There’s something ironically contradictory about the Reagan Administration’s almost fanatic espousal of mounting expenditures for national defense at a time when housing benefits for members of the military and veterans of previous wars are threatened by the same Administration’s cost utters at the Office of Management and Budget.
For the moment, the onslaught against cutbacks in the Veterans Administration’s housing-finance program and increased fees for obtaining a VA home loan seem to be held in abeyance because so many members of Congress and just plain folks raised their voices and said almost in chorus:
“Hey, this is absolutely crazy! You don’t ask for more money for sophisticated weapons and then take away traditional benefits allocated for the people who use those weapons.”
Rep. G.V. (Sonny) Montgomery (D-Mississippi), who heads the House Veterans Affairs Committee, has pledged to keep the VA home-loan guaranty program operating as usual, and he also pledged that there will be no legislation to raise the VA (now 1%) loan origination fee.
Montgomery told a mortgage banking publication that his committee plans to provide continuing support for the VA home-loan program “whether the OMB supports it or not.”
Another irony in the VA home-financing scenario is that the agency early this month once more lowered the maximum interest rate on its mortgages by a full percentage point, to 9.5%.
Veteran housing observer Edwin L. Stoll said: “This downturn in the VA mortgage rate seems to provide a too-tempting opportunity for the deficit fighters within the Administration. They obviously think it is opportunistic to raise more funds by doubling the cost of the VA home-loan origination fee at a time when the cost of financing is more and more attractive.”
Warren Lasko of the Mortgage Bankers Assn. said concerted congressional action and public reaction apparently safeguarded the basic VA home-loan program for veterans and servicemen. But he added that there is no reason for complacency among housing and finance groups until Congress passes legislation that exempts VA and FHA programs from any deficit reduction programs originated by the Reagan Administration.
Stoll said the emotional impact of public sympathy for veterans seems to have saved the VA home-loan program from any cutbacks or restrictions. “But the big issue now is whether the Congress can also preserve the FHA programs designed to help all low, moderate and middle-income people to become homeowners,” he said.
FHA mortgage insurance is similar to VA loan guaranty except that it is slightly more costly and demands more down payment. The FHA fees have traditionally paid for the single-family home-loan program that made American predominantly a nation of homeowners.
Meanwhile, mortgage rates remain at the lowest level in more than seven years, and new housing starts and sales of existing houses are strong throughout most areas of the nation. With effective mortgage rates in the now comfortable range of 9 1/2% to 10 1/2%, people with high-interest mortgages are refinancing to take advantage of lower rates. One mortgage firm reported that 25% of its current business involved refinancing of home mortgages made in the early 1980s, when rates soared above 15%.
Generally, it does not make sense for homeowners to refinance an existing (high) mortgage unless the new rate will be more than two percentage points lower. Another element is that refinancing is not financially advantageous unless the owners plan to remain in the house for at least three more years.
Total costs of refinancing can add up to several thousands of dollars for placement fees, new appraisal, titling and other fees. Often the best deal in terms of fees can be worked out with the current lender. But the basic rate and origination cost may be lower with another mortgage firm.
“There’s no substitute for shopping around to get the best possible deal for the homeowner,” summarized realtor Joseph C. Murray.