VA home loans see surge in demand
But many veterans feel excluded from market
By Roger Showley Union-Tribune Staff Writer
2:00 a.m. September 29, 2009
The long-dormant veterans home loan program has surged in popularity in the past year, letting thousands of active and retired military families move from renting to owning.
Nearly 3,700 San Diego military families - almost triple last year's rate - have used their Veterans Affairs benefits to buy in the past year, as other loans requiring bigger down payments and better credit became less attractive. An increase in the VA loan limit has also brought most homes on the market within reach of military buyers.
But many of the would-be buyers are coming up empty-handed, nudged aside by investors and all-cash buyers and ignored by agents, sellers and bankers who don't want to work with VA buyers.
Roadblocks to using VA loans include tougher appraisals and closer scrutiny of the properties. While other buyers will take a property in as-is condition, VA loans require repairs to be completed before escrow closes. In addition, VA buyers get their upfront fees repaid if escrow does not close, while other buyers have to absorb such costs.
The upshot is that VA buyers can spend months bidding for affordable homes and lose out.
Many veterans now feel a sense of betrayal. For many, it's now too late to take advantage of state and federal tax credits, unless they are renewed, and the inventory of attractively priced, foreclosed homes has shrunk, at least for now.
"It's very frustrating and disheartening," said Jessica Donigan of Gary Kent Homes & Estates-Re/Max Associates. "I've heard a lot of vets say they feel they're being discriminated against, that it's not fair."
One of Donigan's clients, William Flick, an Air Force veteran, and his wife, Amber, both 27, have looked at 40 homes in the past six months in the La Mesa-Spring Valley area. They submitted seven offers with no luck, and in at least two cases, the buyer bid less. They continue to rent in La Mesa.
"It really takes the taste out of your mouth to try get a house," said Flick, a 2000 Mount Miguel High School graduate who works in biomedical repair. "I have all the money and credit and would love them to take all the money they need and help this (economic) crisis, and they say no, no . . . The system seems broken."
Bankers, brokers and VA officials acknowledge the problem but offer no solutions short of new regulations that would give special preference to veterans.
"I think everyone has emotional ties to the vets," said Bank of America spokeswoman Jumana Bauwens, whose bank has the most distressed properties for sale nationally.
But she said many low-cost, foreclosure homes do not qualify for VA loans, which require no down payment. The VA insures 25 percent of the loans, which are resold to investors.
In the past 12 months, there have been 3,699 VA-insured loans for San Diego County home purchases, said Jeff Wilson, VA regional loan production officer in Phoenix. That compares with 1,300 for the same period last year and represents about 25 percent of all VA loans in California.
MDA DataQuick said VA purchases represented 9.8 percent of 25,313 sales made in the county for the first eight months of the year. That's up from 5 percent for the same period last year and less than a quarter percent in 2006.
DataQuick said veterans and active military still were able to buy some foreclosure homes. Of the 2,496 VA purchases through August, 1,064 were for homes that went through foreclosure in the previous 12 months, roughly 10.2 percent of all foreclosure sales. That's up from 510 of 1,061 VA purchases, or 7.2 percent of foreclosures for the same period last year.
At the same time, VA-insured loans have had a lower failure rate than other loans - just 4.3 percent of VA loans have gone into foreclosure, compared with about 5 percent for prime loans, 7 percent for FHA-insured loans and up to 29 percent for subprime loans, Wilson said.
Complaints reach the VA about alleged discrimination against veterans, but in many cases the homes they want to buy are not eligible for the VA program. That's because homes must be move-in-ready and not require significant repairs, according to VA rules. Many foreclosure properties have been damaged by previous owners and banks sell them as is.
"We don't want vets buying homes that are substandard," Wilson said.
When disrepair is not an issue, Wilson said, other buyers successfully compete against veterans, because they offer more equity, fewer contingencies and an escrow closing in days when a VA purchase can take two months. Wilson said the delays often stem from slow-moving bank policies, not VA requirements.
"We cannot compete with our program," Wilson said.
In some cases, banks' real estate agents incorrectly identify properties as non-VA-eligible. Wilson said the VA is working with the National Association of Realtors, major banks and local agents to clarify the rules.
But some rules do discourage sellers from dealing with VA buyers. They include the requirement that termite damage be repaired prior to close of escrow. VA buyers also will get their appraisal fees and other costs refunded if the escrow is terminated, whereas other buyers often forfeit these costs.
VA loans are drawing much more interest now because the loan limits have been raised to $593,750, far above the most current median price of $357,000 for single-family resale houses. And there are virtually no other loans that allow zero down payments.
"It's a great product for vets," said Robert Geiler, a mortgage specialist at Rancho Financial in Rancho Bernardo.
But because all-cash offers, conventional loans and FHA-insured loans carry fewer restrictions, VA-loan purchase offers are considered "the weakest offer that can be done," Geiler said.
John F. Kennedy, a 45-year-old Navy hospital corpsman, said he and his wife, Francesca, looked for six months for a home in the county for themselves and their two daughters. They're in escrow to buy a $294,000, 2,400-square-foot home under construction by Lennar in Murrieta, where their VA loan was not an impediment.
"We were losing out on opportunities because of cash investors," Kennedy said. He also missed out on a $10,000 state tax credit and cannot take advantage of the federal tax credit unless it is extended past the Nov. 30 expiration date.
Ed Smith Jr., president of the California Association of Mortgage Brokers, said users of FHA-insured mortgages and conventional borrowers have similar problems in competing with all-cash buyers.
"I have a special place in my heart for vets," said Smith, a Marine veteran. "But at the end of the day, it's a seller's prerogative to take an offer, and it would be extremely difficult to generalize what's in a seller's mind when you look at a transaction."
However, he said he will contact Rep. Bob Filner, D-San Diego, who is chairman of the House Committee on Veterans' Affairs, to explore policy changes to make VA loans more attractive to sellers and lenders.
Joseph Kasper, spokesman for Rep. Duncan Hunter, R-Alpine, said several constituents have complained about VA loan problems.
"We are looking at the situation more closely, specifically whether eligible veterans are being unfairly denied loan approval," Kasper said.
Union-Tribune
Roger Showley: (619) 293-1286;
Comments(1)