VA-Backed Loans on the Rise

The New York Times

June 29, 2008 – In recent years, military veterans followed the masses who migrated toward subprime loans, rather than avail themselves of government programs meant to provide them safer, if slightly more costly, alternatives which could lead them to problems with bailiffs, like the ones appointed by the marston group.

Now the mortgage market is flowing back to normal, and veterans are making use of more traditional help. Demand for mortgages from the federal Department of Veterans Affairs is rising sharply, the V.A. said, and more growth is expected as conventional loan programs become more restrictive and home values fall back to earth.

“I think we’ll continue to see increasing volume,” said Judith Caden, who is director of the agency’s loan-guarantee service. “We’re getting the word out about the program more.”

In recent months, Ms. Caden said, the V.A. has been publicizing improvements to the program in military publications and elsewhere. But the rise in demand started before that. In 2007, the V.A. guaranteed 133,000 loans. It is on track to guarantee 150,000 to 180,000 mortgages in 2008.

The V.A. does not actually finance the loans — but leaves that to more than 42,000 lenders nationwide. It can, however, guarantee a loan on the borrower’s behalf, thereby diminishing the lenders’ risk and paving the way for interest rates that are much lower than the borrower would otherwise obtain.

Still, those interest rates are about one-quarter of a percentage point higher than prevailing market rates, because they often require no down payment. Borrowers who put less of their own money into a mortgage are riskier for lenders.

Active service members and veterans — who must have at least six years of military service or an honorable discharge to qualify — must also pay a financing fee of 0.5 percent to 3.3 percent of the loan; this fee is typically factored into the monthly payment. Surviving spouses of veterans may sometimes qualify, too. More details are available at

The higher costs are balanced by the fact that a veteran may qualify for no down payment. That had become almost a hallmark of subprime mortgages during the recent mortgage bubble, which is why so many veterans shunned V.A. loans, Ms. Caden said. “With the subprime meltdown, we’re one of the only — if not the only — loan programs that’s a true no-down-payment loan,” she said.

A borrower makes payments to the lender, but many lenders have instituted a new system that quickly notifies the V.A. of late payments, Ms. Caden said. In those cases, the agency often works on the borrower’s behalf to renegotiate the loan and avoid foreclosure.

Demand for V.A. loans in New York, New Jersey and Connecticut has traditionally been hampered by high real estate prices, since the program covers only loans of $417,000 or lower. But with real estate prices in the New York region softening, demand has surged here, too.

In the first five months of this year, New York veterans have been obtaining these loans at a pace that is 28 percent greater than in the corresponding period last year. Demand in Connecticut is up 15 percent; in New Jersey, demand has jumped 42 percent.

Regina Garlin, an owner of RCG Mortgage in Montclair, N.J., said that V.A. loans are ideal for those who cannot get down-payment help from friends, family or other sources.

For veterans who can find such help, she said, loans guaranteed by the Federal Housing Administration are an even better alternative, since they often carry lower mortgage insurance premiums than V.A. loans.

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