Proposals Would Tighten VA Loans

New limits and changes in the Veterans Administration home loan program are making it tougher and more expensive for millions of U.S. military veterans to get a VA loan.

Those proposed cutbacks and restrictions on VA home loan programs have generated a strong and coordinated retaliation from some of the leading housing/finance trade associations. Legislation already has been proposed to enable Congress to override the VA’s cost-cutting moves that would remove the $11.5-billion cap on total VA home loans.

And the trade associations from builders, realtors and mortgage bankers also are flexing all their legislative liaison muscles in an effort to knock out the newly enacted limit of $90,000 for VA home loans.

Currently, there is no total limit on the amount of VA loans, although only $27,500 is guaranteed by VA. Private lenders often make a total home loan up to $133,500.

Another VA cutback that threatens to inhibit both new- and resale-house transactions is the restriction of VA loan to one-time use. Veterans for years have been able to use VA financing over and over again on home transactions after the previous loan has been paid off. This is particularly important to persons currently serving in the military when they are transferred to different areas of the United States and want to buy and sell houses.

“The military makes up a big part of the total realty market in this Washington area and also in other parts of the U.S. where there is a major military presence (such as Southern California),” realtor Joseph C. Murray said.

One more negative aspect of VA home financing changes involves the restriction that now prevents holders of higher-rate VA home loans from refinancing at today’s lower interest rates. Some home mortgages with VA financing were made a few years ago in the area of 14% and 15%, whereas today’s VA mortgage rate is 9.5%. That makes the cost of refinancing worthwhile for homeowners.

Spokesmen for mortgage lending firms in this area agreed that the volume of VA financing will likely decrease, but there also was the view that home sales may not be seriously impacted because there is plenty of mortgage money available for FHA home loans and for conventional (without any federal backing) mortgages at rates under 11%. One mortgage specialist said there has been a lot of activity in the 10% FHA loans at a 15-year term instead of the usual 30 years.

Washington housing observers view the VA restrictions as one more move by the Reagan Administration to cut federal spending, with the VA cost-cutting plans coming from the Office of Management and Budget rather than from the VA.

Area builder Robert Libson said he fears that most of the bad results of the VA restrictions will hit young persons seeking to buy their first homes.

“As a builder who has used both VA and FHA financing of moderately priced town houses and small singles, I am aware of the difficulty that today’s young people face to become homeowners for the first time,” Libson said.

He added that many times the young veterans and their wives have minimal savings. Thus, they like the VA mortgage programs, which demand no down payment.

Harry Hasslinger, a World War II soldier, said the VA home-loan program has been one of our nation’s most helpful programs for veterans of military service.

“I’ve always been proud that our government has seen fit to take care of its war veterans. This VA cutback on home mortgages, Hasslinger added, “causes me--an older veteran with a home free and clear--no financial hardship but it will make it much tougher for young veterans and service men and women to live in homes they own.”

Also, the 1987 Reagan budget proposal includes raising the loan-origination fee on VA financing from 1% to 2%. And the fee would go up to 3.8% by 1990. However, congressional approval is needed for that move, and even some Reagan-supportive members of Congress such as Rep. Marjorie Holt (R-Md.) are against the increase because the VA program is essentially self-supporting.