Upcoming VA Mortgage Changes

There are some new changes to VA Mortgages coming down the pike in 2010. These changes affect veterans in many ways. Some of the most important changes have to do with the way the borrower is able to qualify for loans. Just as a little background a VA endorsed mortgage, or VA mortgage, is a home loan borrowed with the guarantee, or backing, of the VA. It is NOT a loan from the VA. VA mortgages are brokered and funded through conventional financial institutions, with the knowledge that the VA guarantees a certain amount (usually 25% of the VA mortgage against default.

VA mortgages must also conform to a series of VA mortgage guidelines set forth by each individual lender in order to satisfy the lender's risk Management Team. The most critical component for change that is happening within the mortgage industry is this concept of proactive risk management that many lenders are now adopting. they are overlaying their own more strict lending standards on top of what the Veterans administration requires. This is good for Big Banks but it is not good for the Veteran.

I will give you a few examples. The first is that the VA now allows 100% financing on a VA Refinance. however there are currently only two mainstream lenders in the country that will allow the borrower to finance that much of the loan balance. All the other lenders are overlaying their own more strict requirements of 90% Maximum Loan to Value.

Credit score is another great example. The VA Does not have a minimum credit score requirement but many lenders require a minimum 620 credit score on a VA Loan.

While this is extremely frustrating, it is perfectly legal for lenders to overlay their own additional requirements on top of FHA and VA established guidelines. As long as there is continued pressure in Washington and on Wall Street to tighten up the lending industry, we will continue to see more and more of these overlays.

In 2010 look for a few major changes. Their is legislation in process that will limit how mortgage professionals can get paid. this will further constrict lending options for veterans as well as all other consumers. it will increase upfront closing costs for the consumer so expect to pay higher closing costs in 2010. Also there have been rumors that the VA may do away with not requiring appraisals on VA Streamlines just like FHA recently did.

The good thing is that the VA has been supportive of keeping their OWN guidelines loose enough to keep the money flowing. Now it is just up to the lenders to figure out how much risk they are actually able to bear. As is common during similar periods there will be an over correction in the market and then a subsequent loosening of guidelines as the banks get a feel for what truly is too much risk.

So look for continued tightening of VA Mortgage [http://www.vareficenter.com] lending standards over the next 2-4 years followed by a period of gradual relaxation in lending standards for a few years until we finally settle in to something that is more "middle of the road" and more sustainable in the long term.