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C O N T E N T S
May 20, 2010

Loan Guaranty Program

OPENING STATEMENTS

Chairwoman Stephanie Herseth Sandlin
    Prepared statement of Chairwoman Herseth Sandlin
Hon. John Boozman, Ranking Republican Member
    Prepared statement of Congressman Boozman

WITNESSES

U.S. Department of Veterans Affairs, Thomas J. Pamperin, Associate Deputy Under Secretary for Policy and Program Management, Veterans Benefits Administration
    Prepared statement of Mr. Pamperin

American Bankers Association, James B. Barber, Chairman and Chief Executive Officer, Acacia Federal Savings Bank, Falls Church, VA
    Prepared statement of Mr. Barber
American Legion, Joseph C. Sharpe, Jr., Director, National Economic Commission
    Prepared statement of Mr. Sharpe
Iraq and Afghanistan Veterans of America, Tim S. Embree, Legislative Associate
    Prepared statement of Mr. Embree
Mortgage Bankers Association, James H. Danis II, CMB, AMP, President, Residential Mortgage Corporation, Fayetteville, NC
    Prepared statement of Mr. Danis
National Association of REALTORS®,  Moe Veissi, First Vice President, and Broker/Owner, Veissi & Associates Inc., Miami, FL
    Prepared statement of Mr. Veissi
Reserve Officers Association of the United States, Major General David R. Bockel, USA (Ret.), Executive Director, and also on behalf of Reserve Enlisted Association
    Prepared statement of General Bockel

MATERIAL SUBMITTED FOR THE RECORD

Post-Hearing Questions and Responses for the Record:

Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on Economic Opportunity, Committee on Veterans' Affairs, to James B. Barber, Chairman and Chief Executive Officer, Acacia Federal Savings Bank, Falls Church, VA, American Bankers Association, letter dated May 24, 2010, and ABA responses

Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on Economic Opportunity, Committee on Veterans' Affairs, to James H. Danis, CMB, AMP, President, Residential Mortgage Corporation, Fayetteville, NC, Mortgage Bankers Association, letter dated May 24, 2010, and MBA responses

Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on Economic Opportunity, Committee on Veterans' Affairs, to Maruice Veissi, Broker/Owner, Veissi & Associates, Inc., Miami, FL, and First Vice President, National Association of REALTORS®, letter dated May 24, 2010, and NAR responses

Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on Economic Opportunity, Committee on Veterans' Affairs, to Tim S. Embree, Legislative Associate, Iraq and Afghanistan Veterans of America, letter dated May 24, 2010, and IAVA responses

Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on Economic Opportunity, Committee on Veterans' Affairs, to Thomas J. Pamperin, Associate Deputy Under Secretary for Policy and Program Management, Veterans Benefits Administration, U.S. Department of Veterans Affairs

LOAN GUARANTY PROGRAM

Thursday, May 20, 2010
U. S. House of Representatives,
Subcommittee on Economic Opportunity,
Committee on Veterans' Affairs,
Washington, DC.

The Subcommittee met, pursuant to notice, at 1:08 p.m., in Room 334, Cannon House Office Building, Hon. Stephanie Herseth Sandlin [Chairwoman of the Subcommittee] presiding.

Present:  Representatives Herseth Sandlin, Adler, and Boozman.

OPENING STATEMENT OF CHAIRWOMAN HERSETH SANDLIN

Ms. HERSETH SANDLIN.  Good afternoon, ladies and gentlemen.  The Committee on Veterans’ Affairs, Subcommittee on Economic Opportunity, hearing on the status of the U.S. Department of Veterans Affairs' (VA’s) Home Loan Guaranty Program will come to order.

In the 110th Congress, this Subcommittee held a series of hearings focused on the VA’s Home Loan Program, including the specially adapted housing programs.  Since then, we have been able to work in a bipartisan manner to increase the maximum loan guaranty amount, expand expiring adjustable rate mortgage programs, provide foreclosure prevention remedies for servicemembers and veterans, enhance specially adapted housing benefits, and require the VA to update the guidance it provides to veterans on the design and construction of specially adapted housing.  In keeping with our commitment to meet the current needs of veterans, today’s hearing seeks to review housing benefits that were first provided when President Franklin Delano Roosevelt signed the Servicemember’s Readjustment Act of 1944.  For over 65 years, VA’s Home Loan Program has been an important benefit that has allowed thousands of veterans the opportunity to own a home.

While the overall VA-backed Home Loan Program has proven to be successful, today we have the opportunity to address several issues of concern.  Some of these concerns, such as increasing the maximum loan guaranty or expanding the adjustable rate mortgage (ARM) program, were addressed in the 110th Congress and we hope to determine today if additional changes are warranted.  Also, we will hear about veterans who were attracted by non-VA backed home loans who have joined the thousands of Americans struggling to make housing payments during difficult economic times.  Fortunately, a growing number of veterans continue to take full advantage of the flexible program to refinance into a VA loan, allowing them to access the unique protections available through the VA to help ensure they remain homeowners.

I look forward to hearing from all of our panelists as we continue to improve the VA’s home loan benefits.  I now recognize the distinguished Ranking Member Mr. Boozman for this opening remarks. 

[The prepared statement of Chairwoman Herseth Sandlin appears in the Appendix.]

OPENING STATEMENT OF HON. JOHN BOOZMAN

Mr. BOOZMAN.  Thank you very much, Madam Chair.  It appears that in general the Loan Guaranty Program is working quite well and I congratulate VA for its management of the program.  And we look forward to talking more about that today.

