Veteran Affairs (VA) loans were always a good deal for veterans and their families, loan officers say, but they weren’t always popular.
Many veterans as recently as the early 2000s wouldn’t use the program to purchase homes or refinance, even though it was a special perk designed to help them into homeownership. A decade ago, VA loans accounted for less than 1 percent share of the overall market, according to Attom Data Solutions.
After wars in Iraq and Afghanistan and a major housing crash and recovery, that has changed.
Earlier this year, VA loans accounted for nearly 9 percent of the overall mortgage market, the highest share ever, according to Attom Data Solutions.
The VA loan program is only open to active military, qualifying veterans and their families. It is one of the few programs that offers up to 100 percent financing and requires no downpayment. Because the government is backing the loan, lenders also can offer competitive fees and interest rates, so it has become popular with first-time homebuyers.
Attom Data Solutions reported that 136,248 loans backed by the VA were originated in the second quarter ending this past June, up 35 percent from the previous quarter and up 14 percent year over year. This was the highest number since the company began tracking the data at the beginning of 2006.
According to the latest numbers from the VA, loan counts totaled 481,795 through the first three quarters of fiscal 2016 (October 2015 through June 2016). That is on pace with the full-year results for fiscal 2015 (631,141 loans) and fiscal 2013 (629,312 loans), and already exceeds the full-year results for fiscal 2014 (438,398 loans).
“It has kind have been a very steady increase,” said Daren Blomquist, vice president of Attom Data Solutions. “Back in 2006, it was less than 1 percent of all loans. It has pretty much going up since then. If you chart this out, it is basically a steady increase over time.”
Rise in government loans
Analysts say the rise in the VA lending has mostly to do with market conditions that have spawned a prolonged boom in refinancing activity. Also, with the collapse of private-label subprime lending, government loan volumes have risen, drawing more first-time homebuyers. VA loans have followed the same origination trends as the Federal Housing Administration (FHA) program.
“In this housing boom, we no longer have the rampant use of subprime loans for people who may not have as good a credit or low downpayment,” Blomquist said. “I am not saying the credit standards are the same with subprime, but it is filling some of the gap that the subprime lending had during the last housing boom.”
Loan officers say VA loans also are getting a boost because more Realtors and mortgage companies are recommending the product. In the past, loan officers automatically steered borrowers into the FHA program, said Ty Cline, vice president of sales at Intercap Lending based in California. Cline said more Realtors are now familiar with VA, but he suspects a large number of veterans are still being pushed into the FHA, which is holding down the VA’s numbers.
“Ninety-nine percent of the real estate agents out there don’t know what a VA loan is or anything about it, so it scares them,” Cline said.
Tony Adkins, a senior vice president with California-based Alliance Home Loans, and specializes in VA and FHA loans. He said he expects VA refinancing volume to fall off next year as interest rates rise and the pool of borrowers shrinks.
In recent months, Adkins said a lot of VA refinances have been through the streamline program, which allows a borrower to quickly refinance out of an existing VA loan for a better rate. Adkins said many borrowers of late have recently purchased a home and want to refinance down to a lower rate. Early next year, however, a new rule kicks in that will prevent borrowers from doing a streamline VA refinance until they have made at least six home payments.
Adkins said that change could dry up the remaining pool of people who haven’t refinanced already. Adkins said he was optimistic, however, that VA loan products will remain competitive with other loan types in the home-purchase market.
“More people are certainly more conscious of the VA program,” Adkins said. “The VA has not really done anything as far as notifying or doing some type of a [marketing] program.”
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