How Financial Reform Impacts Veterans

In an attempt to balance lending risks with credit-driven economic growth, Congress is mulling a Financial Reform bill that has the potential to hinder the VA Home Loan Guaranty program. Sen. Jeff Merkley (D-Oregon) proposed an amendment to the gargantuan Financial Services bill mainly to rid the market of loans that do not have sufficient documentation and loans with terms that made it difficult for borrowers to pay off in the long run. Such loans contributed heavily to the mortgage crisis.

The Merkley amendment doesn’t stop there. It piles on underwriting and verification requirements to all loan programs, including the VA Home Loan Guaranty program. But VA loans don’t need any repairs. Instead, the amendment introduces two hurdles for military families seeking VA loans:

• Lending costs will increase as a result of more stringent underwriting that will take more time. Loans will come with more fees, and veterans will pay more to make use of this exclusive program.
• Veterans and military members who once qualified for a VA loan may no longer be able to.

VA loans already come with strict underwriting and appraisal procedures, so it’s nonsensical to add more layers to the underwriting process. The second problem is a major concern since about 80 percent of borrowers who qualify for VA loans would not qualify for conventional financing options.

Though Merkley’s proposition has legitimate goals to prevent another mortgage crisis, it punishes the safe-lending programs, such as VA loans which have  low default rates.

The Mortgage Bankers Association breaks down the percentage of loans in foreclosure:

For more than 65 years, the VA loan program has helped more than 18 million men and women become homeowners as a reward for serving our country. Thwarting the chance for today’s military members to follow in their footsteps is inappropriate, especially with Memorial Day just around the corner.

This article was written by Jay Buerck. Jay works for VA Mortgage Center, specialists in providing access to credit for military veterans.