One of the problems that we would like to address also today is a broader issue.  And we have had a little bit of a problem that it appears that perhaps senior VA is somewhat muzzling VA staff.  And what I mean by that is that at a recent staff meeting Veterans Benefits Administration (VBA) staff were told they are not allowed to speak to Congressional staff without working through the Office of Congressional and Legislative Affairs (OCLA).  Rightly or wrongly, VA staff informed our staffs that they could not speak directly to them, and to submit to even routine questions through OCLA.  That policy is being interpreted as applying even to the most routine questions, like how many people have signed up for the GI Bill.

This new policy, which I can only describe as shortsighted, and I really think harmful to veterans, prevents our staffs from conducting even routine, day-to-day business with not only VA but also with our constituents.  Previously, administrations on both sides of the aisle have tried this to some extent.  It is not a Democrat thing, it is not a Republican thing.  And it always fails because Congress and VA both need two-way communications, continuing a longstanding cooperative way of doing business.  Even at some times when it is less than comfortable for the VA. 

If we can have that level of communication, then certainly that fosters mutual trust that is in the long run good for veterans programs.  In my opinion, questions from staffs that ask things like details on administrative procedure, or participation, or average times, etcetera, are a legitimate oversight function and VA employees should not be ordered not to respond directly to such requests.   On the other hand, my staff has asked VA both directly and through OCLA for VA’s positions on a risk retention provision in the Senate financial services.  That is a request that requires the Department to make a statement of policy and OCLA should be involved.  By the way, we have not gotten a reply on that matter, and I hope that we can also find out VA’s position today.  Because we have been informed that such a provision may negatively impact VA guaranteed loans in terms of higher fees or interest rates.

Finally, I ask unanimous consent to enter comments provided by Mr. Adam Sachs on the risk retention provision in S. 3217 and the Merkley Amendment to that bill in the record.

Ms. HERSETH SANDLIN.  So entered.

Mr. BOOZMAN.  Thank you.  Mr. Sachs is a former member of the VA Committee Democratic staff and is now in private practice, and raises several issues with the provision and amendment. 

Madam Chair it is imperative, I feel like, that our staffs be able to speak directly to VA employees who run these very important programs, and I look forward to a reversal of the policy.  And with that, I yield back.

[The prepared statement of Congressman Boozman , and Mr. Sachs' comments, appear in the Appendix.]

Ms. HERSETH SANDLIN.  Thank you, Mr. Boozman.  You raise important considerations that, as always, we will work together, and with the VA, to continue to express our concerns and regardless of administration to seek a consistent policy that is most responsive to the needs of the Subcommittee, and the full Committee, and the constituents we represent.

I would like to welcome our panel who is testifying before the Subcommittee today.  All three of the witnesses on our first panel are testifying before our Subcommittee for the first time.  I thank all of you for being here.  I would like to remind each of you that your complete written statements have been made part of our hearing record.  If you could limit your opening statements to 5 minutes to provide us ample opportunity to pose questions, and recognizing that we have two additional panels, that way we again have sufficient time for followup once everyone has an opportunity to offer their verbal testimony. 

Joining us in our first panel today we have Mr. James Barber.  He is the Chairman and Chief Executive Officer (CEO) of Acacia Federal Savings Bank in Falls Church, Virginia, and he is representing the American Bankers Association (ABA); Mr. James Danis, President of the Residential Mortgage Corporation in Fayetteville, North Carolina, representing the Mortgage Bankers Association (MBA); and Mr. Maurice Veissi, Broker and Owner of Veissi and Associates, Inc. in Miami, Florida, representing the National Association of REALTORS® as their First Vice President. 

Gentlemen, thank you for making travel arrangements to be with us here today.  Welcome to the Subcommittee, and Mr. Barber we will start with you.  You are recognized for 5 minutes. 

STATEMENTS OF JAMES B. BARBER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, ACACIA FEDERAL SAVINGS BANK, FALLS CHURCH, VA, ON BEHALF OF AMERICAN BANKERS ASSOCIATION; JAMES H. DANIS II, CMB, AMP, PRESIDENT, RESIDENTIAL MORTGAGE CORPORATION, FAYETTEVILLE, NC, ON BEHALF OF MORTGAGE BANKERS ASSOCIATION; AND MOE VEISSI, BROKER/OWNER, VEISSI & ASSOCIATES INC., MIAMI, FL, AND FIRST VICE PRESIDENT, NATIONAL ASSOCIATION OF REALTORS®

STATEMENT OF JAMES B. BARBER

Mr. BARBER.  Thank you.  Chairwoman Herseth Sandlin, Ranking Member Boozman, and Members of the Subcommittee, my name is James Barber, and I am Chairman and CEO of Acacia Federal Savings Bank.  I am pleased to be here today on behalf of the American Bankers Association. 

The subject of this hearing is an important one for the millions of veterans who have taken advantage of the opportunity for home ownership through the Veterans Administration Loan Guaranty Program.  This program is unique in the mortgage lending industry, in that it allows a veteran to obtain a mortgage with no down payment, and no requirement to obtain private mortgage insurance, or PMI.  Maintaining the strength of this program will ensure that millions more of our servicemembers can access this valuable resource.  There are simply no comparable conventional or Federal Housing Administration (FHA) insured options that can offer this kind of support and opportunity.

While zero down payment loan programs have come under increased and deserved scrutiny, evidence shows that the VA program is working well.  There are three reasons for its strength.  First and most importantly, the program has maintained strict underwriting standards.  Second, the VA is supportive of the program and has improved it to support both lenders and borrowers.  Finally, the men and women who access this program have a strong commitment to meeting their financial obligations despite economic difficulties that they may encounter. 

