No Down Payment, No Problem: VA Loans Still the Safest on the Market

We've already written about the huge year the VA Loan program had in 2011.

The VA made it official in a press release this week. But the department also passed along a pretty incredible statistic, courtesy of the Mortgage Bankers Association: For all loan types, VA loans have had the lowest foreclosure rate for the last 14 quarters and the lowest seriously delinquent rate for the last 11 quarters. Seriously delinquent loans are either at least 90 days past due or currently in the foreclosure process.

What makes those figures so impressive? The fact that 90 percent of VA loans come with no down payment. For all the talk the past few years about how homebuyers must have significant "skin in the game," a loan program whose signature benefit is the lack of a down payment is leading the way through the foreclosure crisis.

Commitment to Help

There are a few major reasons why VA borrowers fare so well in the face of foreclosure.

One is the commitment of the agency and VA-approved lenders to help keep veterans in their homes. VA employees often work directly with borrowers and on their behalf to obtain modifications, repayment plans or other options for homeowners on the edge. The agency also incentivizes lenders to find ways to avoid initiating foreclosure proceedings, which are costly exercises most loan servicers would rather avoid.

In 2011, the VA helped more than 72,000 homeowners who were in default stay in their homes, up from just over 66,000 in 2010.

Homeowners struggling to stay current on their mortgage or those who have already missed payments should contact their servicer as soon as possible. The agency may be able to step in and help, but there's no guarantee, especially on loans that aren't backed by the VA. Military homeowners can call the VA at 877-827-3702 to talk with someone about avoiding foreclosure.

But VA borrowers also play a major role in the program's continued success. Veterans, active service members and military families typically do a great job making their mortgage payments on time each month. That sense of discipline and obligation is deeply rooted in this deserving demographic.

Sufficient Income

The other big reason is the VA's residual income standard, which helps to better ensure a prospective homeowner can handle the financial commitment of a mortgage. Check out our post from September to learn more about residual income and how it plays a key role in the VA lending process.

The rest of the mortgage industry, along with the next generation of homeowners, can learn a lot about sustainable homeownership from this crucial loan program, which has helped more than 18 million people secure home financing since 1944.