Congress Approves Higher VA Ceiling
by Lew Sichelman
Military personnel residing in high-cost areas will get a big boost under legislation sent to the White House last week that allows them to buy homes costing up to $333,700 without a downpayment. The measure, which President Bush is expected to sign, raises the Veterans Administration guarantee to 25 percent of the conforming loan limit. The VA "guaranty" is accepted by most lenders as a substitute for a downpayment. The current VA is $60,000, which restricts eligible veterans and service personnel to no-money down loans of no more than $240,000. But the current conforming loan limit is $333,700, so the guaranty would jump to $83,425. Better yet, Congress voted to index the VA ceiling to the conforming loan limit, which changes annually and is likely to rise again on Jan. 1. The conforming loan limit is the ceiling placed on mortgages that can be purchased by the two secondary mortgage market giants, Fannie Mae and Freddie Mac. The new limit for 2005 will be announced next week. "This is a big boost for the VA program," said Keith Pedigo, director of the department Veterans Affairs Loan Guaranty Service, which has been pushing for a larger guarantee amount for nearly a decade. The guaranty has been raised only once since 1995, and then only by about 18 percent. During that same period, housing prices nationally have risen nearly 75 percent, according to the Mortgage Bankers Association. MBA Senior Vice President Kurt Pfotenhauer said the legislation is "vitally important" to veterans, especially at a time of massive armed forces build-ups and an increasing veteran population following their active-duty service. "During this time of war, it is more important than ever for veterans and their families to enjoy the benefits of home ownership," Pfotenhauer said. Mortgage bankers originate the lion's share of all government-backed loans. The VA guaranty program was established under the GI Bill of 1944 to provide a special home ownership benefit to service people returning from World War II as well as those who served in previous wars. Since then, more than 17.5 million veterans, including service men and women who served in Korea, Vietnam and other conflicts, have used the benefit, some more than once. According to the VA, more than 29 million veterans and service people are eligible for VA financing. They can purchase homes costing more than $333,700, but for every $4 above that amount, a buyer would have to put up $1 of his own money as a downpayment. (Eligibility standards and other information about veterans housing benefits is available at www.homeloans.va.gov.) The legislation also made some technical changes to the agency's adjustable-rate mortgage programs, which have proven to be particularly popular among GIs. During fiscal year 2004, more than 59,000 "hybrid" VA ARMs were written, representing some 18 percent of the VA's total loan volume. But the current program limits the initial interest rate adjustment, which has forced the majority of borrowers to use so-called "3/1" hybrids in which the rate remains fixed for the first three years of the loan and then adjusts on an annual basis every year thereafter. Under the bill, however, the Secretary of the Department of Veterans Affairs will be allowed, at least through the end of the current fiscal year, to extend the initial interest rate adjustment beyond three years, which could make 5/1 ARMs more feasible for veteran borrowers. Currently, according to the MBA, 5/1 hybrids in which the rate is set in stone for the first five years are the most popular hybrid ARMs in the conventional home loan market. | 
