History of the VA Loan Guaranty Program

Mortgage and Lending with Integrity Mortgage Group

The VA home loan is a benefit available to VA-eligible borrowers who qualify. Private lenders fund VA mortgages and the U.S. Department of Veterans Affairs provides those lenders with a guaranty to back up the loan, in part. Have you wondered how the VA Loan Guaranty Program came to be?

America has a long history of taking care of its veterans. Benefits can be traced back to 1636 when the Pilgrims of Plymouth Colony were at war with the Pequot Indians. The Pilgrims passed a law then in which the Colony supported its disabled soldiers.

In fact, there are many historic events that have resulted in action taken by the Federal Government to improve veterans’ benefits and to develop what the VA Loan Guaranty Program and VA home loans are today.

The Veterans Administration was established in 1930. Brigadier General, Frank T. Hines, was the first administrator. Though many directors have followed Hines, and the Department’s name has changed (it is now called the U.S. Department of Veterans’ Affairs), the mission is still the same, “to care for America’s veterans.”

Following World War II and the return of 16 million veterans, the VA experienced tremendous growth. Congress passed the GI Bill along with education and housing benefits. The home loan guaranty program began in 1944 with the original Servicemen’s Readjustment Act that was passed by the United States Congress in order to extend a wide variety of benefits to eligible veterans.

The VA loan benefit was established to help veterans become homeowners after the war. As a result of serving in war, returning servicepersons had “missed opportunities” to establish credit and climb the same economic ladders as civilian workers. Not having means to purchase homes had serious sociological impacts on millions of men and women who served in the Armed Forces making post-war readjustments. The establishment of the loan guaranty program was government’s way of placing veterans “on par” with their civilian counterparts.

Under the original VA loan guaranty program, the maximum amount of guaranty was limited to 50% of the loan, but not to exceed $2,000. Loan durations were limited to 20 years, with a maximum interest rate of 4%.

In 1950, the maximum amount of guaranty was changed to 60% of the amount of the loan and not to exceed $7,500 and the maximum maturity of loans was lengthened to 30 years. The funding fee associated with obtaining a VA loan was established for certain veterans. Unremarried spouses of veterans who had died in service or as a result of service-connected injury or disease were extended the same loan privileges as veterans. Another change was to include protection for veterans if their homes were lost.

The Korean conflict, Vietnam War, Cold War, Gulf War, the War in Afghanistan, the War in Iraq, inflation and the U.S. economy have all influenced the evolution of the VA Home Loan Guaranty Program since its establishment. With each war and conflict, increased numbers of veterans became eligible for VA benefits including VA loans. Inflation and fluctuating real estate markets forced changes to the maximum loan guaranty amounts, loan fees, and types of housing that qualified for the VA home loan to reflect the times. And, economic recessions and booms have affected VA loan interest rates and refinancing percentages as well as maximum guaranty amounts per county.

Despite common misconceptions, the federal government generally doesn't make direct loans. However, the federal government guarantees VA loans made by VA-approved lenders after VA eligible borrowers make their own arrangements for the loans through typical loan-obtaining protocols. The Veterans Administration then relies on its VA approved appraisers to value the properties in question and, if satisfied with the risk involved, guarantees the lenders against loss of principal if the buyers default.

On October 23, 1970, the President signed into law the Veteran's Housing Act of 1970, Public Law 91-506. The new Act was a milestone for the VA Home Loan Program, making important changes which greatly enhanced the viability of the loan guaranty and direct loan programs. The 1970 law made seven major changes in these programs. It authorized a manufactured home loan program. It authorized direct loans for veterans qualified for Specially Adapted Housing Grants irrespective of location. The law also eliminated the terminal date of the direct loan program. In addition, the law eliminated the funding fee for post-Korean War veterans and authorized loans on condominium units and for refinances of loans. Finally, it removed the delimiting dates on veterans' entitlement.

This delimitation of dates had the most salutary effect of all the changes made by the 1970 law. As a result, the expired unused home loan benefits of nearly 9 million World War II and Korean conflict veterans were revitalized. The change meant that the entitlement of every eligible veteran remained available until used.

Due to continued growth of the Veterans Administration and the vast number of American veterans who qualified for benefits, President Reagan signed legislation on October 25, 1988 creating a new federal Cabinet-level Department of Veterans Affairs. This replaced the Veterans Administration effective March 15, 1989. The new VA still had the same mission – to care for America’s veterans.

Today, VA home loans continue to thrive despite a down economy. The organization is 270,000 employees large. General Eric Shinseki, a Vietnam veteran and highest-ranking Asian-American in the military, was nominated to head the department by President-elect Barack Obama in December 2008. He would be the first VA Administrator of Japanese descent. The maximum home loan guaranty amount is now $729,750 – a far cry from its original $2,000.

Comments (2)

Erv Fleishman
Realty Associates - Boca Raton, FL
Luxury Prop Specialist Realty Associates

Those who serve this nathion deserve to be served by us. We should do more for those who have given to our nation.

Jan 24, 2012 11:56 AM
Jamey "Milly" Milheiser
Fairway Independent Mortgage Corp. - Appleton, WI

Great post.......awesome info.......thanks for sharing.......I'm with Erv, serving those who serve is one of the best honors of our profession.

Jan 24, 2012 01:34 PM