VA Firing Bill

House of Representatives Passes Bill Making it Easier for VA to Fire Employees

 

House of RepresentativesJust about every person in America has heard at least tidbits about the scandals that have rocked the VA in recent years. The disability backlog, the secret patient waiting lists at VA hospitals, the resignation of the Eric Shinseki, and others. While just about everyone agrees that the current status quo is unacceptable and that something needs to drastically change, it seems that the two parties in Washington are once again stagnating because they cannot agree on a solution. It may just be me, but sometimes it seems like they don’t want to agree with each other. This has been highlighted by the recent passage of a bill by the House of Representatives that would make it easier for the VA to fire employees, demote employees, and also creates a probationary period for new employees.

 

The bill creates an 18-month probationary period for permanent new-hires and gives their supervisors the ability to either extend the probationary period or make them permanent. The bill was proposed by Representative Jeff Miller, a Florida Republican. On the House floor, Mr. Miller said, “The Secretary needs the ability to make real reforms and he needs the ability to do it quicker than the current timeline of 6 to 12 months to remove a single employee.” Miller was referring to the numerous (some would say overabundant) protections that a federal employee enjoys from being unfairly fired from their job. While we definitely want public sector workplaces to be non-discriminatory and fair in their hiring and firing practices, there’s a reason it has become part of our culture to joke about the cushiness of a government job.

 

Not surprisingly, Representative Miller was supported by his fellow Republicans, including Rep. Pete Sessions (R-Texas) who agreed that the VA needs to be able to fire employees who aren’t up to snuff or are neglecting their responsibilities. Also not surprisingly, the White House is planning to veto the bill if it makes it through the Senate. The bill came about primarily because of the VA hospital waiting list scandal, which caused Eric Shinseki to resign and caused a tidal wave of outrage and demands for change – many of which were directed at the process for firing bad employees. The Washington Times reports:

 

“Since taking over last summer, VA Secretary Robert McDonald has tried to reform the agency and root out bad employees, but he has encountered some setbacks. In June, the acting director of the VA’s investigative arm was forced to step down after facing criticism from both whistleblowers and members of Congress that he has interfered in the agency’s investigations to protect VA leadership.”

 

Democrats generally hate the bill. Some have said that it will turn the VA into an at-will workplace, which would make it one-of-a-kind in the federal government, and that an at-will workplace does not provide any due process for employees that have gotten fired. Representative Mark Takano says that the VA needs the nation’s top doctors, and that it is already difficult enough to get the best practitioners to move away from the private sector and come into the VA, and that the new hiring policies would make it even harder to recruit them. Democrats accuse the Republicans of ‘union-busting’ and trying to punish federal employees while Republicans are accusing Democrats of trying to cater to the Unions and just being contrary for the sake of being contrary. One question I was not able to find an answer to was whether there were any research or studies done to determine the root causes of the issues at the VA. Is the root problem the inability of the VA to fire bad employees, or is it something else?

VA Changes Firing Policy

While public debate about this bill has mostly devolved into name-calling, talking-points, and rhetoric, the House has passed it, the Senate has a similar bill they might vote on, or they might vote on the House’s version, and the President will have the opportunity to veto it (which he has said he will do) if it comes to his desk. For myself, and I’m sure many other people, the entire situation simply highlights what we are all frustrated with about the current political environment in America.

 

 

Where are VA Mortgage Rates Headed?

This is a question I get asked everyday, dozens of times.  The short answer is, I don’t know for sure, no one does.   With the current US economy in shambles, foreclosures at their highest rates in decades and unemployment at near 10%, no one can be sure of where rates are headed- lower, higher or somewhere in between.

I would like to offer some advice and history as to what rates have done in the past few years and hopefully with this information you can make and educated decision about what to do for your family and situation.

Not since May of this year have we seen available 4.5% 30 yr fixed available for VA refinancing.  That being said, it was on the rate sheets last Friday the 10th of September.  Because of the volatility of the market it isn’t available today- that is how quickly the markets turn and rates move.  I have seen rates repost differently 4 times in the same day.  What does it all mean?  It means, if you have a VA loan right now, then it is time to refinance if you haven’t already- if it makes sense.  Anytime your refinance there are costs- prepaid taxes and insurance, title insurance, the payoff to your current mortgage company and that is fine- so long as the overall savings outweigh the costs involved.

Last year in October 2008 and 2007 rates were great and during the early fall.  They tend to move up towards the end of the year but you can expect 4.75% to be available for refinances in October 2009, so long as the market remains steady and nothing out of the ordinary happens.  Do not delay the process though if you are considering a VA refinance for October.  It is time now to get your paperwork into processing because with the low rates there will be a backlog of many people trying to get in for a refinance in October.  So plan ahead and get moving on it now.  Finally, that really is the trouble with rates today, is no one can explain why they do what they do, and with America in a really difficult financial position right now the markets are just plain crazy.

