Or see the full hour-long video chat with Mike Frueh by clicking this link.
I'm excited to announce that the Veterans United Live crew is heading to Washington, D.C., soon to bring you a real-time video chat with Mike Frueh, the national director of the VA home loan program. Sarah Hill, Jessi Hall, Mike and myself will talk about the continued importance of VA loans and answer your questions and comments. We'll also be joined in the Google+ Hangout by representatives from the National Association of REALTORS® .
You'll be able to watch the Live Stream of our conversation right here in this post on Tuesday, April 9 at 11 a.m. ET. You can post your questions and comments both here and at the Veterans United YouTube channel.
HILL: Hey gang, Sarah Hill of the Veterans United Network. We are so glad that you joined us today. We have a very special guest in our hangout—multiple guests in our hangout today. Mike Frueh, he is the director of the VA loan program; we so appreciate you joining us today. You have more than 20 years of experience in the mortgage industry and we so appreciate you availing your time to answer questions from the general public, to answer questions from our Realtors that are in our hangout as well. So thanks for joining us.
MIKE FRUEH: You’re welcome.
HILL: And this is your first hangout, I understand, right?
FRUEH: Yes, it is.
HILL: Great, great. Well, we so appreciate it, and we so appreciate the individuals who joined our hangout, as well, from the National Association of Realtors. Let’s go ahead and have you guys introduce yourself from left to right. Jeanette, let’s start with you.
JEANNETTE WAY: I’m Jeannette Way. I’m the current director at the National Association of Realtors, as well as the California Association, and I’m a Realtor at Gateway Realty in Vacaville, California.
HILL: We also have Jessi Hall. Jessi?
JESSI HALL: Hi, I’m Jessi Hall, and I’m a real estate writer for the Veterans United Network.
HILL: And JoAnne.
JOANNE POOL: Hi, I’m JoAnne Pool, and I’m affiliated with Prudential Homesale YWGC Realty in downtown Baltimore, Maryland. This is my 26th year as a Realtor, and I have been involved in the local, state and national levels of our Realtor organization. On the national level, I have chaired the Federal Housing Policy Committee, the Housing Opportunity Committee, and currently I’m serving as a liaison between our organization’s leadership and our member’s services groups.
HILL: Okay, and Marty.
MARTY WAGAR: Good morning. My name is Marty Wagar. I'm a certified residential appraiser, Realtor emeritus. I participate in three different committees and the National Association of Realtors. Currently the Chief Operating Officer of the State of Michigan Appraisal Managing Company owned by the Michigan Association of Realtors.
HILL: Excellent, Marty. Glad to have you here. And Sarah.
SARAH YOUNG: Hi, I’m Sarah Young. I work in D.C. at the National Association of Realtors, and I work on federal housing policy, as well as appraisal issues for the association.
HILL: All right, great. And if you are just joining us, Sarah Hill of the Veterans United Network here with Mike Frueh, the director of the national VA home loan program. So appreciate you joining us and taking some questions. We also have Chris Birk, who wrote The Book on VA Loans and we razz him about his title on that book all the time, so appreciate you and having your time.
CHRIS BIRK: Thank you and welcome, Mike.
FRUEH: Thank you very much. I’m happy to be here.
HILL: So let’s start by talking about what are some of the benefits of a VA loan.
FRUEH: I think the primary benefit to the borrower is that they don’t need a down payment. So a veteran borrower, just by nature of their service to the country, exits service with a DD 214. That DD 214 serves as their down payment, so in lieu of a $40,000 down payment for an average-sized VA home loan, they have their service and that’s a huge benefit to them. There’s some added benefits, as well. They don’t have to pay mortgage insurance on the loan, and they have access to a program that’s been around for 69 years, and 20 million people before them have gone forth and used the program, so we have a lot of experience with what we do.
HILL: We have a lot of people watching this hangout right now, and a reminder—you have the opportunity to ask a question of Mike Frueh. You can ask it on Twitter, you can ask it on Facebook, or also on Google+, as well. Tweet with the hashtag “VU live.” We have producers who will be monitoring your comments and will be funneling those questions to Mike here shortly. Chris Birk, the author of The Book on VA Loans—much to talk about here.
BIRK: Absolutely. And Mike, I wanted to ask you at the outset about the tremendous growth of the program in the last five years. I know you guys guarantied about 540,000 loans last year and you’re on track for even more this year… Why is this program booming?
FRUEH: Well, there’s several reasons. One, I would say it’s sort of counter-intuitive. So we had this massive mortgage crisis in the last several years, so a lot of other avenues for people to get no down payment on loans have gone away. So the opportunities to get a loan from hundreds of banks has gone over the years as banks have consolidated, and mortgage lenders lending in general has been kind of tight. So veterans, because of their service, haven’t had the same issue that normal borrowers have had because they have always had this option to get a VA home loan. So while the other opportunities to get a loan have shrunk, veterans have been able to use their VA home loan benefit. We’ve gone -- I think we’ve experienced 300 percent growth in the last five years and 50 percent in the last year alone. This year, like you said, we’re on target to guarantee more than 620,000 loans and that’s more than we’ve done in the history of our program. So it’s kind of, there’s not a lot of other ways to get a mortgage loan without a down payment in the market and we have a very good program. It’s changed over the years; it’s something that people want to use, you know, banks. We’re actively working with lenders to make it easier for them so that they’ll push it to lenders. We certainly appreciate our Realtor friends. Realtors have the biggest relationship with the veteran client and service member client, so anytime you’re with a client and you have any indication they might be a veteran, please ask them, “Are you a veteran? Would you like to know more about your benefit?” Because it’s an enormous benefit for them to use.
HILL: And speaking of Realtor friends, Jeannette has a question. Go ahead, Jeannette Way. Ask your question of Mike Frueh. Again, you are watching a live conversation with Mike Frueh, the director of the VA home loan program.
