Leaving vets out in the cold

Miami.com

March 08, 2008

Oops! When Congress and the White House put together the $150 billion economic stimulus package, they raised the maximum mortgage limits in high-cost areas for Fannie Mae, Freddie Mac and the Federal Housing Administration.

But lawmakers neglected a similar increase for veterans' VA-backed loans. While the limits of the other three programs now go as high as $729,500 -- at least through Dec. 31 -- VA loans remain capped at $417,000.

For home buyers such as Greg Rasnake, a lawyer and disabled veteran who works for the federal government, the $417,000 VA limit is a deal-killer. He, his wife and children moved to the Washington area a year ago from Oklahoma. They've been searching since for a house in the close-in Virginia suburbs, but have been unable to use the VA program because of the $417,000 ceiling.

'You'd think that in a time of war, when you're doing a stimulus bill and raising all the other loan limits, you might remember the vets,' he said. 'But that didn't happen.'

As a result, areas of the country with some of the highest concentrations of veterans and high housing costs -- California, Maryland, Virginia, the District of Columbia and Florida, among others -- are effectively cut out of the stimulus benefits for VA loans.

(The numbers for South Florida have not yet been released, but it's likely that Broward County will continue to be subject to the $417,000 limit; the limit in Miami-Dade is likely to rise to about $453,000.)

Mortgages backed by the VA allow qualified veterans to buy houses without a down payment.

Without a legislative fix, the situation won't change.

You might ask: How could this happen?

Asked for comment, the Department of Veterans Affairs declined to discuss the matter, saying in an e-mail that the 'VA cannot comment on why Congress crafted the [stimulus] in the manner in which they did.'

But House Veterans Affairs Committee Chairman Bob Filner, D-Calif., was blunt: 'I think it was out of ignorance,' he said in a telephone interview. 'I don't think the plan drafters understood the situation' -- specifically that the VA limits would not automatically increase along with the higher Fannie-Freddie limits.

The VA program guarantees 25 percent of the Fannie-Freddie conforming loan limit. Since private lenders generally are willing to make a zero down payment loan for four times the guarantee level, the program has an effective mortgage limit of $417,000. The stimulus plan temporarily reset the Fannie, Freddie and FHA limits to 125 percent of metropolitan area median home prices, creating dozens of different limits without referencing the VA formula.

'It makes the VA program irrelevant in a lot of places,' Filner said. He is sponsoring legislation to raise the VA's effective limits to 150 percent of the Fannie-Freddie maximums and is seeking a 'technical correction' amendment, but is not optimistic.

Many VA-backed mortgages involve no equity investment up front -- which typically raises default rates -- yet the program performs well. During the third quarter of 2007, the VA 30-day delinquency rate was 6.58 percent compared with 12.92 percent for FHA and 16.3 percent for private, subprime loans, according to the Mortgage Bankers Association. The foreclosure rate for VA loans during the same period was 1.03 percent vs. 2.2 percent for FHA and 6.89 percent for subprime.

Kenneth Harney is managing director of the National Real Estate Development Center.

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