“Now that the mighty hath fallen…”

Earlier this month, Federal agents acting under the direction of the FBI and the Department of Housing and Urban Development, raided the Florida based corporate offices of Colonial BancGroup and Taylor, Bean & Whitaker.  While to date, there is still very little known about the exact reasons and circumstances under which the shutdown took place, we can make an educated guess as to how this development will impact the mortgage market as a whole.

Traditionally, the standard for guaranteeing mortgages under the VA streamline Refinance program or IRRRL (Interest Rate Reduction Refinance Loan) did not require borrowers to have a particular credit score in order to qualify.   Rather, of chief concern was a veteran’s clean mortgage history, i.e. no late mortgage payments to suggest potential loan default.  Taylor, Bean & Whitaker (TBW) was one of the last banks to offer these “no minimum credit score” VA streamlines.  It’s important to note here the distinction between the VA’s standard for guaranteeing a mortgage, and a banks standard for underwriting it.   Contrary to popular belief, the VA is not, in fact, a lender.  The VA acts as a guaranteeing agent to a lender who agrees to finance the mortgage.  The standards by which the VA will guarantee the loan do not necessarily have to parallel the guidelines by which a lender agrees to finance it.   Loans guaranteed by the VA are not guaranteed to 100% of the loan amount.  In a more stable housing market, with a less severe degree of loan default and foreclosure, lenders have been willing to accept the risks associated with loan guidelines based off VA loan guarantee guidelines.  The times have changed however, and now the risk exposure associated with approving a loan without considering a borrower’s credit score, an appraisal of the property, or verifying financial stability are becoming too great for a bank to take.

TBW had created a name for itself by bucking the trend and displaying a willingness to lend to financially distressed veterans.  The logic seemed to be centered around the reasoning that the volume of good loans funded would far outweigh those that would end up defaulting.   Most veterans, they thought, wanted to stay in their homes and would eventually be able to return to good standing even if they had encountered some temporary financial setbacks.  Since they were the only game in town for low credit veterans, they had the market relatively cornered.  TBW’s departure from the lending world means there are fewer alternatives for distressed borrowers.  Fewer alternatives for distressed borrowers mean there is less competitive pressure on those lenders offering similar loan products and rates, which should be a call to action to any veterans with blemished credit still sitting on the fence.

This “competitive pressure” issue, extends beyond loan guidelines and influences interest rates as well.  For example, TBW was one of the first lenders to offer competitive rates on VA Hybrid Adjustable Rate Mortgages.  Because they had a larger pool of lending dollars to draw from, they were able to offer the best available rates on these loans.  Veterans by the thousands were calling in to take advantage of these rates.  This put pressure on other lenders to lower their rates on VA Adjustable Rate mortgages, lest they concede all of these loans to TBW.  With TBW out of the marketplace, the pressure on the competition has decreased, which gives the lenders still standing the ability to scale back their risk.

While this may sound unfair to veterans, this phenomena represents the essence of capitalism.  Many veterans believe that the Federal Reserve alone controls interest rates.  For the most part, the Fed only indirectly influences mortgage rates by regulating the rates at which banks lend to one another.   In doing so, the Fed mitigates the cost of financing for a bank, which reduces a banks margins and frees them up to lower their interest rates without a commensurate hit to their bottom lines.  However it is the field of competition among other banks that (along with the perceived value of the underlying real estate investment) have the most influence on where rates are going- supply and demand at its finest.  TBW represented the 5thlargest government (FHA & VA loans) lender in the country and, recently, the largest purveyor of government ARMs as well.  With their departure from the market, the total available lending dollars in the country available to veterans has shrunk.  Since the number of veterans that need to refinance don’t go away simply because TBW went out of business, there is now an artificial “increase” in demand for VA loans even though there is now a “decrease” in the lending supply.  Higher demand and smaller supply means that lenders can be much more discriminating about their lending dollars and much more particular about their loan guidelines.

The bottom line:  The writing is on the wall with regard to interest rates.  Federal Reserve Chairman Ben Bernanke released a statement last week in Wyoming, stating that he believed the economy’s downward spiral has leveled off, and that recovery, while distant, has already begun.  TBW’s departure represents a call to action for those veterans still waiting to time the market.  While it is unlikely rates will return to the levels we saw in Feb/Mar of this year, they are still low enough to help stabilize the monthly expenses of most veterans.  The question veterans should ask themselves shouldn’t be simply, “Are rates low enough for me to consider refinancing?”  I would argue that they should also be asking “Is a VA loan the best/only financing option available to me, and if so, how long will they stay that way?”