In order to keep this program strong, Congress should avoid putting global requirements on lending that would severely hamper the good work of the program.  Recent legislative proposals have contemplated requiring some down payment for any mortgage.  This would be a mistake that would take away one of the main benefits of the program for our veterans, the ability to access homeownership.  Because without this program the down payment may be difficult or impossible to maintain.  

The VA has made an effort to improve and upgrade the program over the years.  Notably in recent years, VA has modified its guidelines for high cost areas, a move that has had lasting implications.  Despite these improvements there is still more that can be done. 

We believe there should be more consistency between regional offices that handle applications and underwriting.  And although the VA has worked on making information available, the Web sites can still be improved to make information easier to find and to improve their reliability. 

The banking industry appreciates the work that has been done over the years to make the VA Loan Guaranty Program a useful one for military personnel.  We hope that the program will continue to offer unique opportunities to our servicemen and servicewomen.  We plan to work together with Congress and the VA to make improvements so that the program can serve its customers better. 

Thank you for the opportunity to present ABA’s views.  I would be happy to answer any questions you may have.

[The prepared statement of Mr. Barber appears in the Appendix.]

Ms. HERSETH SANDLIN.  Thank you very much, Mr. Barber.  Mr. Danis, you are recognized. 

STATEMENT OF JAMES H. DANIS II, CMB, AMP

Mr. DANIS.  Chairwoman Herseth Sandlin, Ranking Member Boozman, and Members of the Subcommittee.  Thank you for the opportunity to testify on behalf of the Mortgage Bankers Association. 

My name is Jim Danis, and I am the President of Residential Mortgage Corp is Fayetteville, North Carolina, a certified mortgage banker, and MBA member.  I have been in the mortgage business for 17 years and have worked with the VA Home Loan Guaranty Program my entire career.  I know full well how important it is to the men and women of our military.  Today, approximately 70 percent of the loans my company closes are VA loans.  As credit markets have tightened, and loan underwriting has become more strict, finding affordable, low down payment mortgages has become increasingly difficult.  That is where the VA comes in, providing 100-percent loan to value loans to our veterans who have dedicated their lives to serving our country.

The VA program has been a tremendous success and the numbers pretty much speak to themselves.  The homeownership rate among veterans is an astounding 82 percent, compared to 67 percent for the general population.  And VA loans have performed better than any other segment of the market.  Despite most of these borrowers not having skin in the game, VA loans have outperformed their counterparts through the recent housing crisis.  According to MBA data, the seriously delinquent rate for the first quarter of 2010 was 5.29 percent, well below even the 7 percent delinquency rate for prime loans. 

The VA portfolio has been able to weather today’s turbulent market largely due to its conservative underwriting standards.  VA mortgages have always been fully documented and fully underwritten loans on owned or occupied properties.

Madam Chairwoman, although the VA Guaranty Loan Program has had an excellent track record of providing benefits to veterans and active-duty military personnel, MBA would like to recommend a few ways to keep it strong.  First and foremost, Congress should avoid mandating costly new risk retention requirements that could cripple the program and harm our economic recovery.  Both the House and the Senate Financial Reform Bills contain provisions that would require mortgagees and securitizers to retain a 5 percent interest in any mortgage they originate, sell, or securitize.  This would directly hurt the VA program and it will also harm small independent lenders like my company, which serve military communities.  Congress should specifically exempt VA loans as well as any other loans or securities ensured or guaranteed by the government, such as FHA, Rural Housing, Fannie Mae, and Freddie Mac.  Failure to exclude the VA and other safe and properly underwritten loans will negatively affect the housing recovery and veterans’ opportunities to secure affordable home mortgages.

To further help with the housing recovery, Congress should extend VA’s higher loan limits.  The Veterans’ Benefits Improvement Act of 2008 provided a temporary increase in the maximum guaranty for loans closed through the end of 2011.  It also allows borrowers to refinance 100 percent of the value of their home.  Prior to this, refinances were generally limited to 90 percent.  MBA supports these changes, and we thank this Subcommittee for ensuring that veterans who reside in high cost areas can enjoy their much deserved housing benefits.  We would ask that Congress consider extending these limits until the housing crisis has subsided. 

MBA would further recommend that the VA Loan Program be reviewed and updated so that it is better aligned with prudent industry standards.  VA management should have the flexibility to make programmatic changes to keep that program competitive, current, and relevant in a rapidly changing market.  And while my company does not service mortgage loans, I know that MBA members who do often report that VA’s processes can be made simpler or more cost effective.

My full written statement goes into greater detail on these important, highly technical issues.  We believe these changes would encourage more lenders to participate in the VA program and would directly benefit military families. 

Madam Chairwoman, I would like to close on a personal note.  My commitment to the VA program goes beyond merely professional.  The homes my parents purchased to raise me and my siblings were bought with VA loans.  And in keeping with our family tradition, after my discharge from the Army in 1989, I financed my very first home with a VA loan.  For so many reasons I am a strong advocate of this program.  It is invaluable to the brave men and women who have sacrificed so much for this country, and the enhancements discussed in my testimony would make it even more attractive and beneficial to veterans and their families.  Thank you.

[The prepared statement of Mr. Danis appears in the Appendix.]

Ms. HERSETH SANDLIN.  I appreciate your recommendations, Mr. Danis, and I also apologize for not pronouncing your name correctly in your introduction.

Mr. DANIS.  No, that is fine.

Ms. HERSETH SANDLIN.  We have a series of votes.  But I think that, Mr. Veissi, we will go ahead and take your testimony, and then we will take a short break.  When we return we will pose questions to the three of you on this panel.  So Mr. Veissi, you are recognized for 5 minutes.

