More VA Foreclosures Prompt Calls for Tighter Rules

Associated Press

Despite a boom in the nation’s housing market, a high rate of foreclosures on mortgages guaranteed by the Veterans Administration is prompting the agency to auction hundreds of houses, including 167 this weekend in Oklahoma.

The houses, in Tulsa and Oklahoma City, will be put on the block at the VA’s eighth auction in 18 months. Earlier this year, similar auctions were held in Houston and for houses in Phoenix and Tucson.

Coming at a time when declining interest rates are fueling a surge in home-buying in many parts of the nation, the foreclosures have prompted renewed calls to tighten the VA’s underwriting practices.

Auctions Are Last Resort


Of the 28,500 foreclosed properties it sold last year, the VA disposed of 700 at auctions in Houston; Peoria, Ill.; Cedar Rapids, Iowa; Phoenix, and Tucson. Auctions are a last-resort step for the VA, usually taken in places left out of the real estate boom.

“The reason you’re having a rash of foreclosures throughout the country is real estate is not appreciating as it has in the past,” said Sen. Frank H. Murkowski (R-Alaska), who chairs the Veterans Affairs Committee. A bill he sponsored, requiring tighter VA underwriting procedures, passed the Senate and is pending in the House.

Foreclosures rose from a rate of 3.83% of VA loans underwritten in 1977 to 12.83% of 1981 loans, VA figures show. It dropped to 9.6% among loans originated in 1982.

The increase in VA foreclosures has forced Congress to appropriate $766 million since 1984 to help shore up the program.


It is too early to tell what the foreclosure rate is for more recent VA mortgages, but “certainly it’s going to be higher than the ’76-'77 figures,” said William Lutes, a VA loan specialist.

“The whole program in my opinion needs tightening up in the underwriting, more delegation given to the private sector, which is more efficient than the government,” Murkowski said. Underwriters determine if potential buyers are good credit risks and appraise the properties on which the mortgages are being issued.

Under the VA program, veterans who are considered good credit risks can get a mortgage without making a down payment. The VA guarantees 60% of a mortgage made by a local lender. Foreclosure proceedings begin when a veteran misses four mortgage payments, said Joe White, a VA property management specialist.