Veterans are Being Robbed of their Hard Earned Loan Benefits

I might get fired for posting this, but its worth it to me to explain to Veterans what is happening in the mortgage industry and specifically what so called new requirements many of the Nation’s Top Lenders are requiring to approve VA streamline refinances.  One of the main benefits of getting a VA loan is the option or ability to do a streamline refinance.  Basically a streamline refinance is where a Veteran gets a new mortgage at a lower rate without going through the hassle of credit check, appraisal and income verification.

HERE IS THE VA’S DEFINITION OF A STREAMLINE or IRRRL

“A Veteran who obtained a VA loan may refinance it with a VA guaranteed loan at a lesser interest rate without using additional entitlement.”  They go on the list restrictions and instructions with this refinance.  Here they are:

1. The new loan must be at a lesser interest rate than the old VA loan EXCEPT when refinancing an existing ARM with a new fixed rate mortgage.

2. The dollar amount of guaranty applicable to the prior VA loan is transferred to the new loan.

3. Although no underwriting IS REQUIRED, approval of new credit may be required by the trustee in a Chapter 13 BK

4. NO APPRAISAL IS REQUIRED.

5. The Veteran may not obtain cash proceeds.

6. The new loan is limited to the balance of the old loan, the funding fee, up to $6000 of energy efficient improvements, and allowable closing costs including not more than 2 discount points.

7. The term of an IRRRL any not exceed the original term of the loan being refinanced by more than 10 years.

The one that I want to draw attention too is number 4.  The no appraisal option is what makes this one of the best ways for a Veteran to refinance his/her home.  Some Lenders have taken upon itself to overwrite the VA’s policy and start instituting appraisals on VA streamline refinances starting July 1st.  Here is the email I received from them:

Non-XXXXXXX  (lender name removed) VA Interest Rate Reduction Refinance Loan (IRRRL) Transactions

May Require A Conventional Appraisal – Effective 7/1/09

In an effort to mitigate the risk of declining home values on VA IRRRL transactions, effective with registrations on and after July 1, 2009, for non-XXXXXXX serviced VA IRRRLs, XXXXXX  Wholesale Lending will require the Broker to obtain and deliver to XXXXXXX:

• A conventional appraisal that supports the total loan amount (appraised value >= base loan amount plus VA funding fee), or AVM that supports <=95% LTV

Note: Conventional appraisals ordered for non-XXXXXX serviced VA IRRRL transactions are not subject to Home Valuation Code of Conduct (HVCC) requirements. Additional comments and/or reminders:

• If a conventional appraisal is not in the loan file upon receipt, XXXXXX will order an AVM to verify the value. AVMs are not allowed for condominiums, manufactured homes, multi unit properties (2-4 unit), investment properties and second homes. If the AVM does not return an acceptable result, XXXXX will condition for a full appraisal. • It will be the responsibility of the broker to order the full conventional appraisal.  VA has indicated this appraisal should not be ordered with the case number assignment through VA’s The Appraisal System (TAS) and should not be submitted to VA with the guaranty package.

o VA’s Jurisdictional Maximum VA Appraisal Fee Chart must be met. The Veteran may not be charged an appraisal fee exceeding VA’s maximum.

o The 1004 MC (Market Conditions) form is required when an appraisal is required.

o XXXXXX  Appraisal Policy applies (Broker Guide Section 300).

This change in policy (even though VA does not require it) will limit thousands of Veterans from refinancing their homes.  Look at what is happening in the market today.  Job loss is at an all time high, taxes are going up, inflation will be a huge factor.  Right now people need to save money more than ever.  I also find it interesting that the Federal Government which VA is a part of, is dumping so much money in the market to help with rates and stimulation, yet the biggest bank is instituting this which will keep our VETERANS WHO FOUGHT FOR THIS COUNTRY unable to refinance to better their situation.  Who now days has equity in their home?  I don’t.  Wells Fargo states that “in an effort to mitigate the risk of declining home values on VA IRRRL transactions”.  Give me a break.  What’s more important to a Veteran – equity in their home, or risk losing their home because of a financial situation change when a lower monthly payment is needed.

My advice is to all Veterans – write your congressman and contact the Dept of Veteran Affairs and let them know your feelings.  Hopefully if enough people respond the 100 pound gorilla (XXXXXX) will wake up and realize they are not doing anybody any favors.

To Contact your Congressman CLICK HERE

To Contact the VA via email CLICK HERE

To Call your VA office CLICK HERE

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