Madam Chairwoman, Ranking Member, and members of the subcommittee, on behalf of Iraq and Afghanistan Veterans of America’s one hundred and eighty thousand 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, MO and I served two tours in Iraq with the United States Marine Corps Reserves.  

Veterans housing and home ownership is a critical issue facing many Iraq and Afghanistan veterans and the “Loan Guaranty Program” is a valuable benefit that helps many veterans and their families. IAVA welcomes the opportunity to discuss this program with you.

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 and veterans by acting as a guarantor of their mortgage loans. But the number of new VA loans has declined every year between 2004 and 2007, and “in 2006, at the peak of US subprime lending, the number of VA loans fell to barely a third of the level two years earlier.”[i]

In 2007, over 1.3 million American homes were in foreclosure, up almost 80 percent from the year before. For military families, the foreclosure crisis is even more dire. In early 2008, foreclosure rates in military towns were increasing at four times the national average. One cause of this is lenders selling subprime mortgages had targeted military families.

Tragically, the marketing of subprime mortgages seems to have drawn troops and veterans away from the VA Home Loan Program.

Furthermore, during the height of the housing bubble, technical limitations on VA home loans made the program less beneficial to many homebuyers in expensive areas due to soaring housing prices.  Until the cap was raised in mid-2008, veterans could not receive a zero or no down payment loan over the limit of $417,000. The cap was above the 2008 median home sale price, but it failed veterans looking to buy homes in the more expensive regions of the country. For instance, in San Francisco, California, the median home sale price during November 2008 was $648,000.  A veteran looking to buy a home in the city by the bay could not receive a no down payment loan from the VA and would have to pay a down payment out of pocket.

Many vets were also deterred from applying for a VA loan by the funding fee, ranging from 0.5 percent for an Interest Rate Reduction Refinancing Loan to 3.3 percent for a general VA home loan.[ii]

The net effect of the widespread, targeted advertising of subprime loans and the deterrence of the limits and fees of VA loans is that veterans who may have qualified for VA-backed mortgages are now struggling with a subprime mortgage at high risk of foreclosure. This is especially unfortunate given that VA-backed home loans protect the veteran-borrower from many of the risks associated with the mortgages offered to subprime borrowers.

As the mortgage crisis has expanded, the popularity of the VA home loan program has increased. After guaranteeing only 130,000 loans in 2007, the VA guaranteed about 180,000 loans in 2008, totaling $36 million.[iii] The renewed interest in VA loans is good news; veterans are better served by VA loans and we have earned the benefits. But there is much more to be done to help servicemembers and veterans get the full benefit of the VA loan program. Congress has already taken some action to improve the resources available to troops and veterans facing mortgage problems. The Housing and Economic Recovery Act of 2008 raised the loan ceiling for VA home loans to $729,750 in some areas and gave servicemembers nine months of protection from foreclosure after returning from a deployment.[iv] In addition, VA authority to refinance a loan has been expanded.[v] But there remain serious concerns about the structural limitations of the VA refinancing program and the lack of outreach to veterans regarding VA financial counseling.

The VA Loan Guaranty Program helps thousands of our nation’s veterans realize the dream of home ownership each year, but we must keep this program secure and ensure that it continues to meet the future needs of servicemembers, veterans and their families.

IAVA recommends the following steps to ensure that veterans have every opportunity to continue turning dreams of homeownership into a reality:

• Allow for the consideration of VA benefits (such as the GI Bill) as income for VA home loan eligibility determination;
• Develop home purchasing workshops at local Vet Centers;
• Aggressively market the VA Loan Guaranty Program to more lending institutions; and
• Reinstate the $8,000 first time homebuyer tax credit for veterans and current servicemembers.

