Defaults on mortgage loans guaranteed by the Veterans Administration have increased dramatically during the past two years while the number of applications for VA loans has declined sharply, agency officials report.
Recession and high unemployment--which also have spurred an increase in defaults on conventional loans--are behind many of the 14,000 foreclosures on houses with VA-backed loans nationwide last year, up from 11,000 the year before, officials said. In this area there were 443 foreclosures on houses with VA-backed loans last year, up from 376 in 1980.
The Federal Housing Administration, which also backs low-down-payment loans, reported that it foreclosed on 74 houses here in 1981 compared with 88 the year before. Nationwide in the final quarter of 1981, 3.3 percent of conventional mortgage loans were 30 days delinquent or more, the Mortgage Bankers Association reported, while 5 1/2 percent of VA loans were considered delinquent and 6.6 of FHA loans were past due. All categories have risen slightly over a year earlier, the MBA reported.
Figures for last month show that the trend for VA loans is not easing: Sixteen thousand five hundred veterans defaulted on loan payments nationwide and nearly 1,600 houses were foreclosed, the VA said. In March 1981, the figures were 14,959 defaults and 1,254 foreclosures. Locally about 190 defaults were reported each month in 1979, while for the first quarter of 1982 that number had jumped to 290 a month.
Faced with VA interest rates of 15 1/2 percent, far fewer veterans are applying for those loans: During a five-month period in 1980, some 95,000 veterans applied for GI loans, while in the same five months last year the number dropped to 44,000.
One bright note, however, was the VA's loan guaranty program for manufactured housing. The agency reports that its total dollar volume of guarantees was up to more than $15 million in February, an 18 percent increase over a year earlier.
The VA home loan program was begun in 1944 to enable soldiers returning from World War II to get into the housing market with little cash. It was a way Congress showed appreciation to its soldier citizens. Since that time, millions of veterans have taken advantage of the program, under which up to 60 percent, or $27,500, of a loan to buy a house is insured by the VA. The VA program is credited with much of the early development of America's suburbs.
About 27 million veterans or surviving spouses are eligible for VA-quaranteed home mortgages. And last year, 44,000 home loans, or 10 percent of those made nationally, were VA-backed.
Today, some in the real estate industry say they've never seen the program as hard-hit as in recent times. VA officials said the areas with the highest number of defaults are Chicago, Cleveland and Detroit.
But here as elsewhere, the number of homes being purchased by veterans has dropped, with only 9,000 loan requests being processed last year by the Washington regional office of the VA compared with 15,000 two years earlier.
VA officials place some of the blame for the decrease on the decline in the number of veterans in the home-buying population. Only veterans can qualify for VA mortgages, while other programs, such as that of the Federal Housing Administration, are available to the general population.
But some veterans of the Vietnam war believe the reason is more basic than that. "We have guys here who can't even find a job, much less think about buying a house," said Donald Gooding, acting team leader at the VA-sponsored Vet Center on Capitol Hill, a counseling service for Vietnam veterans.
Most local housing experts point to economic conditions that have crippled the entire housing industry as the reason for the VA's poor statistics.
"It's not that the VA program is not a goo Cameron-Brown mortgage banking company. "It's a good, solid program, but it is suffering from economic times like the rest of us." Perry said his company's business--50 percent of which is VA mortgages--is definitely down as a result of VA declines.
However, real estate brokers continue to tout the benefits of VA financing in a depressed market.
"The VA program is a gold mine," said Jeannie Dryer, manager of the central processing office of Town and Country Realty. "It's a good avenue to buy a home."
Some of the attractions of the VA program include its 30-year, fixed-rate payment, a feature that is getting harder to find in today's market. The VA loan is also fully assumable, meaning that a new buyer can acquire the loan along with the new house. The average down payment on a VA home is 8 percent, although veterans may borrow up to $110,000 with no down payment at all.
The VA is launching two programs in an attempt to attract loan applications and compete in the tough housing market.
One, being announced this week, is the "buy-down" program, an avenue of creative financing the VA is taking to bolster its activities. Under this plan, the VA will guarantee loans on which a seller or builder agrees to subsidize mortgage payments for three to five years. The present VA interest rate is 15 1/2 percent, but many builders are willing to buy down, or subsidize, the rate to 13 1/2 percent.
The VA also recently announced its guaranteed-payment mortgage program whereby the buyer pays a higher down payment but monthly payments start off low and increase at a predetermined rate. With this program, the VA hopes to attract those who may not have high incomes at present but anticipate being able to afford the higher payments at a later date.
Some in the real estate industry criticize the VA for waiting so long to get into the market with these new programs. The graduated-payment and buy-down programs have been available for years through the Federal Housing Administration and conventional lenders.
"They should have gotten into these programs earlier," Perry said. "They might be a little late."
VA officials do concede they could have started earlier. "We've been a little late getting into the market because we just sat back and waited for the interest rates to go down," said Hilda Pena, assistant loan guarantee officer for the VA's regional office. "We lost out because of that."
Pena said VA officials are hoping the new programs will boost their applications, although she noted that it is not a cure-all. "If the interest rates stay high, I don't think any program will help," she said.
But as for what help can be given to those veterans unable to meet their monthly payments, VA officials and real estate industry leaders are at a loss for any one solution. They say the blame can be placed on a host of reasons, including the economy, the VA, the lenders and the veterans themselves.
"Homeownership can turn into a nightmare some times," said Carmelita Edwards, supervisor of counselors at the Housing Counseling Services, one of the oldest nonprofit housing counseling agencies in the area.
She has seen a 20 percent increase in the number of veterans coming in for help since last year, and she blames the problem here on the economy, high utility costs, divorce and the increasing number of federal employes losing jobs because of reductions in force. The public sector here lost about 14,000 jobs in the last quarter of 1981, the Metropolitan Washington Council of Governments reported. Three out of four of those jobs were with the federal government.
Edwards blames the VA default problem in part on the agency not having stricter qualifying standards for its loan applicants.
"A lot of veterans receive loans, and I don't know how they ever qualified," she said.
Ruth Worthy, a housing counselor at the Far Southeast Community Organization, agrees. "The VA causes the problem itself," she said. "They don't check employment records carefully enough."
Worthy said one of her clients who was in default was able to secure a GI loan by telling the VA she had been employed by a company for two years. "They obviously didn't check, because she had only worked there for 60 days," Worthy said.
"We've always felt our underwriting standards are stricter than FHA," said the VA's Pena. "But we are here to serve the veteran. And if it looks like there's any possible way the veteran can afford the house, we're going to help him."
Although VA officials recognize the increasing default problem, they credit their agency's free counseling service for helping a number of veterans who otherwise would have lost their homes.
When a veteran is three months delinquent on a mortgage, the lending institution is required to notify the VA. At that time, the agency attemps to contact the veteran for counseling.
"If at that point the veteran comes in for help, 75 percent of the time we are able to cure that default," Pena said. Of the 2,731 VA loans in default here last year, 443 went through the foreclosure process, Pena said.
Pena said the agency tries to secure delays in the foreclosure process if the borrower's problem is a temporary one.
Counselor Edwards says that if a veteran comes in to a counseling center for help early enough, "Most mortgage companies are willing to help the family in one way or another."
One group of homeowners who VA officials say never had default problems in the past are middle-income veterans who have owned houses for 10 to 15 years. "There are more old loans going into default now," Pena said. "Now we're seeing people with $50,000 worth of equity going into default. You never used to see that."