The estimated 200,000 home buyers and owners nationwide planning to obtain Veterans Administration-guaranteed mortgage loans this year received major good news last week, wrapped in the guise of apparent bad news.
The bad news -- which drew widespread publicity -- was the announcement by the Veterans Administration that it would shut down its popular home-loan guarantee program on April 1. After that date, the agency would refuse to accept applications for home loans of any type or size until October, at the earliest, VA officials said.
They said that financial strictures imposed on the agency by the new Gramm-Rudman-Hollings federal budget law forced the abrupt shutdown.
The good news -- which received less attention -- came in two forms. First, the VA announcement countermanded a series of controversial, selective curtailments in the home-loan program on Feb. 5. Under those policy changes, VA had declared that as of today it would:Reject all applications for refinancings of existing VA loans. Ban VA guarantees for loans larger than $90,000. Close the home-loan window altogether for veterans who had used only a portion of their entitlements and now wanted additional mortgage money.
Last week's "total shutdown" announcement by the VA, in effect, removed the threat of selective curtailments. The April 1 deadline that it substituted for those cutbacks appeared to be worse at first glance. The announcement implied that, instead of only a portion of VA-eligible buyers and refinancers being hurt, now everyone will have to suffer equally, beginning next month.
Behind the announcement, however, was the true good news: VA backed off its March 1 curtailments because the White House recognized it had stirred up what one administration official called "a political killer-bee nest that nobody needs in an election year."
The Veterans Administration's plans to strip veterans of their ability to buy or refinance a home using the entitlements guaranteed them under law triggered a huge outpouring of complaints on Capitol Hill.
House Veterans Affairs Committee Staff Director Mack Fleming said the "telephone jumped off the desk here" when the agency made its plans public. "I think we heard from every veteran in the United States in about a three-day period."
Legislation designed to raise VA's funding authority under the Gramm-Rudman system began moving in the committee immediately. The same occurred in the Senate. That legislation (H.R. 4130) provides the VA with $18.2 billion worth of loan-guarantee authority for this fiscal year, enough to handle all expected applications from now until the new budget year begins Oct. 1. The bill should arrive on President Reagan's desk for signature during the first 10 days of March.
Given this legislative backdrop, the VA's announcement last week should be seen as offering breathing space for corrective action -- several weeks, at least -- rather than as a shocking shutdown of the VA home-loan program.
There's one problem, though. The Veterans Administration's acting administrator, Everett Alvarez Jr., warned Congress that it must take an additional budgetary step if it wants Reagan's signature on the legislation: It must agree to increase the VA loan-guarantee fee charged at settlement on every mortgage transaction from the current 1 percent to 2 percent. Otherwise, the April 1 shutdown may have to take effect as scheduled, he said.
Congressional response to the demand for a 2 percent fee was virtually unanimous last week. "It'll never happen as long as I'm chairman," said Rep. G. V. (Sonny) Montgomery (D-Miss.) of the House Veterans Affairs Committee. "No way, Jose -- not even after hell freezes over," said a Senate staff member. "Let's see Reagan veto our bill and close down the VA program in an election year. He's smarter than that."
What's the upshot of all this for home buyers and refinancers hoping to obtain VA mortgage money? The odds strongly favor continuation of the VA program after the April 1 deadline, no matter what the agency or the White House say publicly at present. Smart buyers and refinancers shouldn't take any chances, nonetheless. If you've been thinking about a VA loan for 1986, see if you can accelerate your timetable to beat the April 1 deadline, just in case. Rates are favorable (10 to 10.5 percent). The guarantee fee is still a rock-bottom 1 percent. And no-down-payment, fully assumable VA loans still can go to $110,000.
Why put it off?