Editor's note: This story was originally featured in the March issue of MReport, out now.
By Hon. Joseph J. Murin
U.S. politics today teaches us that we are often unaware of what’s true and what’s not. It requires taking a close look to separate fact from fiction and myth from reality. That’s also true in our line of work. If you’ve been in the mortgage business for any length of time, you know there has always been an abundance of false ideas about mortgages that the public is eager to buy into. Many of these myths can be very damaging.
George Orwell once said, “myths that are believed tend to come true.” As members of the mortgage industry, I consider it our duty to dispel these myths to help our nation’s veterans. After all, our veterans deserve it.
Myth 1: Veterans are Credit Risks
There is some evidence to support this myth. Many veterans do not have a long credit history and military families are likely to have higher credit card debt than average households. In addition, the unemployment rate for those leaving active duty tends to trend higher than the overall unemployment rate. These facts might suggest that veterans do not make good borrowers. But these stats don’t tell the whole story.
The truth is that veterans, on average, are better educated, make more money, and have better benefits than the average consumer. They are also, on average, more financially responsible than the average borrower when it comes to making mortgage payments.
Yet, they have unique hurdles compared to average borrowers. When you serve in the armed forces, you have most of your basic needs taken care of, including room and board. As a result, veterans may find themselves less experienced in financial matters than the average borrower. Enlisted men and women also move frequently and spend long periods overseas. This often does not help create a consistent financial profile. In addition, many who are serving in the military have the long-distance burden of maintaining a family and household back in the United States, which can be financially difficult and enormously stressful.
Once they leave the military and enter the relative stability of civilian life, on the other hand, most veterans are extremely responsible with credit. They also place enormous value on trust and meeting one’s obligations, which makes them excellent borrowers.
Myth 2: Veterans are Better Off Getting a Conventional Loan
Not only is this a myth, but also it is a very dangerous one from a financial standpoint. VA loans enable eligible veterans to buy, build, or refinance a home without a down payment and ongoing monthly insurance premiums. There are no minimum credit score requirements and VA rules limit the amount a veteran can be charged for closing costs. In today’s market, there are no other types of mortgage loans that provide this type of benefit on an ongoing basis.
Most conventional and nonconventional loans, for example, require a 3 percent or higher down payment for first-time homebuyers—if they qualify. Right now, the median price of a U.S. home for sale is about $260,000. That generally means a first-time buyer needs a down payment of about $8,000, not including the costs of inspections, title fees, moving costs, and the many other expenses that go into buying a home.
In other words, from a veteran’s point of view, getting almost any other type of mortgage except the VA loan program makes no sense. However, this myth continues to survive because the majority of lenders do not understand how VA loans work and are simply less comfortable offering them.
Myth 3: There's a Time Limit for Eligible Veterans to Use Their VA Mortgage Benefit
This is just plain false. There is no time limit for a veteran to use their benefit. And they can use it as many times as they wish, as long as they sell any previous home bought with a VA loan. In fact, a significant percentage of veterans have used their benefit multiple times.
Every day, more military veterans are retiring from active duty. Many are looking forward to taking advantage of an improving economy and putting down roots with a new home for their families. Yet too few veterans are taking advantage of the VA loan benefits they have earned, often because they do not fully understand this option or because they have placed their trust in a lender that doesn’t believe in VA loans. When it comes to educating veteran borrowers and our industry as a whole about this invaluable VA benefit, we have a long way to go.
Myth 4: VA Loans are Difficult to Close
Many lenders believe this to be true; however, the truth is that many lenders need to learn the ins and outs of how to do VA loans, to then properly explain them to borrowers who have earned this benefit.
According to Ellie Mae’s Origination Insights Reports, VA loans have consistently been shown to have one of the highest closing rates in the mortgage industry. This really shouldn’t be surprising, since VA lending guidelines are intended to be flexible in order to give veterans every reasonable opportunity to use their earned benefit.
Myth 5: VA Loans Have a High Rate of Default
Customers of our VA loan products at NewDay USA have a 90-day delinquency rate of just 0.4 percent, which is practically unheard of in our industry. One of the reasons our borrowers perform so well is that we use proprietary analytics to assess the creditworthiness of all applicants and take many factors beyond credit into account when assessing risk and determining someone’s ability to pay. These tools not only enable us to make sound underwriting decisions that help borrowers who might not otherwise be able to get conventional financing, but they have helped us achieve delinquency and foreclosure rates far below the industry average for all loan types. Of course, not every VA lender does what we do, but they certainly could.
Another reason why VA loans rarely go into default is that the VA offers free counseling to veterans who fall behind on their loan payments. If a borrower is really in trouble, the VA can and will intervene directly with the servicer of the loan on the borrower’s behalf, so that the borrower can avoid foreclosure. Not many lenders are aware that these services exist, however, and as a result; some veterans are steered away from VA loans into more expensive financing.
HON. JOSEPH J. MURIN is chairman emeritus of NewDay USA, a nationwide VA mortgage lender, and has over 40 years’ experience in the mortgage and banking industries. A veteran of the U.S. Armed Forces, Murin served as President of the Government National Mortgage Association (Ginnie Mae) under both the Bush and Obama administrations. He can be reached at [email protected]