STATEMENT OF MOE VEISSI

Mr. VEISSI.  Madam Chairwoman, Ranking Member Boozman, and the Members of the Subcommittee, my name is Moe Veissi.  I have been a realtor for over 40 years and am a broker/owner of Veissi and Associates in Miami, Florida.  I also serve as First Vice President of the National Association of Realtors, and previously to that the President of the Florida Association of REALTORS®.

Today I speak on behalf of 1.1 million realtors working in all aspects of the real estate transaction.  On a personal note, I also speak as the father of a soldier.  My son is on active duty with the Army in Iraq and when he, along with all America’s sons and daughters, returns home, I will be most proud that the VA is there to make good on the promises our Nation made when they joined the military. 

The VA Home Loan Guaranty Program created under the GI Bill encourages the private lenders to offer favorable home loans to qualified veterans.  Today, the VA has guaranteed nearly 19 million loans to American veterans with a total loan value of just over $1 trillion.  Because of programs such as the VA Home Loan Guaranty Program, the homeownership for veterans is significantly higher than the national average, as high in many cases as 80 percent.  The program is most effective when it provides veterans who are unable to qualify for conventional loans with favorable loan terms.  VA’s strong yet flexible underwriting allows veterans the ability to purchase a home of their own without depleting their savings.  More than 90 percent of the veterans utilize the zero down payment provided by VA, and their track record is absolutely fantastic.  The default rate and delinquency rate for VA loans is far better than subprime, better than FHA, and yes, even better than prime loans. 

Despite all the talk of skin in the game, this program shows that solid underwriting is the key to substantial homeownership.  VA requires participating lenders to ensure that the loan payments are appropriate for the veteran’s present and anticipated income and expenses.  The VA also requires the use of manual underwriting for those veterans who might be on the margin.  It is important to note that VA has never guaranteed subprime loans, never.  However, as a result of the work of this Subcommittee, and the passage of the Veterans’ Benefits Improvement Act of 2008, veterans have been able to refinance their distressed non-VA loans into a safe, affordable VA loan. 

The VA Loan Guaranty Program is more important than ever today.  As a result, the National Association of REALTORS® has stepped up its efforts to educate our members about this valuable program and last fall the National Association of REALTORS® partnered with the Veterans Affairs Department to produce "Unlocking the Future: A VA Toolkit for Realtors and Homeowners."  Madam Chair, with your permission we would like to submit a copy of this toolkit into the record.

Ms. HERSETH SANDLIN.  Yes, we will so enter that into the record.

[The toolkit, entitled "Unlocking the Future, a VA Toolkit for Realtors and Homeowners," is being retained in the Committee files.  The toolkit may also be accessed on the National Association of REALTORS®, Web site at http://www.realtor.org/wps/wcm/connect/b5d4f2804043162b8adcff205f470b6e/VA_ToolKit_Booklet.pdf?MOD=AJPERES&CACHEID=b5d4f2804043162b8adcff205f470b6e.]

Mr. VEISSI.  Thank you.  This comprehensive information DVD and brochure, complete with videos and frequently asked questions, provides realtors with the information they need to successfully guide a veteran through the home loan process.  [The DVD can be accessed at http://www.realtor.org/government_affairs/va_tool_kit_faq.] 

As we have discussed, the Subcommittee has been instrumental in making a number of changes to the VA Home Loan Guaranty, making this program even more useful for veterans and we think there are a few other changes that could help our Nation’s military families.  Approximately 60 percent of the veterans live in urban areas, where the median prices of homes are often above the national average.  The current loan limits, which provide loans up to 125 percent of local area median price, expire in 2011.  We urge the Subcommittee to take action to make these limits permanent.  Veterans in high cost areas should not be penalized for geographic differences in this housing market.

Furthermore, since military families tend to move often, an adjustable rate or hybrid ARM can be a very reasonable mortgage choice.  The curtain law extended authority for the adjustable rate and hybrid ARMs through 2012.  We encourage Congress to authorize these products permanently.

While we fully support VA’s efforts to limit fees paid by veterans, our members report that veterans using the VA Home Loan Program have found themselves at a disadvantage when purchasing a home because sellers refused to pay pest inspections or other fees customarily paid by the buyers.  In States like my home State like Florida, where a large number of veterans live, a high percentage of the sales are foreclosure or short sales.  Since there is no seller to pay the fees, veterans are completely shut out of this market, and it often includes the most affordable homes.  NAR believes that VA should provide borrowers with flexibility to negotiate these fees as a normal part of the home purchase transaction.

I thank the Subcommittee for this opportunity to share the views of the National Association of REALTORS® regarding veterans’ housing.  We strongly support housing opportunities for our Nation’s veterans and active-duty military professionals, and we hope the Subcommittee will support our recommendations for enhancing and improving the VA Home Loan Guaranty so that it may be a real benefit to those who have bravely served our country. 

[The prepared statement of Mr. Veissi appears in the Appendix.]

Ms. HERSETH SANDLIN.  Thank you very much for your testimony, Mr. Veissi.  Thank you all.  We are going to take a short recess.  We have four votes.  So we hope to return within about a half an hour.  It might be a little bit longer than that, but that is our hope.  Thank you.

[Recess]

Ms. HERSETH SANDLIN.  I thank our witnesses for their patience as we recess for votes.  I would like to start my questions for you, Mr. Danis, and the other two witnesses in this panel can provide feedback on this question as well if you would like.  In your written testimony you state that the VA Loan Program should be aligned with prudent industry standards.  I was wondering if you could give us some examples, or elaborate on the standards that you believe that the VA should consider?

