VA loan limit expiration approaches

Loan limits for mortgages guaranteed by the Department of Veterans Affairs will increase in some areas, The American Legion recently warned, unless Congress takes action to prevent it.

Loan limits for mortgages guaranteed by the Department of Veterans Affairs will increase in some areas, The American Legion recently warned, unless Congress takes action to prevent it.

The loan caps are scheduled to drop at the end of the year by more than $100,000 per applicant in some high-cost areas, according to the organization. With the deadline approaching quickly, The American Legion noted that a lower cap in these markets could force military families to seek conventional mortgages. Because of the higher down payments commercial mortgage loans entail, many could be effectively prevented from pursuing homeownership.

"Veterans returning from America's longest war should have full access to the safest loan guarantee program in our nation," said American Legion national commander Fang A. Wong. "These limits help level the playing field for military families who are stationed in costlier parts of the country, or who simply want to put down roots in communities they've come to call home."

Proposals to extend VA loan limits have been considered more than once by Congress this fall, but have not been passed. Wong noted the VA loan program provides funding for other activities at well, and suggested failure to extend loan limits would mean less revenue and, as a result, a decreased ability to fund other initiatives.

According to the organization, the limited assets of most VA loan applicants preclude them from applying to Federal Housing Administration loan programs, which require higher down payments. One officer in The American Legion noted 90 percent of VA loan recipients make no down payment at all.

The issue may be an even greater concern than it would have at another time, given that VA loan volume has grown 135 percent since 2007. According to the department's real estate data, VA-backed loans accounted for 9.5 percent of originations in 2009, 10.8 percent in 2010 and are projected to reach 11.5 percent in 2011. While loan originations dropped more than 25 percent in the first half of 2011, according to The Washington Post, VA loan originations were three times higher than in 2008.

According to some, the tightening of mortgage lending standards and more restrictive lending practices have pushed eligible borrowers to seek VA loans. In some areas, high rental costs have also contributed, given that rental availability has decreased in many areas due to high demand and limited supply.



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