Should VA Loans and FHA Mortgages Be Combined?

Are VA loans and FHA mortgages alike? How about VA mortgages and financing from the Agriculture Department’s Rural Housing Service (RHS)?

Such questions are not far-fetched. A new report from the Government Accounting Office says the time is ripe to “increase collaboration and consider consolidation.”

But is this really a good idea? After all, could not the government save a few dollars and cut the deficit by combining programs and products?

The VA doesn’t think so.

VA loans and FHA Mortgages Similar

Are VA loans and FHA mortgages alike? How about VA mortgages and financing from the Agriculture Department’s Rural Housing Service (RHS)?

The report says “veterans have earned the benefit of VA’s Home Loan Guaranty program in recognition of their service to the Nation. While VA’s Home Loan Guaranty program could certainly be compared or coordinated with aspects of other Federal housing programs, such as the Federal Housing Administration’s (FHA) programs, consolidation of the program under another agency is not recommended.”

In other words, the FHA and RHS programs are forms of insurance. The borrower pays required premiums and if something goes wrong the lender is then repaid by HUD or the Department of Agriculture.

The VA program is different. It started out as an outright benefit and then morphed into a guarantee plan with an up-front premium. But while borrowers can qualify for FHA and RHA loans on the basis of their cash and credit, the same is not true with VA mortgages. Even if you’re rich and famous you can’t get a VA loan without necessary federal service.

The VA says that its Home Loan Guaranty program “was authorized under the GI Bill of 1944, and the President and Congress, expressing the will of the American public, have modified and expanded the program through legislation in nearly every Congress since that time. Veterans as a group have been deliberately provided a unique program and Cabinet-
level access for their unique voice.”

And what would happen if the VA loan program was combined with other federal mortgage guarantee plans? According to the VA:

“Combining VA’s Home Loan Guaranty program with other housing programs would dilute that intent. Of additional note is the fact that as the only widely available no-down payment and no-mortgage insurance premium program in the marketplace, VA’s Home Loan Guaranty program provides millions of Veterans with an affordable path to homeownership — a path that would not necessarily be available to them through more costly conventional or FHA financing.”

Between the lines, the VA is saying it’s vehemently opposed to combining the VA mortgage program with other loan guarantee efforts. Why?

If the VA loses its cabinet status then vets will also lose their unique access to the President and the Congress. Once such access is diluted or diminished, then VA benefits, including VA loans, can easily be on the same path.

Photo courtesy Renis Traidas