“We are committed to making even more veterans and service members aware of this important benefit and delivering the assistance they deserve when financial difficulties arise,” said VA Under Secretary for Benefits Allison A. Hickey.

 

Riding a Refinance Wave, VA Loan Volume Up 14% in FY11

Riding a wave of new refinance loans, the VA home loan program experienced a huge year in Fiscal 2011, guaranteeing nearly 360,000 loans, according to data provided by the Department of Veterans Affairs.

VA refinance loans surged 40 percent from FY10, as military borrowers sought to capitalize on historically low interest rates. Refinance volume increased at least 40 percent in more than two dozen states, from Alaska to West Virginia.

Purchase loans fell slightly from FY10, but overall loan volume was up 14 percent.

Odds and Ends

Total loans guaranteed increased at least 20 percent in 11 states (Alaska, California, Colorado, Hawaii, Iowa, Massachusetts, Michigan, Oregon, Tennessee, Vermont and West Virginia) and the District of Columbia.

Four states saw VA refinance volume increase at least 70 percent, including a staggering 108-percent jump in Michigan.

With FY11 in the books, the VA has now helped more than 18.7 million borrowers secure a home purchase or refinance since 1944. The total loan amount now exceeds $1 trillion.

Looking Ahead

A tighter lending climate has spurred renewed interest in this long-cherished program. VA loans feature less stringent requirements and require no down payment for the vast majority of borrowers. In fact, 9 in 10 VA borrowers secured financing in FY10 without putting down a dime.

That flexibility, coupled with record-low interest rates, continues to spur military borrowers to explore the home loan benefits earned by their service.

With rates likely to remain low and thousands of service members set to return from Iraq and Afghanistan in the coming months, the VA loan program appears poised for continued growth.

Bill Would Open VA Loans to More Surviving Military Spouses

A House bill passed this week would increase access to the VA home loan program for surviving spouses of permanently disabled veterans.

Dubbed the Disabled Veterans’ Surviving Spouses Home Loans Act, the proposed legislation would eliminate the requirement that only spouses of veterans whose death is attributed to a service-connected disability may qualify for a VA loan.

Instead, the bill would provide loan eligibility to spouses of permanently disabled veterans whose deaths are not necessarily attributed to their service-related disability. It passed by a 418-6 vote as part of the Veterans Opportunity to Work Act.

“As we approach Veterans Day, we should ask ourselves if this Congress doing all that can be done for our veterans,” U.S. Rep. Virginia Foxx, R-N.C., the bill’s sponsor, said before the House vote. “This bill maintains our promise not only to the men and women that have served in the Armed Forces, but to their families as well.”

The change would provide loan eligibility to thousands of military spouses.

A series of veterans organizations came out in favor of the bill, including Veterans of Foreign Wars, the American Legion and Disabled American Veterans.

More than 18 million Americans have used the VA loan program to become homeowners since 1944. The program has become increasingly important in recent years as lending requirements have tightened.

VA loan volume has increased 135 percent since 2007. Last year, the agency guaranteed 314,011 loans last year, including about 1,000 to surviving spouses.

VA Promotes Relief for Homeowners Affected by Tornadoes

The VA is urging its approved lenders to provide relief to military borrowers affected by the tornadoes that devastated Alabama, Arkansas and other parts of the country in April.

The agency issued a circular in early May to help those whose homes were damaged or destroyed and families of those injured or killed in the storms. Thousands of homes and businesses were ravaged by dozens of tornadoes that roared through the South.

Among the salient points:

  • The VA encouraged mortgage servicers to waive any late charges or fees for borrowers in affected areas. It also suggested that servicers stop credit reporting on veterans whose homes, families or livelihoods have been impacted. The agency isn’t penalizing servicers for late default reporting.
  • There’s a hope that lenders will abide by the VA’s suggested 90-day moratorium on starting new foreclosure proceedings against borrowers in affected areas.
  • Lenders and servicers are expected to work closely with borrowers to determine their needs and what type of forbearance would likely prove most helpful and effective.
  • National Guard members are being activated in some communities to help with recovery efforts. The VA is asking lenders to be mindful of those Guardsmen in the coming weeks and months, as they can experience financial stress during times of extended activation.

