On November 28, 2008 President George W. Bush acknowledged for the first time that the US economy is in a recession. Expert economists define a recession as a period of two or more consecutive quarters with reduced gross domestic product.

 

By this definition, the recession has existed since December 2007.  How do VA loans fare in a recession?  The VA Home Loan Guaranty Program can be resilient in an economic slump. Unlike, conventional loans which appear down in the final two quarters of 2008, VA loans are thriving.  The VA Loan Program appears to be recession proof.

 

There are several factors that contribute to the Program’s strength even in this recession: recent improvements in veterans’ benefits, the VA counseling program, and the abilities of independent mortgage lenders to carry out VA benefits in a down mortgage market. 

 

In October 2008, the President signed into law the Veterans’ Benefits Improvement Act of 2008. Improvements in the guidelines under which VA-eligible borrowers can obtain a home refinance made veterans’ mortgages more attractive to lenders and borrowers. For one, the maximum guaranty for cash-out refinance loans was made the same as that for purchase loans.  Qualified veterans can now refinance up to 100% of appraised property value.  For another, the ceiling was raised for VA refinance loans to match that of purchase loans, up to $729,750 through 2008.  County limits still apply, and in some cases are more or less than $729,750. The $417,000 ceiling that existed before the new law will resume beginning January 1, 2009 along with new county loan limits. Finally, the VA’s authority to guaranty ARMs and Hybrid ARMs was extended through September 30, 2012.  

 

Federal Government’s guaranty is protected with the help of VA loan program counselors whose job it is to help veterans keep their homes even in the toughest economic situations.  This VA outreach program focuses on two sets of people:  borrowers who use the VA Loan Guaranty Program and those who don’t.  Outreach counselors try to keep veterans in their homes even in tough financial situations.  VA counselors can guide people with VA-guaranteed loans to avoid foreclosure.  They can even advise VA-eligible borrowers with non-VA loans about the benefits of refinancing to safer and more affordable loan terms associated with VA loans. 

 

The VA outreach program also has special financing programs, repayment plans, forbearance and loan modifications that can assist veterans in default or facing foreclosure.  Since 2000, VA counselors have helped abut 74,000 veterans, active-duty members and survivors keep their homes.  That’s a $1.5 savings to American pocketbooks. 

 

Are improved benefits and counseling enough to recession-proof VA loans?  A VA mortgage is originated and funded by a VA-approved independent lender such as a bank, savings and loan, or mortgage company. Different lenders may have different lending requirements; however, lenders must comply with VA income and credit standards when considering a VA home loan application. Even though lenders hesitate to loan money in the current market, they have good reason to continue making VA loans.  Because a portion of all VA loans are backed by the Federal Government, a VA-approved lender has more security in making a veteran’s mortgage over a conventional loan — even in the worst of times. 

 

VA home loans are still the only option left for $0 down, 100% financing.  And, things are about to get a whole lot better.  Because of the Wall Street bailout, billions of dollars are pouring into the financial system. Credit belts are loosening, and many banks are lending again after the temporary freeze. 

 

The year-long recession still has some borrowers a bit wary. Consumers who are unsure of their next paycheck are nervous to incur more debt.  And, many people perceive that the changes made to loan qualifying standards as a result of the Fannie Mae/Freddie Mac mortgage mess have made it next to impossible to even get a loan.

 

But, for VA-eligible consumers, the situation is a lot more encouraging.  The VA Home Loan Guaranty Program can be resistant to many factors that drag down the economy.  VA-eligible borrowers experiencing financial difficulties from subprime mortgages may qualify for VA refinance loans with safer more affordable VA terms.

 

It’s true conventional home loans have been on the decline. But, VA home loans may be on the rise due to their recession-resistant features. The VA Home Loan Guaranty Program can make it more likely for VA-eligible borrowers to emerge from this economic storm in good financial shape.