VA Loan Updates

WASHINGTON — The government is taking action to enable more low-cost financing to be available for military veterans buying homes in pricier areas of the country. The Government National Mortgage Association, known as Ginnie Mae, is eliminating the $417,000 cap on mortgages guaranteed by the Department of Veterans Affairs that are bundled together as securities and backed in turn by Ginnie Mae. The change takes effect Sept. 1, Ginnie Mae Executive Vice President Michael Frenz said in a memorandum Monday to participants in the agency's program. That means Ginnie Mae will accept as collateral mortgage loans exceeding $417,000 that are guaranteed by Veterans Affairs. Those VA-backed loans represent about a third of the securities issued by Ginnie Mae, which is part of the Department of Housing and Urban Development. "Ginnie Mae expects that this change will expand the availability of low-cost financing and increase homeownership opportunities for America's veterans and their families, particularly in high-cost areas," Frenz wrote. Ginnie Mae officials noted that the median price of a home in California, for example, is around $568,000. Frenz said in the memo that Ginnie Mae will continue to require that the borrower's down payment plus the amount of the VA guaranty be equal to at least 25% of the purchase price or the home's value, whichever is less. Ginnie Mae accounted for only about 4% of the market for mortgage securities in the second quarter, according to trade publication Inside Mortgage Finance. Mortgage finance giants Fannie Mae and Freddie Mac together represented about half of the market, and the remainder was covered by Wall Street investment firms and other issuers of securities that are not guaranteed by the government. Bipartisan support has been growing in Washington for expanding the role of another HUD agency, the Federal Housing Administration — which guarantees a much broader swath of mortgages — in response to the mortgage market upheaval. One idea being considered is to widen the mandate of the FHA, which insures mortgages for low-income borrowers, to allow it to guarantee mortgages for homeowners in default who are refinanced into lower-rate loans. The FHA cannot currently do so. Legislation being proposed in Congress, meanwhile, would raise the maximum mortgage amount that FHA can insure in high-cost areas to $417,000 from $362,790. Found here. Sphere: Related Content