VA Lenders and VA Mortgage Companies Add Risk Overlays and Guidelines to VA Loans
In an attempt to manage risk, banks and mortgage lenders are going to war with our nation’s finest homeowners; veteran home owners with VA loans. In the past few months alone, lenders such as Wells Fargo, Citi Mortgage, and Countrywide now Bank of America have added all kinds of stricter than normal underwriting guidelines. I am not personally against making some needed changes to the way we lend money in this country, however; when the country is making veterans, many of whom have served on the front lines of war, go to extreme lengths and at times impossible lengths to refinance or buy a home, that I feel is unjust.
Right now our country is doing everything possible to help the housing recovery and at the forefront of these efforts is the Federal Government’s attempt to keep interest rates as low as possible. Why are they keeping interest rates so low? The lower interest rates get, the more likely veteran home owners and conventional home owners are to want to refinance. Refinancing can do wonders for a slow economy like we have currently. By refinancing, a home owner is able to lower his/her monthly mortgage payments. On average Low VA Rates says that their typical veteran refinance saves around $75-$150 a month and has even saved over $500 a month for some veterans. (after arriving at home page, read the customer feedback) Just imagine how an additional $200 a month in every home in America could turn our economy around! That would do more than any Federal bail out or stimulus act by Congress for sure.
New Underwriting Guidelines are Hurting Veteran Home Owners
So let me bring this back to my initial reason for this post in the first place; to shed light on the unjust act of many of our nation’s lenders. Here is a list of some of the underwriting changes that have taken place in the past few months, by some of the nation’s largest VA lenders:
1. FICO scores now required for a streamline refinance
2. FICO scores required for a purchase loan
3. Break-even or recoup test imposed for streamline refinance
4. Home value determination or appraisals required
NONE OF THESE ABOVE GUIDELINES ARE REQUIRED BY THE VA It is the VA mortgage lenders that are hurting veterans while trying to protect themselves.
To the Average Joe reading this blog, this may seem a bit strange, that a mortgage professional would be complaining about such changes. It is true that much of the housing crisis we are suffering from at this point, is due to reckless lending standards to start with. I agree with that. However, VA loans have never allowed a buyer to state his or her income higher that it really was, there was never a NO DOC or NO INCOME loan for a veteran. In addition, veterans have always had to be employed regardless of income or FICO score. What I am trying to portray is that very few, if any veterans ever bought a house that they could not afford. The loans that allowed this or encouraged this sort of reckless lending, were never available to veterans. If you have read my last two posts about streamline refinancing or VA IRRLs, you know how much I encourage loans that home owners can afford but allow them to refinance easily when rates drop. They are the perfect loan for hard financial times accompanied by low interest rates, like we see today. As much as veterans and this country could benefit from low interest rates and refinancing with the VA streamline loan, banks are making it harder and at times impossible to refinance and save money each month, due to the new underwriting guidelines that they have put onto these loans.
True Examples of Unjust Treatment to Veteran Home Owners
Here are some prime examples of this unjust practice being imposed on veterans: Veteran has a 700 FICO score and has never been late on his home payment. When he bought the house he added his wife to the loan even though she was a home maker and did not add any benefit to the home purchase, he simply wanted his wife on the mortgage. Now interest rates for VA loans are at 4.5% and he could save $233 by doing a streamline refinance. However, since the banks are now looking at both borrowers, (the wife’s credit now comes into play) the wife’s FICO score is a 615 (not that bad actually) and due to this score, the veteran cannot take advantage of the lower interest rates and has to stay where he is. Does this sound fair to you? Here is another disgraceful example. Veteran lives in California and has owned his home for 3.5 yrs. The veteran has stable employment with the government and has impeccable credit history. When he bought his house he paid around $400,000 for it and got an interest rate of 6.5%. The veteran recently applied for a refinance and was told he needed an appraisal. Remember the VA does not require this for a streamline refinance, but the bank does. Well almost nobody who purchased a home in California over the past 3 years has the value in the house that they paid for it. This particular veteran was denied the lower interest rate because his home is now only worth $300,000. I find these two examples on a daily basis and find it an outrage. Both of these cases hurt all involved. The veteran is stuck in a higher rate and payment than he should be, the United States government has it’s resources wasted since it is trying to keep rates low for these sort of individuals, yet the banks won’t allow them to take advantage and you the taxpaying citizen also loses because the economy will take longer to recover due to these unfortunate and foolish decisions.