Va Home Loans – The History Behind The Va Loan Guaranty Program

VA Home Loans – The History Behind the VA Loan Guaranty Program

The VA Home Loan Guaranty Program wasn’t always available to veterans who qualify. Visit Here

The mortgage program came about as a result of certain historic events that make it what it is today. Private lenders fund VA mortgages and the U.S. Department of Veterans Affairs provides those lenders with a guaranty to back up a portion of each loan.

America’s record for taking care of its veterans dates back to 1636 when the Pilgrims of Plymouth Colony were at war with the Pequot Indians. The Pilgrims passed a law then that entitled disabled soldiers to assistance from the Colony.

Actually, it’s the events throughout history have shaped the VA home loan program. Established in 1930, the Veterans Administration’s mission was to care for America’s veterans. The first VA administrator was Brigadier General, Frank T. Hines. Since its inception, the VA has undergone dramatic changes, even changed its name (now called the U.S. Department of Veterans Affairs), but the mission remains the same.

Following World War II, some 16 million veterans came home, and the VA experienced significant growth. Veterans’ benefits were in high demand. The GI Bill was passed along with education and housing benefits. In 1944, the VA Home Loan Guaranty program began. It was the original Servicemen’s Readjustment Act that was passed by the United States Congress that contained the first VA Loan laws as well as a variety of other veterans’ benefits.

VA Loans were established to help veterans become homeowners after the war. As a consequence of serving in war, returning military personnel had missed opportunities to build credit and establish themselves in the economic chain. Without a means to purchase homes, millions of America’s war veterans were trying to make post-war readjustments and facing serious sociological impacts in the process. The VA loan guaranty program was government’s way of getting veterans up to speed with their civilian counterparts.

The original VA loan guaranty program included a maximum amount of guaranty that was limited to 50% of the loan, and not to exceed $2,000. Loan durations were no more than 20 years, and the maximum interest rate was 4%.

Naturally, inflation set in and adjustments needed to be made. The maximum amount of guaranty increased to 60% of the amount of the loan in 1950. And, the guaranty was not to exceed $7,500. The maximum duration of VA loans was lengthened to 30 years. At this time, the VA funding fee was established and required for certain veterans. Un-remarried spouses widowed as a result of a veteran’s service or as a result of service-connected injury or disease contracted while serving were extended the same VA loan entitlements as veterans. Also, protection against loss of home was established for veterans.

More wars and fluctuating economy continued to influence the evolution of VA Loans. The Korean conflict, Vietnam War, Cold War, Gulf War, the War in Afghanistan, the War in Iraq, inflation and recession have all played a hand. Each war and conflict added to the number of veterans eligible for VA mortgages. Inflation and fluctuating real estate markets also had significant affects on the maximum loan guaranty amounts, loan fees, and kinds of housing considered eligible for the VA home loan program. U.S. economic recessions and booms helped determine VA loan interest rates as well as maximum guaranty amounts per county. The VA Loan Guaranty program adopted county-specific “loan limit” guidelines that allowed for higher limits in places where the cost of living was higher.

It is the belief of many that VA loans are funded by the federal government. However, the government does not make direct VA Loans. Rather, the federal government guarantees a portion of each VA loan made by VA-approved lenders such as banks and mortgage companies. VA eligible borrowers apply for VA loans just like anyone else would apply for a non-military mortgage. VA approved appraisers then determine reasonable value of properties considered for VA loans and, if satisfied with the risk, the VA guarantees the lenders against loss of principal in case of default.

The President signed the Veteran’s Housing Act of 1970 into law on October 23, 1970. Because many important changes were made that greatly improved VA Loans, the new law proved to be a program milestone. There were seven significant changes included in the 1970 law. First, it authorized a manufactured home loan program. Second, it authorized direct loans for veterans qualified for Specially Adapted Housing Grants regardless of location. Third, the law eliminated the deadline for VA eligibility. Fourth, the law eliminated the funding fee for post-Korean War veterans. Fifth, it authorized loans on condominium units. Sixth, it authorized refinance of loans for condominiums. Finally, it removed the delimiting dates on veterans’ entitlement.

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

The Veterans Administration continued to grow and vast numbers of American veterans qualified for VA Loan entitlements. Due to tremendous growth, President Reagan signed legislation on October 25, 1988 to create a new federal Cabinet-level Department of Veterans Affairs to replace the old Veterans Administration.

In 2009, VA mortgages continue to thrive despite recession in the previous year. The VA is now has 270,000 employees. General Eric Shinseki, a Vietnam veteran and highest-ranking Asian-American in the military, is head of the department – nominated in December 2008 by then President-elect Barack Obama. Shinseki is the first VA Administrator of Japanese descent. Today, the maximum loan amount the VA will guaranty is $417,000 – decades apart from its original $2,000.Visit Here