While many consumers have cause to laud the Financial Services bill which is currently making its way through Congress, veterans are sitting up and taking note of a few key difficulties in the bill.

Aimed at the mortgage market, the Financial Services bill’s main goal is to ensure that mortgage lending becomes safer and less of a risk for the majority of Americans. Analysts project that less risky mortgage loans will most likely lead to a boost in the economy since consumers will be more at ease financially and feel more secure with their financial picture.

However, a new amendment in the bill from Senator Jeff Merley (D-OR) has the potential to actually harm veterans who are considering a loan through the Department of Veterans Affairs (typically called a VA loan).  It’s clear that the amendment takes some critical steps for consumer protection by abolishing mortgage broker bonuses and eliminating “liar loans” that require little income verification or financial assurances that the borrower using the loan can actually afford to make the requisite payments, but the measure will also introduce new underwriting regulations, and it is here that things begin to get dicey for veterans.

VA loans are some of the safest and most secure loans around, even in terms of government backed loans. The currently boast a default rate of well below three percent. In contrast, traditional/prime lending has a current default rate of 3.31 percent, FHA loans weigh in at 3.57 percent and the subprime mortgage market carries an astonishing 15.58 percent default rate.  Since there’s no exemption for programs which already have strict underwriting and appraisal regulations, the VA program will have to face the same scrutiny as other mortgage programs, which will lead to higher costs for borrowers. Not only will our veterans and active armed forces members have to pay more for their loans, but the process will now be a longer, more arduous one because of the increased regulations and more stringent underwriting requirements. Ultimately, the bill could also lead to more VA loan denials and fewer veterans who can purchase a home through the VA program, which is an unacceptable side effect to an otherwise well- conceived piece of legislation.

Tags: Financial Services bill, government backed loans, va loans, va program