Mr. DANIS.  Yes, ma’am.  The main difference that I see is with closing cost issues.  At VA, there are certain closing costs that VA will not allow the veteran to pay for in the closing process.  And this is in an effort to protect the veteran, although what it does at times, depending on the situation, it can actually put the veteran at a disadvantage as far as when they are negotiating the sales contract.  There are certain closing costs, like I said, that VA does not allow the veteran to pay for and the seller may not be able to, or may not be willing to pay for those closing costs.  So, and I have seen this happen quite a bit, contracts or negotiations can fall through and the veteran can actually lose the property that they may be purchasing, or putting a bid on.

As far as other industry standards, I think VA needs the flexibility to be able to make programmatic changes as they come about, depending on what the market is doing.  As of now, they do not have that authority or the actual flexibility to do so.  And those are the main issues that I see.

Ms. HERSETH SANDLIN.  Also, some of the changes you propose would make the VA loan more similar to the FHA loan.  Can you speak to how the typical VA borrower may be considered versus your typical FHA borrower?

Mr. DANIS.  I think those changes mainly have to do on the servicing side.

Ms. HERSETH SANDLIN.  Okay. 

Mr. DANIS.  The reason being is FHA has on the servicing side, if there is a foreclosure for example, FHA has the ability to do a partial claim or a partial refunding.  Whereas VA does not have that ability, FHA does.  So those are the main differences that I see on the servicing side there.  On the originations side, there really are not that many differences.  Now, the various loan programs, as you know, FHA has an up front mortgage insurance and a monthly built into the payment, where VA is just the funding fee. 

Ms. HERSETH SANDLIN.  Okay.  Mr. Veissi and Mr. Barber, do you have any comments on either of those questions?

Mr. VEISSI.  The only additional comment I might have is when a vet goes into a marketplace, especially one like today, that is replete with short sales and foreclosures, that vet is at an enormous disadvantage predicated upon the fact that they cannot compete with those fees up front that were just mentioned.  But more importantly, because there is no one to address that fee structure to.  Those sellers are represented by asset managers or agents that represent usually a lender, who is like a second or third party down.  So they are really in a hole when they deal with that kind of situation, and are unable to make those kinds of decisions.

Ms. HERSETH SANDLIN.  Well, I think you just answered, in part answered the question I was going to pose to you in terms of how difficult it is for a veteran to find a lender that participates in the VA Loan Guaranty Program?

Mr. VEISSI.  It is, in some areas of the country, especially where the location is, is a stronger military, has a stronger military presence than others, it is probably not quite as difficult.  Nonetheless, given the standards of VA and the foreclosure rate of VA, you would think that there would be a, just a tremendous opportunity for lenders to jump into that arena.  But it is not quite always that way.  Part of the reason is basically the same thing, there is not a secondary marketplace for that VA loan.  So that restricts as well the opportunities for them to be as much of an advantage in the lending process as a nonveteran.

Ms. HERSETH SANDLIN.  Okay.  And then finally, Mr. Barber, you state that the certificate of eligibility is confusing for both the lender and the veteran.  In your opinion, should VA update the certificate to state what is acceptable for each veteran?  Or how can we deal with a situation that may be more confusing than necessary for both parties?

Mr. BARBER.  It is my understanding from talking with staff that the certificate sometimes is different in different places and different eligibilities.  So it has to do with creating a consistent model nationally.

Ms. HERSETH SANDLIN.  More uniform, okay.  Thank you.  Mr. Boozman?

Mr. BOOZMAN.  Thank you, Madam Chair.  Really, to all of the panel, the Senate Financial Services Bill contains a retention of risk provision.  Additionally, Senator Merkley has offered an amendment that appears to affect processing of refinanced loans.  Do you all have a position on either of those provisions?  And do you believe they will negatively affect VA-backed loans and VA lenders?  And if so, in what ways?  And I think some of you alluded to that in your testimony.

Mr. DANIS.  Yes, sir.  I do.  The Merkley Amendment, the way it will affect VA loans, and I believe negatively it will, it has to with the VA interest rate reduction loans.  This loan is a rate and term refinance, where it allows the veteran to either refinance the rate, or the term or a combination.  It is not a fully documented or a fully underwritten loan as a purchase would be.  The veteran is not providing income or credit documents.  And the loan was designed, basically, so that a veteran could refinance their mortgage, very quickly take advantage of the market conditions, and not have to, not have to provide all of that documentation.

Now VA with an interest reduction loan is not suffering an additional risk.  You are refinancing the VA to a VA mortgage.  So they are not suffering any additional risk on that loan.  So the Merkley Amendment in that respect would make the VA interest reduction loan a full qualifying mortgage, whereas that was not the intended purpose in the beginning of it.

Mr. BOOZMAN.  This is a program that seems to be working pretty well.  From your testimony, and then from listening to veterans, so many veterans that have been part of the program through the years.  This seems to be something that does well.  And then also when you look at the statistics of this program versus the others, again, it does indicate, too, that it is working well and doing what we want it to do. 

If we made it such that instead of it being a full loan so that you can get 100 percent, if it were reduced to 95 percent, or 90 percent, or whatever, how would that affect the individual’s eligibility as far as to be able to participate in the program?  One of the things that we have is high ownership by veterans compared to the general population, low foreclosures, and things like that.  How would that adjustment, how would that impact veterans as far as their ability to acquire the loans in the first place?

Mr. BARBER.  I will just start by saying it would negatively impact them, and some percentage of veterans would not be able to make that initial step on the housing ladder.

Mr. BOOZMAN.  A significant percentage?

Mr. BARBER.  Some significant percentage, I would suspect. 

Mr. DANIS.  And—

Mr. BOOZMAN.  Go ahead.

