Restrictions Will Cut Back VA Mortgages

The Veterans Administration said Thursday that it is imposing restrictions on its home-loan guarantee program that will sharply curtail the size and availability of insured mortgages for military veterans.

The changes are being taken to comply with spending restrictions under the Gramm-Rudman balanced budget act, and officials said the limits could also mean that VA loans will be denied to thousands of qualifying veterans this year.

With its new restrictions, the VA will:

- Place a $90,000 limit on the size of home loans that the agency will insure.

- Allow no VA-backed refinancing of existing VA-insured loans.

- Prevent second-time use of the VA home-loan program. Veterans who have a VA-backed loan, or who previously did, will not be allowed to use the program again, even if they have paid off their VA mortgage in full.

“These proposals will have a devastating effect on the mortgage market and on the veteran home buyer,” said Warren Lasko, executive vice president of the Mortgage Bankers Assn., whose member bankers make loans under the VA guarantee program.

The VA now has no limit on the size of loans that they will guarantee, but most lenders maintain a $110,000 limit for VA loans with no down payment, with larger amounts available if a down payment is made. The VA guarantees to lenders a portion of the mortgage amount up to $27,500.

Lasko said the move effectively denies the VA home-loan benefit to veterans living in areas of the country where housing costs are high, such as California, Alaska and Washington, D.C. “Veterans who live in these areas also deserve their entitlement,” he said.

The VA, citing requirements of the Gramm-Rudman law, also said it was reducing some other veterans benefits effective March 1. Payments for veterans and survivors enrolled in education and training programs will be reduced 8.7%, or up to $33 a month, and vocational rehabilitation trainees will see a 13.1% reduction, or $41 a month.

Reductions Listed

Payments for specially equipped housing and automobiles for handicapped veterans would be reduced 8%, and burial allowances will be cut 10%.

Congressional sources, speaking on condition that they not be identified, said the VA plans to impose the changes as soon as they can be printed in the Federal Register.

The changes can be made without approval of Congress, although legislation was filed in Congress on Wednesday that would authorize the VA to make more loans available.

“We’re going to proceed with these changes until we’re told otherwise,” VA spokesman Ozzie Garza said.

In another housing-related development, the typical American family had enough income at the end of last year to afford to buy a home, something that hasn’t occurred in seven years, a real estate trade group reported Thursday.

The National Assn. of Realtors said its “affordability index” topped 100% in December, the first time that has occurred since December, 1978.

Mortgage Qualifications

The index reached 101%, up from 99.9% in November. The increase meant that a family earning the median income of $27,940 had 101% of the income needed to qualify for a mortgage on a median-priced home selling for $74,800.

By contrast, in December, 1984, the typical family had only 87.7% of the income needed to qualify for a mortgage. The 13.3-percentage-point rise in the past 12 months has been the biggest improvement in the 15 years that the group has calculated the index.

The big improvement was credited to falling mortgage rates, steady gains in personal income and modest increases in the price of homes.

In another report Thursday, the Federal Home Loan Bank Board said mortgage rates continued to decline in January, with fixed-rate mortgages dropping to a six-year low of 11.48%. The rate was down from 12.01% in December.

The most popular form of adjustable-rate mortgage also dropped sharply last month, falling to 10.15% from 10.39% in December.