Written by Isaac F. Davis

Recently, legislation was passed to improve the VA Home Loan Guaranty program.  A summary of some of the legislative and other changes regarding the program can help keep it all straight.

In October 2008, the Veterans Benefits Improvement Act was signed by President Bush.  The four housing provisions in the bill regarding veterans and active duty military personnel who are potential or existing homeowners include:

• VA adjustable rate mortgage (ARM) and hybrid adjustable rate mortgage (HARM) programs are extended through September 30, 2012.  The VA’s authority to guarantee these programs had previously expired on September 30, 2008.

 

• The maximum guaranty loan to value (LTV) for cash-out (regular) refinance increased from 90% to 100%.  Borrowers may receive cash out of equity for up to 100% of their home’s appraised value.

 

• The maximum guaranty for refinances has increased to equal the maximum guaranty for purchase loans.  The conforming loan limit varies for each U.S. county.

 

• The maximum loan amount for which the VA will provide its guarantee, previously $417,000, was raised for some counties until December 31, 2011.  The guaranty amount varies depending on the county limit in which the financed property is located. 

 

Today’s higher cost of living is the primary reason for the four major provisions in the 2008 Act. The changes make it feasible for VA borrowers to get relief from their sub prime mortgage situations and into the more stable, more affordable terms of a VA guaranteed loan. 

A separate and recent piece of legislation has to do with military reassignment of active duty members with mortgages.  Military members facing a loss as a result of relocation for certain military reasons receive assistance from the VA as a result of a section of the 2009 Stimulus Bill.  Congress recognized that the current economy was affecting military members, and compensation was included in the 2009 Economic Stimulus Package for service members, with or without VA Loans, who sell their homes and suffer a loss due to falling real estate values, if a sale was made necessary by a:

-Relocation after a military base closure

-Reassignment ordered between July 1, 2006 and September 30, 2012

-Combat wound requiring relocation for further medical assistance

The federal government may reimburse a portion of a military member’s loss if he or she was effectively forced to sell as a result of any of the above under the new provision. The government may opt to buy the home at a price determined by a formula. In general, the federal government would reimburse the difference between 95% of the prior fair market value, and the fair market value at the time of the event that caused the loss.

This portion of the stimulus act is reserves $555 million for military members facing this type of financial loss. The Defense Department’s Homeowners Assistance Program is responsible for allocating these funds.  The program was established specifically to help military and federal personnel who suffer financial loss due to base closures. The Department of Veterans Affairs Home Loan Guaranty Program, which was established to help veterans purchase homes, is not part of the program responsible for the reimbursement described in this portion of the stimulus act. 

A recent VA policy that was not part of any legislation but is still noteworthy nonetheless is the fact that Certificates of Eligibility (COE) required for obtaining a VA loan no longer display a veteran’s birth date.  The VA is making an effort to limit the amount of personal information being displayed on the COEs.  Though date of birth no longer appears on the printed COE, veterans still need to provide their birth dates when applying for eligibility. 

The changes in 2008 and 2009 should provide some welcome relief for military members, and hopefully will protect against costly foreclosures and/or losses.  The VA loan limits for 2010 have been published. For more information about recent legislation affecting the VA Home Loan Guaranty Program, contact a VA Loan Professional.