Mr. DANIS.  Excuse me.  I would say at least 90 percent of the loans that I originate are 100 percent loan to value mortgages.  If the veteran were to, were required to put a down payment, I believe that they would not be able to qualify for those mortgages.  A significant portion of them would not.  So that would make housing, housing financing a lot more difficult for them.

Mr. BOOZMAN.  Would you agree with that also, sir?

Mr. VEISSI.  I would, and additionally that is an entitlement that those veterans believed they were going to have initially when they came back from their tours of duty and service.  The success of this program is absolutely unparalleled.  The numbers that you heard are unparalleled even in the prime mortgage market.  The prime is probably about three-quarters of a point higher in foreclosure than the VA loan process.  Even in the ARM factors, knowing that most vets are moved from place to place in a 1- to 3-year period, when most of us live in our homes for 11 or 12 years, they need those kind of advantages to be able to take an opportunity of home ownership in America today.  It is just a different kind of a, a different kind of a buy-sell relationship.

Mr. DANIS.  You know—

Mr. BOOZMAN.  Go ahead, sir.

Mr. DANIS.  I also believe because the VA’s underwriting standards, as conservative and as strict as they have been, and I have been underwriting VA loans since 1993, 1996, excuse me, since 1996.  And over that history, I have not seen changes, large changes, or major changes, to the underwriting standards.  And I believe because of their underwriting standards that a down payment would not be required.  As you can see in the past history and the performances of those loans, which the majority are 100 percent mortgages, a down payment is not going to make a major change one way or the other.  It would just decrease the availability of the mortgage for the veteran. 

Mr. BOOZMAN.  Good, well I very much agree with you.  And I just really wanted to get that, you all are our experts in that field.  I really wanted to get that for the record that you felt very strongly.  And I can say that in the sense that you do feel very strongly, it appears, that that would have a real negative impact to the ability of our veterans to use the program.  Thank you, Madam Chair. 

Ms. HERSETH SANDLIN.  Thank you, Mr. Boozman.  Mr. Adler?

Mr. ADLER.  Thank you, Madam Chair, and thank you for holding this hearing.  This actually gives me comfort.  This is almost a hearing in search of a problem, because this is a program that is really working well.  So I am reassured by your questions, and the good responses by this panel, Mr. Boozman’s questions and the good responses by this panel, that things are going okay here.  We have a very low delinquency rate, and it is partly for the reasons of that last colloquy, really good underwriting, that seems to have worked well.  And as the realtors make the point, there is an understanding that there is going to be no down payment and that has not been detrimental as it certainly was with the no doc loans in a different context that have, you know, helped drag our economy down.  This is a program that is really serving us well.

I am going to direct one of my questions to Mr. Barber, and maybe the other panelists, with respect to one tweak in the underwriting process regarding 180 days, sort of old documents versus 30 days.  In testimony you suggested one possible change in underwriting might be to have documents be required to be a little more current than 180 days.  Do you want to comment on that at all?

Mr. BARBER.  Yes, again it is a consistency issue I am hearing regarding some documents required on new construction, and creating consistency in the program compared to other non-VA programs. 

Mr. ADLER.  From a mortgage bank’s perspective, or from a realtor’s perspective, do you think that would cause any serious disruption in what is generally a good program, but probably one place where it is sort of irrationally out of line with conventional underwriting process?

Mr. DANIS.  As far as the 180-day time limit, like Mr. Barber said, that applies to new construction.  When you get into existing homes, those underwriting time frames are less.  I believe it is 120 days.  You know personally, and this is just our philosophy, my personal philosophy, our document time frames are a lot less, just to make sure that we have the most available current information on those veterans.

Mr. VEISSI.  I concur.

Mr. ADLER.  Thank you.  To followup Mr. Boozman’s questions regarding risk retention, I know the House had some amendment in its bill.  I think Mr. Minnick and Mr. Miller.  The Senate has an amendment, and I know Mr. Merkley is talking about something on the Senate side.  Are there any other things you would suggest as a compromise position that would ameliorate the anticipated negative consequences of the skin in the game, 5 percent risk retention?  Maintain some of that notion, but not go quite as far as you fear? 

Mr. VEISSI.  You know, one of the things that we probably do not recognize has nothing to do with the lend/borrower side.  It has to do with the military itself.  Not only do they have a good counseling program for a vet that is going into the housing market, but there is another kind of a risk fail safe.  It could be a renter, it could be a purchaser, anytime that that vet is having a problem with their loan, or their rental for that matter, that information goes right back to their commanding officer (CO).  There is a difference in that kind of a loan than a loan to you and I.  It does not go back to my dad or my mom, it goes back to his or her CO.  And that is an enormous lever when those folks come back and say, “Hey we told you ahead of time, this is what you have got to try and accomplish.”  So I just think it is a real solid vehicle right as it stands right now.

Mr. ADLER.  Mr. Danis, I know in your written comments you were opposed to any sort of risk retention in this context, distinguishing this from other situations perhaps.  Is there a compromise point that you could see short of maybe farther along than the Minnick Amendment, farther along than the Landrieu Amendment, that you think would be a compromise point that you could tolerate?

Mr. DANIS.  To be honest with you, no.  And as far as risk retention is concerned, we believe that fully documented, fully underwritten loans should have a zero risk carve out.  The reason being, especially on the VA side, with the risk retention piece it creates a model where the independent mortgage lender, any independent mortgage lender, it becomes totally unsustainable.  To be blunt, if the bill passes through the House and the Senate without a carve out, independent mortgage lenders are done.  There are no ifs, ands, or buts about it, we are done.  We would have to shut our doors.  So we would not be able to serve our communities and we would not be able to serve the veterans and the markets that we are in.  It sounds blunt, but that is the best and clearest way to put it.  If there is not a carve out for fully qualified loans, whether they are VA or any other type of mortgage.  FHA, Rural Housing, and Fannie, and Freddie, the independent mortgage bankers are done.