JEANNETTE WAY: Thank you. My question for you this morning really hinges around the pest inspection requirement the VA has. In our area—nationally, even—we have been seeking the removal of the requirement for that pest inspection. What it is doing, and I am located around Travis Air Force Base, which is a joint operation, so we’ve got a diverse military segment here, and what it seems to be doing is putting our veterans at an extreme disadvantage. They’re not able to use the wonderful benefit program that you just mentioned, and it is a wonderful program. What happens is the FHA and conventional, they do not require any pest inspection. Thus, when it comes time to do the offers, the veteran’s offer is the last thing to be looked at. And right now, in a very busy market with short inventory, this is creating a very large problem, so a lot of the veterans are actually becoming disenchanted with the opportunity of a home. Some are changing the type of financing so we’re seeing a large percentage of FHA coming in, instead of that VA benefit that we’re talking about. We only have about a 7 percent take of veterans being able to purchase here. Can you help us out? Is there any chance we’re going to see that removal of the pest inspection requirement and let the veteran make that decision as they do with FHA or conventional money?
FRUEH: Thank you for the question. What we’ve seen over the last several years with pest inspections is more of a concern over the allowable charges for a pest inspection, rather than the pest inspection itself. The pest inspection, we try to mirror what FHA and other lenders would require based on the geographical area. So if you’re in a geographical area that’s prone to termite damage, which would be the Southeast or the islands, then we’ll absolutely want to have a pest inspection because VA loans have something called a “minimum property requirement.” That’s a protection we provide for the veteran because we’ve actually had those in our program since 1944 when the program began and the goal is, what can we set as a minimum for all veterans to know that they’re getting a relatively decent home? We want to protect them and the purchase that they make to some extent, and our requirements are safe, sound and sanitary. So pest inspections aren’t going to go away and, until now, I haven’t heard there’s an issue where we require pest inspections in some areas because most of the areas where we require them, all of the other lenders require them, as well. The issues I’ve heard stem from the cost and who’s allowed to pay for a pest inspection because we’ve always put a requirement on our loans that the veteran can’t pay for certain things at closing—one of them is the pest inspection, even if we want it. We are modifying that and we have new regs that we’re working on today. In fact, I just saw a version of them last week and I expect to see a final version in the next couple of weeks. Anything to do with government regulations is not quick, but I have seen them and they will be out of our office in the next several weeks to go through a process to go out for public comment. When they’re out for public comment, then you could give us some more feedback on what issues you have with it. If the issue is just imposing the pest inspection in the first place is preventing people from having loans, then we want to hear more about that, but if it’s more of the fee and who has to pay that, which is more of what we’ve heard over the years, then I think we’re going to address it by allowing a lot more latitude and the veteran and the seller can negotiate for what’s allowable to be paid.
HILL: Just want to mention, we’ve got a lot of people watching—Dean Aschelman, Dennis McCoy, John Fitzpatrick, “Blue Jean Stormy Sky,” Scott Keaton—we’ll get to your questions in just a moment, but we do want to get to some more of our Realtor friends in our hangout. JoAnne, you are next.
JOANNE POOL: Thank you. With all the changes in the mortgage bank, and I know the VA was one that did not really make a lot of changes in the process, sellers can pay all the customary closing costs and up to four percent toward pre-paid items like taxes and insurances. With the 100 percentage financing and the seller is able to cover everything else, the buyer actually needs zero dollars and sometimes gets money—their earnest money—back at the time of settlement. There’s been a lot of talk about defaults when there’s no monetary investment by the buyer. I just wanted to know, do you have or know the default rate on VA loans and if it’s more or less than any of the FHA or conventional loans?
FRUEH: JoAnne, that’s a great question. If you think about what makes a loan risky to a lender, and lenders are risk-adverse, which is one of the reasons that conventional financing has been hard lately, not putting any money down for a mortgage increases risk because the borrower—the veteran borrower—should have no skin in the game. A lot of other aspects like 100 percent financing and rolling all of the other costs into the loans so there’s zero money out-of-pocket at closing should make it very risky, I guess, for most lenders, and you would think that these loans would be one of the first to default. The difference with the VA loan program is our performance is exactly opposite of what you would expect, so for the past five years straight, VA loans have had the lowest foreclosure rate of any other loan in the industry. We have a lower foreclosure rate than FHA loans, certainly lower than sub-prime, but we have a lower foreclosure rate than even prime loans, which are borrowers that put 20 to 25 percent down, they have a lot of money in the bank to cover contingencies like broken furnaces or children that get sick or cars that break that they have to pay along the way, and they’ve got excellent credit scores. The VA doesn’t require a credit score for underwriting; the VA borrowers—the numbers—are at about 90 percent, just under 90 percent, don’t put any money into their home when they get it and they average veteran borrower has 7,000 in cash at closing, so that’s money that they have to cover the broken furnace or the car that breaks or the children that get sick or any other contingency that life throws at them. However, they’re much more likely to keep their loan current than any other type out there, and we attribute it to three things. One, we didn’t change our underwriting criteria. We’ve been very liberal to some extent in that it’s a benefit program, and we’ve encouraged lenders to lend to veteran borrowers, but we do require verification of income, verification of employment and other things to make sure the income is there to make the payments. Two, veterans are an excellent credit risk. They’ve proven through their service that they are committed to following through with their commitments and they prove it every day with their mortgage payments. And third, the VA has about a third of our staff nationwide focus on helping veterans keep their homes if they encounter an issue like a broken furnace or something that causes them to have trouble making their mortgage payment. We have staff willing to help. In fact, we have a toll-free number for them to call if they have any issues and we have a website that they can go to and get a VA person assigned to their particular case to help them through it.
HILL: Can you give that website?
FRUEH: The website is benefits.va.gov/homeloans and the phone number is 877-827-3702.
HILL: Sounds good. Before our Realtors ask some more questions, let’s go to Chris Birk.
BIRK: Mike, can you… Again, that was such a great question. Can you talk about how the residual income requirement plays a huge role in that, too? It’s something that other loan programs don’t require. I know there’s been a discussion about having it in the qualified residential mortgage.
