Thanks to my friend and fellow Mortgage Myth Buster Gary Miljour for collaborating with me on this post. It's a disturbing trend we are seeing that is having a very negative effect on our veterans. Read below and see.
If you are a veteran or active duty military and own a home in Arizona, California, Florida or Nevada you have just been plagued and punished for living in a sand state. While most homeowners are taking advantage of refinance opportunities with these low interest rates you are suffering for having a VA loan. The Veterans Administration has a special streamline refinance program for veterans called the Interest Rate Reduction Refinancing Loan (IRRRL- pronounced “Earl” in the industry). This program allows a veteran or active duty military borrower to refinance his home with limited documentation as long as 12 months of current payments were made with no later lates. The program is designed to allow a veteran to reduce his current rate to the lower rates of today’s market. The VA currently does NOT require an appraisal to be done on the property. But now big Wall Street investor banks are considering VA loans a little more risky and most of them have created their own investor overlays.
Overlays is the key word here. These overlays are bank specific guidelines that are more stringent than the guidelines created by insuring/guaranteeing authority (in this case the VA). Most banks have adopted an overlay limiting the ability to do an IRRRL if the home is too upside down. Mind you, VA doesn’t care as long as the new loan benefits the veteran with a lower monthly payment.
Of the banks that have this overlay, some will still do an IRRRL without an appraisal if they currently service the loan. One can assume that since they are already on the hook for the foreclosure, they are more willing to take the chance that a rate reduction would lessen that risk. It deserves mentioning that some banks are even requiring minimum credit scores as an additional overlay.
So many veterans are being denied the relief that the VA loan program was designed to give because of these overlays. The truth is, because the VA Loan program guarantees the top 25% of a loan, lenders who foreclose on a home that is upside down are likely to take a hit above and beyond the VA guarantee. However, given all that our government has done to keep these banks in business- and given everything veterans have done for our government- isn’t it time the banks ante up a little and help support vets?
This Post was written in collaboration by Gary Miljour with Sunstreet Mortgage and Gerry Suarez Jr. with Thomas Mortgage and Financial Services
Gerry Suarez, Jr NMLS 310298
Expert Home Loan Advisor
Team Leader, Mortgage Financial Group, Inc.