The Nation's Housing

Veterans' Loans Left Out of Stimulus Plan

By Kenneth R. Harney
Saturday, March 8, 2008

When Congress and the White House put together the $150 billion economic stimulus package, they raised the maximum mortgage limits in high-cost areas for Fannie Mae, Freddie Mac and the Federal Housing Administration.

But lawmakers neglected to include a similar increase for the government's primary home purchase program for veterans: Department of Veterans Affairs-backed loans. While the limits of the other three programs now extend to $729,750 in the highest-cost areas, including Washington -- at least through Dec. 31 -- VA loans remain capped at $417,000.

For home buyers such as Greg Rasnake, a lawyer and disabled veteran who works for the federal government, the $417,000 VA limit is a deal-killer. He and his wife and children moved to the Washington area a year ago from Oklahoma. They have been searching for a single-family detached house in the close-in Virginia suburbs but have been unable to use the VA loan-guarantee program because of the effective $417,000 ceiling.

"There's just no way you can find anything here where that limit comes even close," he said. "You'd think that in a time of war, when you're doing a stimulus bill and raising all the other loan limits, you might remember the vets. But that didn't happen."

As a result of the omission, areas with high concentrations of veterans and high housing costs -- California, Maryland, Virginia, the District and Florida, among others -- are effectively cut out of the stimulus package's benefits when it comes to VA loans. Mortgages backed by the VA are especially attractive because they allow qualified veterans to buy houses without down payments.

Without a legislative fix, the situation won't change.

You might ask: How could this happen? How could a wartime president, a speaker of the House who represents high-cost San Francisco and its extensive military installations, an entire Cabinet agency, and veterans committees in the House and Senate all fail to include the VA program with generous loan-limit increases for Fannie Mae, Freddie Mac and the FHA?

Spokesmen for the Department of Veterans Affairs declined to discuss the matter. House Veterans' Affairs Committee Chairman Bob Filner (D-Calif.) was blunt: "I think it was out of ignorance," he said in a telephone interview. "I don't think [the plan drafters] understood the situation" -- specifically that the VA limits would not automatically increase along with the higher Fannie Mae and Freddie Mac limits. "Nobody thought about it, so this just slipped through."

The VA program guarantees 25 percent of Fannie Mae's and Freddie Mac's conforming-loan limit. Because private lenders generally are willing to make a no-down-payment loan for four times the guarantee level, the program has an effective mortgage limit of $417,000 nationwide. The stimulus plan, however, temporarily reset the Fannie Mae, Freddie Mac and FHA limits to 125 percent of metropolitan-area median home prices, creating dozens of different limits around the country, without referencing the VA guarantee formula.

"It makes the VA program irrelevant in a lot of places," Filner said. He is sponsoring legislation that would raise the program's effective limits to 150 percent of the Fannie Mae-Freddie Mac maximums. He also is seeking a "technical correction" amendment to the stimulus law but said he is not optimistic that it can be rushed through, given other congressional priorities.

When Rasnake learned that the VA limits were unchanged, he said, he was "devastated." Rasnake's mortgage loan officer told him he is hardly alone. The lender said there were many veterans looking to buy homes that he had lined up for VA financing in anticipation of the higher limits expected from the stimulus bill.

Although the VA program is smaller than Fannie Mae, Freddie Mac and the FHA, it is substantial and carries relatively little risk to the government. The program guarantees 2.2 million home loans totaling $243 billion, and the VA backs about 11,000 new loans per month, more than half of which go to first-time buyers, according to Todd Bowers, director of government affairs for the Iraq and Afghanistan Veterans of America.

Many VA-backed mortgages involve no upfront equity investment -- which typically raises default rates and foreclosures -- yet the program performs well. During the third quarter of 2007, the VA 30-day delinquency rate was 6.58 percent, compared with 12.92 percent for the FHA and 16.3 percent for private subprime loans, according to the Mortgage Bankers Association. The foreclosure rate for VA loans during the same period was 1.03 percent, vs. 2.2 percent for FHA and 6.89 percent for subprime.

That's pretty hard to miss. But lawmakers did.

Kenneth R. Harney's e-mail address is KenHarney@earthlink.net.


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