FRUEH: Right. Unlike other loan programs, when veterans qualify—well, when we’re doing underwriting and we create our underwriting guidelines for veterans, we’re always looking at ways we can get to “Yes.” When lenders come to us and say, “Here’s our entire situation. Here’s the issues we see. Here’s where they meet your guidelines. Here’s where we’re not sure. We’re always trying to find a way to say, “Yes, yes, yes. And this is why.” Residual income is another one of those methods that we have to get to “Yes.” And it’s a way that we protect the borrower so that they know they have enough money to repay the loan. That’s our primary goal, is to make sure that borrowers don’t get into something they can’t afford down the road, so residual income is very simple. We look at all of the income that a veteran brings in and then subtract out all of the normal monthly expenses that they have, and we look at what’s left over. Is that enough left over to make the mortgage payment for the mortgage you’re anticipating, and do you have enough to cover whatever size family you have for the part of the country that you live in? You know, there are certain standards that are published, I think by the census every year to say, “This is what it costs for a family of three to live in the Midwest or a family of six to live in California.” They’re certainly very different, but we want to take that into consideration. So if you’re head of a household of a family of six and you have $200 after your mortgage payment left over—residual income—then you might not be thinking about, “That’s not enough to buy groceries.” or “That’s not enough to pay the heating bill, or enough to pay for gas in the car.” We certainly want to do that for you, and that’s why we have the residual income requirements.
HILL: Dennis McCoy, a veteran who’s watching on our Google+ stream, is asking about “refinancing my condominium.” Is he able to do it? He’s lived there since 1995.
FRUEH: There’s two different types of refinancing for the VA. One is if you already have a VA loan and you want to refinance into another VA loan. We call that “Streamline refi” and, in some cases, those loans can close in under two weeks because we don’t require an appraisal; we don’t require any additional underwritings. You already have the loan. It’s already guaranteed by VA, it’s with the lender, and we feel it’s better for the veteran, for the VA, and the lender to reduce the interest rate because we’re already on the hook for that loan in the first place. The other type of “refi” is where you don’t have a VA loan and you want to refinance into a VA loan. From our perspective, we call that a “Cash-Out refi” and to get that, you would have to get an appraisal, and the value of the home—or the condo—would have to support the value of the loan that you want. You would also, as a condo, you would have to get a condominium approval. So the condo that you live in has to have approval by the Department of Veterans Affairs council that says, “This condo doesn’t have restrictions that we consider burdensome to a veteran borrower that would prevent you from basically unfettered enjoyment of the home that you live in.” An example of that would be a condominium that has bylaws that says, “You can’t sell it when you want to, unless we approve it in advance.” And we would say, “Well, that’s not a fair restriction on someone that wants to move.” We want to facilitate the home purchase transaction. We don’t want to put any barrier in the way. So for that, for every single condo transaction, we want to evaluate the rules of the condominium so that they meet our requirements. If someone’s already lived there, a veteran’s already lived there, that condo association would’ve already had our blessing and all we would’ve had to do is find that prior approval.
HILL: Lots of great questions in our hangout. More, as well, from the National Association of Realtors. Let’s go to Marty. Marty Wagar, go ahead and ask your question for Mike Frueh, the National Director of the VA Home Loan program.
MARTY WAGAR: Thank you. I have the typical Washington two-part question and, as you might expect, it’s from an appraiser. The VA’s always maintained the control of the distribution of the appraisal, and a complaint that I hear from Realtors is the perceived limited number of appraisers for the appraisal assignment, thereby creating a longer turn time. I understand that the VA is presently recruiting appraisers and is addressing this problem. I’d like you to speak to that, and then the second part is, could you speak to the probability or possibility of the VA considering an adoption of the appraisal distribution policy similar to what FHA has, which would allow the lender to utilize their own system of assigning the appraiser.
FRUEH: Actually, I don’t need to write that down.
HILL: Oh, he’s good.
FRUEH: Marty, I expected you to ask this question since you described yourself as sort of a Realtor tangentially, an appraiser by birthright, almost. Appraising—well, one of the things I answered before—why VA loans are performing very well. Some of it is the underwriting; we’ve been very consistent in our underwriting requirements. Some of it is the servicing; we’ve been very good at encouraging servicers to go above and beyond, and we go above and beyond as much as we can. The third thing is the value. I think that the fact that the VA is one of the only national programs that has its own list, if you will, of certified appraisers. We call it our “fee panel” of appraisers that are completely independent from the lenders. That has protected VA and the lenders from some of the issues that some banks have experienced in the last five years. The opposite of what we have, where we assign appraisals on a rotational basis from one appraiser to the next one available in that particular region where the veteran wants to purchase a home, limits the ability or potential of a lender to say, “I love Marty, my favorite appraiser in the world. Every time I want a $500,000 value from Marty, I get a $500,000 value from Marty.” That’s a risk because over the last five years, we’ve seen that lender selection could lead to some type of perception that the lender could pressure the appraiser to come in at a value that the home might not support. So by having this panel of appraisers, we feel that we’ve managed to avoid that entire issue altogether. However, we’ve had a lot of pressure over the years to switch to letting the lender select. Let the lender use whatever system they use, whatever AMC they used these past several years, or in the old days, whatever appraiser that they like that gets things done quickly or in the way that they like or in the risky side, whatever value that they like. We don’t want to do that. We’ve felt that the success of our program stems, in part, from our panel of appraisers. Last year, we did start a process of recruiting 25 percent more appraisers than we have today. I know that, when I referred to “our father’s VA,” we always say that we aren’t our father’s VA because our father’s VA had a lot of perception issues—many among Realtors that I’ve talked to over the years—that it’s a very slow process, that it takes forever for veterans to get their COE, it takes forever for lenders to get the value… They’re waiting on the value, it’s delaying closing, it’s making deals not happen… What we saw in the last year, our value has come in under 10 days on average, so what came as a month-long process 10 to 15 years ago is now done in under 10 days on average. That’s a nationwide average; in metropolitan areas, it’ll be much shorter, and very rural areas, like there’s some parts of Montana where I’ve seen it can take upwards of a month to get an appraisal and a value, and that’s one of the reasons we’re adding to our panel of appraisers because we need more people in these areas so that, if you’ve got someone that’s got to drive 300 miles to get to a location in Alaska because our program, remember, is from Guam and the Northern Marianas in the Pacific all the way over to the American Virgin Islands in the Atlantic—that’s a lot of area to cover. So 6,000 appraisers is a lot of appraisers if you want to buy in downtown Houston, there’s going to be several, but if you want to buy in rural Alaska, there’s just not a lot of people there to be appraisers to be able to get there. So we’re going to try to overcome that by adding more appraisers, so to the second part of your question, no. We’ve talked about changing the process, but the reality is that a lot of the other programs, like the FHA, have been talking lately about moving to a process that’s exactly like VA. What can they do to model a fee panel system to look like ours? It does offer certain protections for the lender and for the government.
