MBA: Risk Retention Reform Should Not Include Guaranteed Loan Programs

A spokesperson for the Mortgage Bankers Association (MBA) told a Housernsubcommittee on Thursday that Veterans Administration (VA) loans have performedrnbetter during the financial crisis than almost any other type of loan and carernshould be taken to avoid including the VA and other guaranteed loan programs inrnproposed new lending measures “that might make the program less strong.”

James H. Danis, President of a North Carolina mortgage company,rnrepresented the MBA at a hearing on “The Status of the Loan GuaranteernProgram” before the House Veterans Affairs Subcommittee on EconomicrnOpportunity.  He told the members that VArnloans are providing a valuable service to veterans at a time when findingrnaffordable low-down payment mortgages is very difficult. 

Through FY 2009, he said, VA guaranteed more than 18.7 millionrnmortgages worth $1 trillion for purchasing, constructing, or refinancing arnhome.  While VA loans are just a fractionrnof the market – 4.2 percent of originations in 2008 – the number is growingrnwith the 325,673 loans made in 2009 nearly doubling the number a year earlier. “ThernVA program has been a tremendous success,” he said, “and the numbersrnpretty much speak for themselves.  Thernhomeownership rate among veterans is astounding – 82 percent compared to 67rnpercent for the general population.”

Danis said that VA loans have outperformed their counterparts throughrnthe recent housing crisis even though most of the borrowers have no “skinrnin the game.”  According to MBArndata, he said, the serious delinquency rate for VA loans during the firstrnquarter of 2010 was 5.29 percent, well below the 7 percent delinquency rate forrnprime loans.

He credited the ability ofrnthe VA portfolio to weather the turbulent market because of its conservativernunderwriting standards which have always allowed only fully documented andrnunderwritten loans on owner-occupied properties.

Danis said to keep the VArnprogram strong Congress “should avoid mandating costly new risk retention requirementsrnthat could cripple the program and harm our economic recovery.”  Both the House and the Senate are consideringrnfinancial reform bills with provisions that would require lenders to retain a 5rnpercent ownership in any mortgage they originate, sell, or securitize.  He said this provision will directly hurt bothrnthe VA program and small independent lenders such as his company which servernmilitary communities.  Not only should VArnloans be specifically exempted from this requirement, he said, so should otherrnloans or securities insured or guaranteed by the government including FHA and USDArnRural Housing. rn”Failure to exclude the VA and other safe and properly underwrittenrnloans,” he said, “will negatively affect the housing recovery andrnveterans' opportunities to secure affordable home mortgages.”

Congress should alsorncontinue the higher loan limits that have been available to VA borrowers forrnthe last two years.  The higher limits,rnhe said, along with a second provision of the Veterans Benefits Improvement Actrnof 2008 which allows borrowers to refinance 100 percent of their home, ensurernthat veterans who reside in high-cost areas can enjoy their much deservedrnhousing benefits.

Another improvementrnsuggested by Danis and the MBA is to review and update the VA program and alignrnit with prudent industry standards that would give management the flexibilityrnto make changes to keep the program competitive and relevant in a rapidlyrnchanging market.  Among the specificrnsuggestions he made was that the VA should review its fees and charges andrnalign them with FHA and conventional products and simplify its policy to allowrnborrowers to pay reasonable and customary fees to make the loans morerncompetitive.  He also told that membersrnthat the adoption of the Home Valuation Code of Conduct (HVCC) has essentiallyrnmade The Appraisal System (TAS) unnecessary as HVCC has “raised thernbar” for the entire appraisal industry. rnStill a third area for improvement, according to Danis, would be tornupdate the VA's residual income tables to reflect new economic realities.

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