Mr. ADLER.  Bankers have a different view?  Same view?

Mr. BARBER.  Oh, I think the VA, it should be just carved out.  And if it is not, in my mind, it is kind of coming in and shooting the survivors.  Right?  The subprime lenders are gone, VA survived the process and the downturn very well, and it should be carved out.  I mean, we have had a tremendous downturn and the VA Loan Program, it seems to me, has done very well.  No reason to shoot the survivors.

Mr. ADLER.  Gentlemen, thank you.  And Madam Chair, I am going to stop as I started.  This is a happy situation, and this Subcommittee has analyzed a lot of situations where veterans are struggling in this segment of society or that.  This is one of those happy successes where government has worked to honor those that have served our country. 

Ms. HERSETH SANDLIN.  Well, thank you, Mr. Adler.  Mr. Boozman and I feel strongly in light of the fact that the House version of the Financial Regulatory Reform Bill does provide a carve out for the VA Loan Program, that we will work with you and other Members of our Subcommittee to communicate effectively to conferees the importance of at least getting that carve out, understanding the broader points that Mr. Danis is making.

One final question for each of you, from your perspective, do you think the VA, each of you is representing national organizations where you have got a lot of members who have done some very creative, innovative things as it relates to marketing products that are good for consumers.  In your experience, do you think that there is anything more that the VA could be doing either for the veterans or the lenders as it relates to sort educating potential users of the VA Loan Guaranty Program?

Mr. VEISSI.  Well, I think one of the things, yes, and I think one of the things that we did in conjunction with the VA was to produce this toolkit.  It is not, it is not the be all, end all.  But it is an attempt to try and not only educate our folks on how to deal with a very unique part of the real estate industry and the financing industry, but also to the veteran as well.  When we stop doing that, we stop doing some of the things that we promised that veteran when they entered the service in the entitlement program.  So I think it behooves us to continue to make sure that they understand and know the opportunities that exist for them, yes.

Ms. HERSETH SANDLIN.  All right.  Thank you, and I thank you for identifying the fact that this could be a partnership with other stakeholders and the VA to advance more helpful information about the program to the veterans themselves.  Any other final comments from the panel?  Well, I thank you all, again, for your testimony, for being with us at this hearing today, the recommendations that you have provided, your thoughtful responses to our questions.  We are going to continue to work with you and your organizations to explore some of the proposals that you have submitted to the Subcommittee for consideration.  Thank you very much. 

Mr. VEISSI.  Thank you.

Mr. DANIS.  Thank you. 

Ms. HERSETH SANDLIN.  Joining us on our second panel is Mr. Joseph Sharpe, Director of the National Economic Commission for the American Legion; Major General David Bockel, Executive Director for the Reserve Officers Association (ROA) of the United States.  General Bockel is also representing the Reserve Enlisted Association (REA) today.  Also joining us is Mr. Timothy Embree, Legislative Associate for the Iraq and Afghanistan Veterans of America (IAVA).  Gentlemen, welcome to the Subcommittee.  We will start with Mr. Sharpe, and go ahead and begin your testimony.  You are recognized for 5 minutes. 

STATEMENTS OF JOSEPH C. SHARPE, JR., DIRECTOR, NATIONAL ECONOMIC COMMISSION, AMERICAN LEGION; MAJOR GENERAL DAVID R. BOCKEL, USA (RET.), EXECUTIVE DIRECTOR, RESERVE OFFICERS ASSOCIATION OF THE UNITED STATES, AND ALSO ON BEHALF OF RESERVE ENLISTED ASSOCIATION; AND TIM S. EMBREE, LEGISLATIVE ASSOCIATE, IRAQ AND AFGHANISTAN VETERANS OF AMERICA

STATEMENT OF JOSEPH C. SHARPE, JR.

Mr. SHARPE.  Good afternoon, Chair, and Ranking Member Boozman, and Members of the Subcommittee.  Thank you for the opportunity to present the American Legion’s view on the status of VA’s Loan Guaranty Program.  In the last 5 fiscal years, VA has assisted more than 947,000 veterans in obtaining home loan financing totaling almost $180 billion.  In fiscal year 2009, VA guaranteed over 325,000 loans, with the average loan being over $200,000. 

The American Legion has been very pleased to watch the performance of VA loans during the unprecedented downturn in the mortgage marketplace over the last 2 and 1/2 years.  Historically, the Mortgage Bankers Association has tracked the performance of prime, subprime, Federal Housing Administration, and VA loans using its national delinquency survey.  The most recent available survey is the for the fourth quarter of 2009 and it shows that serious delinquency rates for those loan types is as follows: prime, 7 percent; subprime, over 30 percent; FHA, about 9 percent; and VA at 5 percent.  The data clearly shows that VA loans are performing better than all other mortgage loan types in the marketplace.    This favorable performance during a difficult economic period can likely be attributed to several factors.  One, VA has continued to maintain its prudently crafted credit underwriting standards while other players in the mortgage industry compromised their standards to generate more business.  Two, VA selects the appraiser that will be used for the VA loan from its list of approved appraisers, and does not allow lenders to make the selected as is typical in the rest of the mortgage industry.  Three, VA has always maintained a comprehensive and aggressively administered program of assisting veterans who encounter trouble making their loan payments.  And four, the fact that veterans and servicemembers are generally more responsible borrowers as a result of the maturity and discipline they developed while serving their country.   