HILL: Jeannette just asked a question. Jeannette Way. Is the VA thinking about a program similar to FHA 203K?
FRUEH: That’s an excellent question. We have talked about that a lot the last year, in fact, [with] the assistant director for the program that helps guaranty loans. On the front end, I have talked about “How can we make this a reality?” We actually have the legal authority to have a program like a 203K so the veterans can purchase a home that needs some renovation, value it at the renovated amount, and borrow up to that amount so they can make repairs and move into a house that is exactly what they want—renovated to what they want. We have the legal authority; we don’t have the regulatory authority, so we are working on how to create a regulatory framework that would allow for multiple disbursements of funds because we have to protect the fiduciary interest of the government on this loan, so that the funds are actually going for the repairs that will come in to meet the last level of requirements, that they’re up to building code in the area and the builder’s reputable and they’re doing something that the veteran actually wants. So the implementation of that is probably several years away for that, but we do want to do that, especially in the next couple years as the REO homes have hit the market and veterans have wanted to purchase it with their home loan benefit but because the homes might not meet our MPRs, they’re not able to use their VA loan to purchase it. They could use an FHA 203K and perform renovations and actually move into a refurbished house.
HILL: Okay. If you’re just watching live, this is Mike Frueh. He is the expert. He’s the National Director of the VA Home Loan program. We appreciate you joining us. You can Tweet your questions @VU Live. We have a lot coming in, and we are going to get to them as soon as we can. I want to bring in Sarah Young. You had a follow-up question that you wanted to ask. Sarah? Go ahead and introduce yourself.
SARAH YOUNG: Hi, this is Sarah Young again. Hi Mike. I had a follow-up question on condos, especially for the gentleman who wants to refinance his condo using a VA loan. How would they find out if their condo building is certified by the VA? And also, do you do spot approvals, or does the whole building need to follow your guidelines?
FRUEH: First of all, the borrowers don’t need to get the approval. The lender is the person that typically packages up the material, sometimes the Realtors do, and they’ll send it to VA. The nearest VA office will be able to package it in the right methodology and get it to our council to make sure that particular condo meets our requirements. If you have questions, you can actually call VA at the regional loan center office. They’ll be able to tell if the condo complex has had prior approval—we actually keep a list at all the VA offices—so we know which ones have been approved. We’ve been doing a lot in this past year to free up some of the resources in the VA offices to expedite condo approvals for states like Michigan that have a condo—I wouldn’t say an issue because we’re very quick at approving condos in Michigan, but condo development in Michigan is very different than other states because new home construction typically falls under a rule called site condos, so what looks like a little family neighborhood is really zoned as condominiums and requires VA condo approval. So we’ve been very good at getting condo approval, in most times less than a week in the state of Michigan. In other states, it all depends on what the council workload is but in all cases, if you talk to VA at the nearest regional loan center, the information on our website that you can get to the nearest regional loan center, they’ll be able to answer your question at whether your particular condo has already been approved.
HILL: All right. “Soldier for Life” watching. Big shout out to “Soldier for Life” as well. Thank you for those individuals who are giving us retweets. The VA just retweeted as well so that is wonderful. Let’s bring in Jessi Hall. Jessi, go ahead and introduce yourself and you have a question for Mike Frueh.
JESSI HALL: Hi Mike, I’m Jessi Hall, and I’m a Real Estate Writer for Veterans United Network, and I’m just wondering if you could talk a little about the VA appraisal process to an agent or a buyer who’s never been through that process before, how it’s similar and different from a conventional or FHA appraisal.
FRUEH: My goal, in general, for the entire program is to make it as transparent to the veteran purchaser as possible, so they don’t need to know what’s the difference between an FHA, VA or conventional appraisal process or loan process. We want to make it quick and we want to make it easy for them. The appraisal process—when we were talking earlier about the VA having a fee panel process of appraisers—basically means that lenders don’t send the appraisal to someone that they pick. They actually, when a borrower goes to a lender and says, “I’m interested in using my VA home loan benefit,” the lender will typically go online and get the borrower’s eligibility. They can check the borrower’s eligibility in most cases—in the majority of cases—they check instantly online with systems that VA has, and when the borrower picks the house that they want and needs an appraiser, the lender makes an election online saying, “Here’s the house that this borrower wants to buy. Can you assign an appraiser to go out and look at it?” VA has systems that will say, “Okay, you want to buy a house in, say, Traverse City, Michigan. We have 10 appraisers on our panel in Traverse City, Michigan.” It will go to the next appraiser on that panel who will then say I’ve got an assignment to go to this house and get an appraiser, and we track the timing from the minute the lender says, “We need to get an appraiser.” to the minute the appraiser gets the assignment to the minute they return the appraisal to us with what their estimated value is on the appraisal. On average, this past year, we get our appraisals in less than 10 days, and then there’s an additional step that the VA loan gets something called a “Notice of Value.” A staff appraiser reviewer, either at the lender or at VA, will look through the appraisal and say, “Yes, we think this appraisal meets our requirements; it’s generally conforming with what we want, the appraiser looked at these different things, so here’s what we think the value is. Here’s our approved Notice of Value.” That takes, in total with the appraiser, just under 10 days in this last year. So from the minute the lender says, “We want to get an appraisal for this borrower who wants to get a home.” to the minute we have the Notice of Value is 10 days. That’s our target nationwide, and we know there’s some areas where it’s slower and some areas where it’s much faster, and we’re trying to get the process everywhere as quick, to as quick a process as possible so that no one has to wait for an appraisal. But again, my goal overall is to make sure that no borrower needs to know how the appraisal process works. It should be, “I want a loan.” Go to the lender that you pick and they should take care of the eligibility, the appraisal, and none of those processes should take longer than needed. Certainly not, we want to be the best of the industry for everything that we do so nothing, I guess, slows up the process of getting the loan.
HILL: Okay, have a question from our blog right now. Alan, thank you for watching and thank you for your service. He says, “100 percent permanently disabled and living off of my disability. Can I still get a VA loan this way with no money down?”
