- Turn Subprime Loans Into VA Home Loans - U.S. Army Africa
When the United States housing bubble began to burst in 2005, a significant number of military personnel began finding themselves in financial trouble due to holding subprime mortgages—many of which were adjustable-rate mortgages. With the housing collapse came an increase in loan defaults and foreclosures, which in part degraded mortgage-backed securities and helped create an economic domino effect of rate increases and further foreclosures that continues to hurt military home owners burdened by unsustainable mortgages.
Before 2008, military loan holders were not able to get help with a home refinance from the VA for subprime loans. However, after President Obama signed the Veterans' Benefits Improvement Act of 2008, financially-distressed military personnel with subprime mortgages have been able to get home refinance help from the VA Loan Guaranty Program, thus turning risky loans into guaranteed VA home loans.
What is a Subprime Loan?
Home buyers with sound credit can qualify for traditional loans at prime rates. However, lenders, eager to tap into a market of potential borrowers with less-than-sound credit, created what are called subprime loans. These are loans offered to borrowers with poor credit ratings, and have unusually high interest rates.
While subprime borrowers have a greater likelihood of defaulting on a loan, matters were made worse when many borrowers (including military personnel) took out adjustable-rate subprime mortgages, making themselves vulnerable to potential rate increases.
VA Home Refinance Assistance Turns Subprimes Into Guaranteed VA Home Loans
Before 2008, the VA Loan Guaranty Program had no provisions to help military loan holders with subprime mortgages. However, this changed when a special provision was inserted into the 2008 act signed by President Obama, with the intention of helping military personnel with severe financial distress acquire guarantied VA home loans.
Speaking of the enhancements made by the 2008 act, Secretary of Veterans Affairs Dr. James B. Peake stated, “These changes will allow VA to assist a substantial number of veterans with subprime mortgages refinance into a safer, more affordable, VA guaranteed loan. Veterans in financial distress due to high rate subprime mortgages are potentially the greatest beneficiaries.”
Guarantied Military Loans (VA Home Loans) Broadened for Subprime Borrowers
The VA Loan Guaranty Program was given the authority in 2008 to assist military loan holders seeking a home refinance for up to 100% of a home's value. The previous level of 90% had only been available for conventional loans. However, subprime loans can now be turned into a guarantied VA home loan through a home refinance with the same benefits afforded one with a conventional loan.
In addition to this increase in the military loan-to-value ratio, the VA Loan Guaranty Program is now able to back VA home loans at significantly higher maximum amounts. Previously, VA loans could only be refinanced up to $144,000. However, military personnel seeking a military loan are now eligible to receive a home refinance up to $729,750.
According to a Veterans' Authority release—from which the information for this article was gleaned—these improvements are significant because "[i]ncreasing the loan-to-value ratio and raising the maximum loan amount will allow more qualified veterans to refinance through VA, allowing for savings on interest costs or even potentially avoiding foreclosure."
David Harris-Gershon - David Harris-Gershon – a blogger for Tikkun magazine and a freelance writer on Israel, the Middle East and America’s role in ...