VA benefits are income that we have earned

Veterans have earned their GI Bill benefits and are using this benefit to increase their value to the civilian workforce. Many veterans use the old and new GI Bills to go to school and, unlike many younger non-veteran students, veterans are ready to put down permanent roots in a community. Veterans want to begin the next chapter of their lives with a place to call home, but currently the money they receive from their VA benefits is not taken into consideration when they apply for a VA home loan. Without the benefit income on their application, veterans can look like an inferior loan candidate. Student veterans should not have to choose between taking advantage of their new GI Bill benefit and buying a home.

Buying a home is likely the most complex purchase a person will ever make

Purchasing your first home is not like buying a television. There are many steps and hidden costs that can catch the potential homebuyer unaware. If we have learned anything from the recent housing crisis, it is the importance of being a well-informed homebuyer. The VA Loan Guaranty Program is one of the best deals out there, but it is still a complicated process. The VA should implement local home purchasing workshops to prepare veterans for the complicated process of purchasing a home as well as to promote the benefits of the VA Loan Guaranty Program. These workshops should be held at the local Vet Center. These are welcoming facilities where veterans and their families can learn about the many different programs available to them, as well as meet fellow veterans in similar situations.

Great program, too few lenders

Due to the current financial crisis, interest rates across the board have remained low. As of submitting this testimony, the current fixed mortgage rate is 4.625 percent, while the VA 30-year fixed rate is 4.875 percent. The limited number of VA approved lenders makes it nearly impossible for a veteran to shop around for better interest rates for a VA loan. This noncompetitive environment puts veterans at a great disadvantage. If they want the benefits of a VA loan they need to accept a bloated interest rate. While interest rates are artificially low, we must encourage more lending institutions to take part in this program. Many lenders are leery of the process to become an approved VA lender due to ignorance of the program and ignorance of the ease of the process to become an approved VA lender.

The VA must aggressively market this program to more lenders across the country. Although 90 percent of current VA-backed home loans were given without a down payment, the VA has seen relatively few foreclosures, compared with other lenders nationwide. In the fourth quarter of 2007, the share of VA mortgages in foreclosure was only slightly higher than the share for prime borrowers; those with the highest credit scores. Even in the midst of the housing crisis, VA foreclosures in 2008 were down more than 50 percent from the same months in 2003, according to the VA. As lenders are becoming more risk adverse, the VA must preach to mortgage lenders the inviolability of the VA Loan Guaranty Program.

Veterans are leaders in their communities

Veterans of past wars have been a positive addition to our communities and our newest veterans are no different. We are the next “Greatest Generation.” We are leaders and we care deeply about our neighborhoods and our neighbors. As we pass the 2 million mark of servicemembers having served in Operations Enduring and Iraqi Freedom, we have more and more veterans looking for new neighborhoods in which to begin the next chapter of their lives. Our veterans have earned the VA home loan benefit and thousands of these veterans are ready to purchase their first home. We must update and streamline this phenomenal benefit to ensure today’s and tomorrow’s veterans will be able to purchase their own home.

Thank you for your time and attention.

[i] Howley, “Foreclosures in Military Towns Surge at Four Times U.S. Rate.” With the collapse of the subprime mortgage market, and the decline in house values, VA loans are again gaining popularity. Tom Philpott, “Help for Vets in Mortgage Mess,” Military.com, June 5, 2008.

[ii] For more information, visit “VA Home Loans – A Quick Guide for Homebuyers and Real Estate Professionals,” www.homeloans.va.gov/vap26-91-1.htm.

[iii] Bob Tedeschi, “VA-Backed Loans on the Rise,” New York Times, June 29, 2008. Department of Veterans Affairs, “Enhanced VA Mortgage Options Now Available for Veterans,” October 24, 2008.

[iv] Department of Veterans Affairs, “VA Raising Home Loan Ceilings in Many Areas.” See also: Summary of the “Housing and Economic Recovery Act of 2008”, Senate Banking Committee, banking.senate.gov/public/_files/HousingandEconomicRecoveryActSummary.pdf

[v] Department of Veterans Affairs, “Enhanced VA Mortgage Options Now Available for Veterans.”