FRUEH: Actually, there’s an added benefit, not just for 100 percent disabled veteran, but for any veterans receiving disability comp from VA. VA’s always been a no-down payment program, but we have something called the “Funding Fee.” And the Funding Fee is something that started right around the Korean War to help recover money for the program, where veterans would pay, they pay an average of about 1.75 percent of the loan cost to get the loan guaranteed by VA. So that’s an upfront fee; that can get rolled into the loan amount, so you can finance it into the loan amount. You don’t need a down payment, but a lot of borrowers need a Funding Fee. Veterans who receive disability comp, and 100 percent disability is definitely receiving disability comp, are exempt from paying that Funding Fee, and currently about 30 percent of our borrowers—I think just over 33 percent—do not pay a Funding Fee because they receive disability comp. Now veterans in receipt of any type of comp from VA or from Social Security are able to count that income in the underwriting of their loan. All they need is their disability comp letter from VA, which says, “This is the rating that you have and this is the monthly amount that you get.” And that qualifies as income for the loan. As long as your combined family income is enough using our residual income guidelines to show that you can repay the loan that you want to get for the home, you can absolutely use that income to use your VA loan benefit.
HILL: Alan, I hope that answered your question and again, thank you for your service to our country. Also thanks for the individuals watching, “Heroes Homecoming” in Fayetteville, Tim Payne, San Antonio VAMC, VA Vet Benefits, and Brock Richard and Linda Solta. Thanks for your retweets with our conversation with Mike Frueh. Lots of other questions coming in. I want to get back to the hangout. Marty Wagar, go ahead. You have a question and it relates to appraising. Appraisals, imagine that.
MARTY WAGAR: It’s just a follow-up and that is, with the implementation of Dodd-Frank, and appraiser independence, a lot of what you spoke about has been addressed, and I only follow that up to say that the distribution now through lenders will have to follow Dodd-Frank Appraiser Independence regulations and guidelines.
FRUEH: I absolutely hear you, Marty. One of the things that we’ve always been very proud of is that the process that we started years ago and have followed is that, in a sense, kind of a model that other organizations are going to now. So what Dodd-Frank and the various rules related to appraisals, and there’s a lot and there’s a lot that we’re actually modifying as well, is to the form of the appraisal and the data that comes in on the appraisal. We’re subject to that as well, but the method of assigning the appraisals we feel very strongly has been effective. And we know that AMCs, or the Appraisal Management Companies, are kind of a byproduct of Dodd-Frank, and what’s come up over the last several years. There are a lot of models that, in a way, model our own, so I think what you’re saying is, if we would abandon our own and go to something else it would mirror what we have, but we do like what we have. And having said that, I want you to know that I am in no way, shape, or form married to any particular thing just because we’ve done it in the past. I want to do what’s best, and I constantly challenge my staff and our directors, assistant directors, to look at what’s out there, what could be better, what can be better, and what can we do right away to make it better. So we’ll keep looking at it, Marty, and if you pose a good enough argument to make us see the light the way you see it, then I promise you we will make changes.
MARTY WAGAR: I will speak to you in D.C.
BIRK: Are there… You talk about your “Father’s VA” a lot. Are there still myths and misconceptions that are keeping veterans from using these benefits?
FRUEH: I would say that we recently did a survey called “The Voice of the Veteran” survey where we mailed out thousands and thousands—hundreds of thousands of surveys and instruments—and we queried veterans on their use of all types of VA benefits. On the home loan program, we had incredibly high satisfaction scores. Veterans, in general, gave the VA a score higher than the highest benchmark in the mortgage banking industry for mortgage loan programs, so we felt very good as a government agency to get scores as good or better as what companies in the private sector do because, in a way, that kind of goes against the myth of the “Father’s VA” or the “Grandfather’s VA.” Veterans have said in the survey that they’re very, very happy with the service that they’ve gotten from Realtors. Realtors have gotten one of the highest satisfaction scores on there, as well as lenders, and they said realtors responded in a timely manner, were very courteous, responsive to their needs, and were concerned with what issues that veterans brought to them, and they were able to relay it to the lender and to VA in a way that made the veterans very happy. Having said that, the veterans that knew about the program liked it and said that it was wonderful. The veterans that didn’t know about the program are the ones that I think might suffer from what I call our “Father’s VA” or our “Grandfather’s VA” syndrome, which is perhaps the Realtors that are talking to them or spending the time driving them around have had bad experiences over the years of loans taking too long or MPRs—we call them Minimum Property Requirements—at closing, causing someone to go to a different loan program, or they might consciously steer them to a different loan program at the beginning simply because they say, “Well, you know, years ago this happened.” And I want to say, we’re not the same program we were years ago. We constantly reinvent ourselves to try to be better. We want to be better than everyone else. We just want to be equal with our industry peers or equal with government peers. We want to be in front, so one thing we’ve strived for over the last several years is to be the best. We want to have the lowest foreclosure rate, and we have for the last five years. We want to have the best results for our loans. We have had more loans in the last couple years than we’ve had in the history of our loan program, and a lot of it is this constant reinvention and constant re-evaluating of our program. So one thing I would like to say to Realtors especially that are listening to this call, that if you had any experience with VA over the years before, especially more than 10 years ago, we’re a very, very different program than we were then, our systems are dramatically different, there’s virtually no paper in any of our VA offices. All of our communications with lenders, with appraisers, with borrowers is done electronically, and it’s virtually instant. So we don’t have any more time lags from waiting for approval from VA; we try to get out of the process as much as we can.
HILL: Speaking of time lags, real-time conversation. This is Mike Frueh and he is answering questions in real time. I want to bring in JoAnne Pool, as well. You have a question for Mike Frueh, the National Director of the VA Home Loan program.
JOANNE POOL: Yes, thank you. It’s great to know that a veteran with a disability is able to purchase a property and have the property taxes waived; it would help even more, though, if there were a few settlement fees—state, local—if they could be reduced and not just rolled into the mortgage or passed off to the seller. Is there anything on the table as way of a conversation with any of the state and local entities to be able to reduce any of those fees?
FRUEH: I think that’s an excellent question that we can start bring up with state taxing authorities because really what you’re talking about is the state and local taxes that are added to mortgages, so what you referred to, that we didn’t really explain to everyone is that, if you’re a disabled veteran in almost every single jurisdiction, you can petition your local taxing authority and you can have all of your real estate taxes waived. Some cases, they require it’s a one-time waiver; some cases, it’s an annual waiver. But that’s a fantastic benefit that you as Realtors could also relay to your clients if you find out they’re a disabled veteran, especially 100 percent disabled veterans, which are typically the ones that qualify. But the billing it to tax is the local responsibility of the local governments, and that’s a conversation that you, as leaders in your local communities, can bring up, and that I can certainly bring up on a national level when we talk to local authorities.