The agency put forward a similar message last September in the wake of the Gulf oil spill.  Borrowers in need should contact their mortgage servicer as soon as possible. They can also contact their nearest VA Regional Loan Center by calling 1-877-827-3702.

Borrowers don’t need to have a VA loan to utilize the agency’s counseling services.

Military Members Can Still Secure Home-Buying Tax Credits

The home-buying tax credits that helped the sagging real estate industry stay afloat last year are still available to one final group of prospective buyers: Active duty military members.

But time is running out, which means real estate professionals should jump at the opportunity, especially in military-rich parts of the country.

Service members who served at least 90 days on extended duty from January 2009 through April 2010 may be eligible for the $8,000 credit for first-time buyers or the $6,500 credit for existing homeowners. Service members have until April 30 to sign a purchase agreement and until June 30 to close on the home.

They also face the same general requirements that civilians did, including:

  • The purchase price cannot exceed $800,000
  • Buyers must be at least 18 years old
  • Individuals can’t have an income greater than $125,000; married couples filing taxes jointly can’t have a combined income greater than $225,000
  • First-time buyers cannot have owned a home in the last three years

The requirements for the $6,500 credit are the same, except that buyers must have lived in their current home for five of the last eight years.

Thousands of veterans and active duty service members serving in Iraq, Afghanistan and other destinations abroad may be eligible for these tax credits. They can be claimed no matter the loan product.

For many prospective buyers, the VA Loan Guaranty program may represent the most cost-effective path to homeownership. These government-backed loans come with no down payment and feature flexible credit and underwriting standards. VA loan rates are typically lower than conventional rates, and VA loans have no private mortgage insurance or prepayment penalties.

JP Morgan Chase Overcharging Nightmare Spotlights Need to Protect Service Members

One of the nation’s biggest mortgage lenders overcharged thousands of military members in apparent violation of a law designed to protect service members against foreclosure.

JP Morgan Chase is currently cutting refund checks totaling some $2 million to about 4,000 service members nationwide. The lending giant failed to follow provisions of the Servicemembers Civil Relief Act, which caps interest rates for military members and helps safeguard against default.

Chase also improperly foreclosed upon more than a dozen service members. The SCRA spells out an explicit grace period that insulates service members from foreclosure actions.

Company officials have apologized for the violations and resolved all but one of the foreclosure errors, according to the Army Times.

“We are deeply appreciative of those who fight to protect our country and Chase funds a number of programs that provide benefits to military personnel and veterans, and while any customer mistake is regrettable, we feel particularly badly about the mistakes we made here,” Kristin Lemkau, chief communications officer at JP Morgan Chase, said in a statement to NBC News, which first broke the story.

This isn’t the first high-profile violation of the Servicemembers Civil Relief Act. But it comes at a time of heightened interest in protecting military members from predatory lending and other financial problems.

A pair of Democratic U.S senators — Jack Reed of Rhode Island and John Kerry of Massachusetts — are calling for a federal investigation.

“Soldiers fighting on the frontlines to protect our country shouldn’t have to needlessly fight with banks to protect their homes,” Reed told reporters. “JPMorgan Chase was violating the law, and I am concerned other banks may also be wrongly overcharging our troops or taking unfair advantage of their situation.”

The Chase revelations come after the new Consumer Financial Protection Bureau recently unveiled an arm dedicated to protecting the interests of U.S. service members. The Office of Servicemember Affairs is charged with educating military members about consumer protection and monitoring complaints and bad practices against those who serve.

The OSA will be led by Holly Petraeus, wife of Gen. David Petraeus, current commander of U.S. forces in Afghanistan.