Residential Magazine

John E. Bell III, U.S. Department of Veterans Affairs

VA loans emerge as attractive option in a shifting market

By Jim Davis

The number of home loans guaranteed by the U.S. Department of Veterans Affairs (VA) plummeted over the past federal fiscal year. The agency saw a record 1.44 million loans guaranteed in fiscal year 2021. That dropped to nearly 750,000 in fiscal year 2022, which ran from Oct. 1, 2021, through Sept. 30, 2022.

The total loan volume fell to $256.6 billion in fiscal year 2022, down from a record-breaking $447 billion in the prior year. Veteran borrowers were at a disadvantage in the then-hot housing market, where they competed against all-cash buyers and investors, said John E. Bell III, executive director of the VA’s loan guaranty service. That changed, however, as speculators left the market this past summer.

If there’s one point that Bell wants to get across, it’s that VA loans offer remarkable benefits for veterans. “If you’re not making a VA loan to a veteran that qualifies, you’re costing them money,” Bell said. “If you’re a lender, why aren’t you offering it? Because we still see that it’s the best product out there for our vets.”

Bell recently spoke to Scotsman Guide about the VA loan program and the changing housing market. He also spoke about the VA’s ongoing modernization efforts and its goal to ease restoration of entitlement, or how veterans who have used the VA guarantee can restore the benefit for future use.

We know that rising rates don’t necessarily kill the market. Rising rates with declining appreciation, that could cause issues.

How is the cooling market affecting VA loan borrowers?
Let’s just talk some real numbers here. For fiscal year ‘22, we have seen the third-best year on record for the VA for total loans, the third-best year for purchase loans and the highest we’ve ever seen for cash-out refinances.
Why did the numbers decline?
If you really dive into why, it’s that veterans went through half of (fiscal year 2022) unable to compete in the marketplace. Institutional investors, cash investors were flooding the market, driving prices up, and veterans weren’t even being considered in the bid.
That changed?
From July to now, we’ve seen veterans compete more and more, winning bids and contracts at a very fast pace. It’s because, again, those institutional investors with cash buying investment properties left the marketplace and left it rapidly.
Do you think this trend will continue?
We know that rising rates don’t necessarily kill the market. Rising rates with declining appreciation on housing prices, that could cause issues. We’re all waiting because we’re seeing pockets of declines in certain markets.
Can you talk about the efforts to modernize the VA loan process?
This is just another way for us to decrease the time it takes to guarantee loans and to keep the price down as much as possible. We’re really trying to work with Ginnie Mae, work with our lenders to make sure that during the transaction, they can go sell that mortgage-backed security on the day they close so it keeps the price down.
The modernization efforts aren’t on the front end with borrowers, but the back end with lenders and the secondary markets?
Exactly. It’s tying in that whole process together. It’s really end to end of the loan life cycle. The other thing that this allows you to do is make policy decisions on the front end, based upon the historical information on performance that the back end is telling you.
What are the issues surrounding the restoration of entitlement through refinancing?
We’re tackling it right now. With every great technology, you’ve got to have the infrastructure in place to be able to support it. In the next eight to 10 months, we’re going to require that lenders report to us electronically with data from every transaction. Once we’re able to get that data into our system, we can start building the rules on that restoration of entitlement.
When do you foresee the VA potentially getting an automated underwriting system?
We are one of the only program agencies that does not have an automated underwriting system. We are trying to fix that. That’s in our modernization transformation, (where we’re trying to find a) way for us to be able to understand which veterans are not making it across the finish line. We’re hoping and striving to get toward that after (the current modernization efforts). ●


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