HILL: Jessi Hall.
JESSI HALL: Oh, hi. I was wondering if you could talk a little bit about the best uses of a VA loan for all of our buyers out there that might be watching and what types of properties work well with the VA loan.
FRUEH: Just about any type of property you want to buy, whether you want to buy a farm that has a residence on it or you want to buy a condo that was a question earlier asked or if you want to buy a single-family home in the neighborhood of your choice. Really the only thing we have as a restriction is that it has to be your primary residence, so using your VA home loan benefit—the benefit arose out of World War II as a way to allow veterans to purchase a home and reintegrate into society, so there’s parts of the act that let them get education and employment training—this is a way to help them buy a house, and that aspect of the program’s never changed. It’s always been “a home to live in” program, so one thing people don’t know is they can actually use it more than once. So some people think of it as a first time home-buying program, so they can use it to buy the first house when they get out of the service. Thirty percent of our borrowers are still in the service. They might use it as the first house when they get married and want to have kids, and then they go on to buy bigger houses or houses in different areas, and they don’t realize once they pay off the old house, they could actually use it again to buy another house. And the benefit, I guess the biggest benefit in my mind, is the no down payment because that’s a huge expense that borrowers have to save up for to get, and if you can get a loan on excellent loan terms with a down payment, it's a fantastic benefit. So to address your primary question, there’s no particular type of home that’s better than another. It has to be your primary residence and it could be anywhere you want to live that we service, which again is anywhere from the side of the Pacific where Guam and Northern Marianas, all the way to the outside of the Atlantic to Puerto Rico and the American Virgin Islands.
HILL: Sarah Young, you have a follow-up question to Jessi’s question.
SARAH YOUNG: When a veteran is looking at a certain property, I know you mentioned earlier that there are “Minimum Property Requirements,” and I was wondering if you could point them in the direction where they’d find what these minimum requirements are, and I know there are also some variances for regional difficulties. If you could just give a couple of examples, things that maybe our members could look for. I know we had a question once from a member about a problem planting grass in the winter where they couldn't get the grass to grow but unless the sod was laid, the property wouldn’t meet the minimum requirements, and if you could just, you know, shed some light on that. Also, maybe direct people where they could find more information on that, that’d be great.
FRUEH: Okay, the grass and sod is the first I’ve ever heard of a grass issue for Minimum Property Requirements because they really are kind of self-described minimum. We’re not trying to make a really high bar for veterans to have to meet or a property to meet so a veteran can buy; we’re just trying to set a standard so that we can protect veterans who are sometimes buying their first home or they’re doing something they don’t do very often, so this is a way to say, “This house meets at least a minimum set of requirements that mean that it’s safe and it’s sound and it’s sanitary.” So one example that we see a lot would be exposed wiring in a foreclosed home, so if you go in there and there’s people that took fixtures off the walls or light fixtures out of the ceiling, so that’s exposed wiring, that’s a safety concern so that would get written up as, “Until these wires are capped or a new light is put on or a new switch is put on, this house is not safe.” It doesn’t mean the house is ready to implode or something horrible will happen if you buy the home; it just means here are a set of things that all VA appraisers are trained to note in their appraisal that will come in as exceptions and say, “Here’s what we believe the value of the house is and here’s the one, two, or three things that have to be done before it meets VA’s Minimum Property Requirements.” Veterans and lenders and anyone that’s interested can go to our website, benefits.va.gov/homeloans, and look at Minimum Property Requirements, and you can see what VA tells lenders and explains to everyone what they need to meet for the home to pass for a VA loan.
HILL: Questions continuing to flood in. You’re going to be here all day. They’re not going to let you leave.
FRUEH: That’s okay. I’m here to answer questions.
HILL: David Widell, from Google+. He is a veteran. David, thank you for your service. He asks, “Is there any talk in letting the buyer escrow a small amount at closing to make the VA-required repairs? This would open up a huge number of homes for my DVA clients.”
FRUEH: David, again, I echo Sarah. Thank you for your service, and thank all the veterans on the phone for their service. That’s something we talked about a little earlier. It’s a program FHA has called the 203K, which allows for escrow and disbursement of repair funds based on two different values, where the appraiser would actually go through the house and say, “Here’s what the house values today, and if you made these repairs that they’ll list, this is what the value would be in the future.” And with an FHA 203K program, the borrower can actually borrow up to the “as repaired” value and then use the different funds to pay as they go through and build out or make the repairs. We have legal authority to do that, and we’re working on a program to make that a reality. We have to create regulations and we have to find a way, quite honestly, to make sure that we have a program that would allow veterans to buy houses that they want to make repairs, as well as meet whatever local building code requirements are and make sure that people don’t get into something that’s, quite honestly, over their head. So Minimum Property requirements—what we just talked about—would also apply in this case, so we want to build in some protections for veterans but we don’t want to have too many protections that prevent them from purchasing homes. So we do want to work on a program like that and we are working on a program like that, but I can tell you honestly that as a regulatory program, something that we’d have to issue regulations to get out, it will take a while. It will take a minimum of 18 to 24 from when we started working on it before to when it’s out, so we’ve got a ways to go, but I do appreciate your interest in that and we are looking into ways to address it.
BIRK: I think as far as Sarah’s point goes, too, there are some cases where a veteran can ask for an exemption from the MPRs as they give them a little time to escrow some funds and take care of it. I know weather-related incidents are one of the most common.
FRUEH: Right, absolutely, and actually another thing. The fact that we’re a no-down payment program. Not everyone has means to make a down payment, but you don’t need to make a down payment with the VA loans. So if you do have funds for a down payment, say from the sale of a prior home or savings that you had, you could still use a VA home loan to purchase a house and use the money you would’ve put as a down payment into the loan and then when the value’s there, you could even use a “Streamline Refi” or a VA IRRRL and get a new loan for the entire loan amount.
HILL: Raul Magda, thanks for watching. Darryl Hill, Daniel Corbin, Steven Payne… Steven, you have a question. Steven is a disabled Vietnam-era veteran and he wants to relocate to another state to get a VA loan for a house. How difficult is it to obtain a loan? “My credit is perfect… no debt other than my current conventional loan.”