However, in 1982 Public Law 97-253 was enacted and imposed a half percent funding fee on all veterans using the loan program, with the exception of those veterans in receipt of a compensation for a service-connected disability.  This was considered to be a temporary measure to help reduce the national debt.  Unfortunately, this fee has been a fixture of the Home Loan Program, and even more unfortunately it has been raised numerous times by Congress since 1982.  The American Legion strongly urges Congress to consider either eliminating this fee or significantly reducing it.  Veterans should not have to make such a significant financial sacrifice in order to use a benefit that they have earned as a result of their service to America.

In addition, the American Legion supports that all spouses of deceased veterans gain eligibility for the VA Home Loan Program.  The current eligibility for a home loan for spouses is an unmarried spouse of a veteran who died while in service or from a service-connected disability, or are from a spouse of a serviceperson missing in action, or a prisoner of war.  It is unfair for a veteran spouse only to become eligible for a home loan if the veterans dies of a service-connected disability.

Finally, as the mortgage crisis continues to unfold, the VA needs to do more to promote their excellent home loan program and to encourage veterans facing housing problems to contact the VA Financial Counseling Center.

In conclusion, thank you for the opportunity to submit the American Legion’s views on the status of the Home Loan Program.

[The prepared statement of Mr. Sharpe appears in the Appendix.]

Ms. HERSETH SANDLIN.  Thank you, Mr. Sharpe.  General Bockel, you are recognized. 

STATEMENT OF MAJOR GENERAL DAVID R. BOCKEL, USA (RET.)

General BOCKEL.  Madam Chairwoman, Ranking Member Boozman, Members of the Subcommittee, I am Major General David Bockel.  I am the Executive Director of the Reserve Officers Association and I would like to thank you for the opportunity to testify today.

One advantage of either a Guard or a Reserve veteran is that they have dual careers.  They bring into the military their civilian skills.  What the Reserve Officers Association and the Reserve Enlisted Association, which represents 66,000 members, can bring to this hearing is the perspective of individuals who have been in the real estate industry or perhaps in mortgage loans as well as the point of view of a veteran.

Despite the fact that the demand for Veterans Affairs Home Loan Guaranty Program has diminished over the last few years, it is not because it is a bad product but because there are more home loan choices for veterans in the marketplace.  The key to any economic environment is the fact that this product provides veterans a back up plan should their options fall through.  Some veterans are so content with the program they have never sought home financing from any other conventional loan source.  ROA and REA would like to see changes in the funding fees to encourage subsequent use of this VA benefit.

As some 57 million Americans are eligible for the program, if anything it demonstrates that it is underutilized likely because most of these veterans are unaware of this program and their qualifications.  Veterans Affairs is dependent upon the real estate and mortgage industry to get the word out.  Coming myself from the advertising industry, I am personally certain that there are means other than having veterans go to the VA Web site to get that word out. 

The Reserve Officers Association feels it is important to authorize this program beyond 2012 and we are appreciative that this Committee is holding a hearing early in the legislative cycle to take a look at the program.  Of concern to the associations is that the National Guard and Reserve members not yet mobilized have to pay a VA funding fee that is 25 basis points higher than those serving members or veterans who earned this benefit on active duty.  It is important to remember that for nearly 10 years the Guard and Reserve have performed the same missions and accepted the same risk as the active-duty force, often providing up to 40 percent of those who are deployed, and augmenting the active force so that the active members can return to their home purchased under the VA Home Loan Guaranty Program.  While a quarter of a percent seems like a small amount, this fee is added to the loan amount and continues adding to its expense.  On a $417,000 by a Reserve component member, the VA funding fee adds over $10,000 to the loan amount, which is nearly 12 percent higher than what the active duty member pays.  Now, some would say that this is a small amount of money compared to the total amount of the loan.  Yet this can affect the dollar level of the mortgage qualifications that continues to send out the message that the National Guard and Reserve members are second class warriors.

As a number of selected Reservists are also full time Active Guard and Reserve, or AGR, personnel, I would like to finish my testimony by talking about how the VA Home Loan Program needs to be more flexible for those members serving on active duty in that capacity.  Losing access to the guaranty is a problem for active Guard and Reserve members who purchase a home using the VA Loan Program, but upon transfer to a new station are unable to sell the first house.  They lose their eligibility for a new VA loan until the first property is sold.  Should they decide to rent it in order to keep their home for a later tour or retirement, there can be challenges from the VA about renting the property if the transfer occurs too soon after the initial purchase. 

Lastly, VA will only allow spouses to occupy a newly purchased house if a servicemember is deployed.  ROA and REA hope this might be expanded to include parents or siblings, as some overseas members would like to own homes during their deployment but they are precluded if they are not married.

Again, I thank the Subcommittee for this opportunity to testify and stand by for your questions. 

[The prepared statement of General Bockel appears in the Appendix.]

Ms. HERSETH SANDLIN.  Thank you very much, General Bockel.  Mr. Embree, welcome back to the Subcommittee.  You are recognized.

STATEMENT OF TIM S. EMBREE

Mr. EMBREE.  Thank you, ma’am.  Madam Chairwoman, Ranking Member, and Members of the Subcommittee, on behalf of Iraq and Afghanistan Veterans of America’s 180,000 members and supporters, I would like to thank you for inviting IAVA to testify today.  My name is Tim Embree.  I am from St. Louis, Missouri, and I served two tours in Iraq with the United States Marine Corps Reserve.  Veterans housing and homeownership is a critical issue facing Iraq and Afghanistan veterans and IAVA welcomes the opportunity to discuss the VA Loan Guaranty Program with you today. 

Due to the current housing crisis, we are beginning to see some of the shortfalls of the VA Loan Guaranty Program.  This popular benefit is well administered, and since 1944 the VA has made 18 million homes affordable for troops an