FRUEH: That’s an excellent question. Thank you for your service. The first thing I would say is talk to a local Realtor in the area that you want to live. You might want to call some banks, as well, and find out what type of loan you would qualify before you start looking to see how you can actually begin the process. To a person, we always say, “Start with a Realtor.” The Realtor knows the local market—where you want to go. A lot of banks have websites with calculators that let know, based on your income, what type of loan you might qualify for. The process typically begins with, you know, get prequalified. Find out how much your income will allow you to afford in a new home loan and that might narrow down your search as to certain areas or certain neighborhoods or certain types of houses. And then talk to a lender about actually getting a loan. Go with a Realtor, find a home, talk to the lender… The lender can get your eligibility from VA, that’s an automated process now, or if you’re interested, you could use VA’s e-benefits website, which is ebenefits.va.gov, and pull your Certificate of Eligibility. If you have questions, you can go to our website; that’ll certainly outline the process as well. But the lender will really guide you through the process. They’ll know at what point they need to get the appraisal, they’ll order the appraisal for you when you find a house, and they'll ask you for all the documentation you need to get the home loan. They'll ask for documentation like proof of deposits and banking institutions, so you’ll need to get statements from your bank for the last three months or so. You’ll need to get income statements, whether you’re a disabled veteran, you might have VA compensation, you might have Social Security compensation, it might be income from jobs that you or your spouse have, but all of those will be something you’ll have to get together and discuss with your lender but the process can all almost be done virtually. Almost all of this is done by phone, by scanning documents, sending electronic documents to your lender. It’s very simple, and you can begin today if you want to go to our website and look for where to start, you can actually start today on our website.
HILL: All right, sounds good. Are you doing okay? Do you need any water or anything?
FRUEH: No, I’m good.
HILL: We’re almost going an hour here and the questions still keep coming in. Daniel Corbin asks, “Will there be any changes to the present loan system? I refinanced once and I’m still underwater. Can veterans refinance without any money down?”
FRUEH: Actually, there’s two different refinance programs the VA has. One is VA-to-VA refinance, so if you already have a VA home loan, you can do what we call “Streamline VA Refinance” into a new VA home loan. That’s called an IRRRL loan. That loan doesn’t require a value—you don’t need an appraisal—and it doesn’t require underwriting. VA requires neither of those. You might want to talk to lenders to see what type of programs they have for you, but if you already have a VA home loan you can certainly refinance and it doesn’t matter if you’re underwater. We’re concerned with the loan that you have today, and if you refinance and the payments are more affordable, that’s better for the government, it’s better for you as the borrower, and it’s better for the lender.
If you don’t have a VA home loan and you want to refinance into a VA home loan, you have to get an appraisal and if you’re underwater, we only allow you—this is a law, a statutory requirement of the VA program—you can only borrow up to the value of your home, up to 100 percent of the value of your home, but it’s still limited to the value. So if you’re underwater and you don’t have a VA home loan, you should ask lenders about something called the government HARP program, which is Home Affordable Refinance Program. There’s actually, HARP 2.0 came out last year and more borrowers are qualified for that type of loan, but you have to check with your lender first and they’ll check your particular loan and see whether you qualify and what could best help you.
HILL: Scott Keaton on Google+, thanks for watching. He says, “I have credit issues and I have not used my VA loan. I would like to buy a house in Las Vegas but I’m not looking forward to getting turned down. I would like to know if the VA loan is good and if it will work with vets with bad credit. Can you tell me or point me in the right direction to someone who can help me?”
FRUEH: Scott, again, thank you for your service. You’re not in an atypical situation. VA, as a guarantor—we’re not a lender, we actually guarantee loans that banks make—we don’t set credit requirements or FICO score requirements for borrowers, but we do have underwriting criteria and our underwriting criteria is basically looking to see, anyone that’s looking to borrow money for a loan that we’ll guaranty, do they have the capacity to repay the current loan and do they have a proven history of repaying their debts? We understand that a lot of people have bumps. We even have rules around borrowers who have bankruptcy and foreclosure in their past, and we allow them to get another VA home loan within three years of the prior event if the veteran’s demonstrated a current track record of paying their debts and being a responsible borrower, so it really depends on your individual situation.
What I recommend are two things. One, you could go to our website, benefits.va.gov/homeloan, and call the nearest regional VA loan center. There’s a list of regional loan offices that offer services and you could talk to someone at VA that could discuss what your particular situation is and offer you some advice, or talk to lenders.Lenders know more about lending than anyone. It’s their money that they’re lending. They’re very interested in you as the borrower and they’ll be able to talk to you about programs that they have or opportunities they may have that will help you. From a VA perspective, you have served your country—you’ve earned a benefit. We’re more than happy to guaranty a loan that you can take out from bank. We just want to make sure that you have the ability to repay the loan because we don’t want you to get into a situation where you’re paying more than you can afford.
HILL: JoAnne Pool, I see you have a question as well, so go ahead and ask it.
JOANNE POOL: Mike, I had a question about the appraisers and the limited number of appraisers that are on staff right now, and the distances that they seem to have to travel to do some of the appraisals may be part of what the slow down is in our market and getting those appraisals turned around. But more importantly, some of the appraisers are traveling into areas that they have no familiarity with and it’s causing us to have appraisal issues. Do you have some timeframe in mind on when additional appraisers may be brought onboard?
FRUEH: Absolutely. We started last July with a goal of hiring 25 percent more appraisers than we had at the time. At that time, we had 4,600 appraisers on our panel. We wanted another 1,200 appraisers to bolster our ability to get to homes, mostly in rural areas where appraisers, no matter what, would have to travel a long way simply because there’s a lot of geography to cover. This is really an issue for us, not so much for your area in Baltimore, but mostly in areas out west where you’ve got Colorado, Montana, Wyoming, California, Oregon, Alaska… Areas with huge geographical areas and not a lot of people, so veterans who are buying homes are buying in a scattered area and the appraisers who live there live in a scattered area. So the 25 percent increase goal, we’re halfway there. We’re about 52 percent, just over halfway, in the past six months, seven months, to our goal and our target is this summer to have about 5,700 appraisers on our panel.
We’re also starting a new process—more technology to help us get better. It’s a system we call AMS AVM, which is our Appraiser Management Software, which will start looking at every single appraisal that comes in and score it and say, “How good is this appraisal?” based on an automated system of scoring to say, “Did we look at good comps? Did we value for certain things? Did we pull information from all of the public records that we have to accurately describe what this house is and what it’s worth?” And as we start scoring appraisals, we’ll start building up enough information to score appraisers.
So one thing we hear people say is that we have a lot of appraisers on our panel that have been on our panel for a very, very long time, and most of them are wonderful appraisers that are very skilled at VA MPRs and VA rules and they know what we want, but some people have that experience where they take longer than they would like to get a particular transaction through. This new system will allow us to rate timeliness in a much more granular way than we have been in the past and by doing that, we hope that we’ll be able to get our average appraisal timeliness down from 10 days, which is appraisal plus Notice of Value, to under 10 and then look at all of the next layer, the more rural appraisals—get all of those timeframes down as well. In our most rural states, we have timeframes up to 20 days just to get the appraiser out to the property to do the appraisal. I’d like to get that down to 10 days nationwide as a requirement and then see if we can start getting it down from 10 to the lowest possible timeframe we can.
HILL: Marty, you have a follow-up for that?
MARTY WAGAR: Yes, thank you. A good AMC always roots itself, or should root itself, in the best qualified, the best geographically competent and the best service, and you’ve done that, and I appreciate your comment about wanting to maintain that control. In the Midwest, the AMC that I oversee is rooted in that so when we go into rural areas, we spend time to do that. When I suggest opening it up, the free market opens it up to finding the AMC that will do that, or the lender. I know lenders can run their own distribution system within their company and it’s a situation where we are after the best, we’re not after the quickest. Any good AMC should do that, which is what you’ve stated; you’re not after a three-day turnaround time, you’re after the person who is best qualified and can offer the service to do the job.
FRUEH: Absolutely. Thank you so much for those thoughts.
HILL: 20 millionth borrower recently—a milestone. What do you attribute that growth to?
FRUEH: I think there’s a lot of things. One, there’s a lot of veterans. We have, today, there’s about 23 million veterans living in America and the world, a lot of them here in the U.S. Two, the program’s an excellent program. It’s been around since 1944, the main tenets of the program—the no down payment, the controlled closing costs so there’s not a lot of costs for borrowers at closing, the assistance if there’s any issues in default along the way—those have maintained through the last 69 years and especially in the last four or five years, veterans have been returning to VA, and lenders have been coming to us.
Last year, we had our second-biggest year in history and this year we’re probably going to beat our best year. We’re on pace to exceed 600,000 loans this year. So it took us 69 years to get to 20 million loans; it’s probably going to be a lot less to get to the next several million, to get to the next milestone. But I think that the program today is meeting the needs of veterans and lenders. So last year, to lend 540,000 loans, we had 1,555 lenders, I think, in our program, and so some of them lent one loan, some of them lent 100,000 loans—it just depends on where the veteran lives and where the veteran wanted to purchase the home.
We don’t force anyone into any lender, we don’t force anyone into any Realtor in any particular location. It’s really, veterans have a lot of control over the process and my goal in the future is to make it as transparent as possible so even more veterans choose to use their VA benefit and understand that they can use it more than once, and in that case, I’m hoping that we’ll get to 30 million in the next several years.
BIRK: Is there anything, as far as parting thoughts go, anything that you think Realtors who are out there serving our veterans need to know about the program in order to even better serve them?
FRUEH: I think Realtors should… Realtors, I can’t thank you enough. If there’s any party in that transaction that’s more instrumental in helping veterans find a home that meets their family needs, it’s Realtors, and helping guide them through their process, from the minute they call you to sitting at the closing table with them at the very end when they’re getting their first keys or their second keys for their second home—all of that is something that you do day in and day out and most of our borrowers don’t do this very often. It’s a new process for them; many of them are nervous, many of them are scared, and you’re there to give them the voice of reason and to get them through it, let them know that you can walk them through all their steps.
Veterans have let us know that they appreciate it. They’re very satisfied with service of Realtors. You have some of the highest satisfaction from our veteran borrowers of any part of the process, and that’s excellent so we appreciate that. But some things I would ask that you remember when you think about the program or when you talk to your clients when you’re going out is there’s 23 million veterans in America and 1.8 currently have a VA home loan, so there’s a lot that don’t. There’s a lot of opportunity for new business. There’s a lot of people that you see that if you don’t know they’re a veteran, just ask. Ask if someone that you’re driving with is a veteran. The veteran homeownership rate is 127 percent higher than the average American homeownership rate, so the non-veteran population is somewhere around, I forget—68 percent veteran population—about 81 percent.
It’s fantastic. These are people that like to buy houses. They’re people that are successful at buying houses. The VA home loan program allows them to be more successful. They don’t need to come up with a down payment and on the average VA loan, that’s $43,000 that they can save to make some modifications to the house when they move in or use for other issues that they need for their activities of daily living. We have programs to help disabled veterans—we have programs to help any veterans. We’re here to help veterans. We appreciate your help in the process as well.
HILL: And as we close this out here, I have people prompting me on the screen to make sure you give the website and the phone number out one more time.
FRUEH: Okay, the website that anyone—Realtors, veterans, lenders can go to—is benefits.va.gov/homeloans, and there’s a lot of resources on there for veterans, there’s a lot of resources for first-time homebuyers. You can go and look and see, “What do I need to do? Where do I start the process? What can I expect throughout the process?” The phone number, there’s 1-800-827-1000 for general questions that will get you to your nearest regional office. If you have eligibility questions, there’s an additional toll-free number, 888-768-2132, that will get you to our eligibility center experts on answering your questions about when you served, the type of service you have and how to get your eligibility.
HILL: All right, your first Google+ hangout, real-time access with real people. We so appreciate you availing yourself over the last hour, so it’s great to have access to a leader with the VA Home Loan program. We hope that everyone watching on Facebook, Twitter, Google+ got some benefit out of this. The conversation does not end here—we are still talking with you even after this ends and going to try to get your questions answered. So to all of our realtors, the National Association of Realtors, thank you so much for availing your time.
FRUEH: Thank you all.
HILL: We appreciate you availing your time. I’m Sarah Hill from the Veterans United Network. We’ll see you next time on a future broadcast.