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Your Mortgage : Bush Seeks to End VA No-Down Policy : Mortgages: Stung by loan default losses, the Administration's changes would 'kill usefulness' of the housing program for most veterans.


Some key congressman, veterans groups and realty trade lobbies are blasting a little-publicized plan by the Bush Adminstration to make sweeping changes in the popular Veterans Administration loan program, including the elimination of no-down-payment VA loans.

"The Bush proposal would effectively kill the usefulness of the VA loan program for most veterans," said Bruce Norman, executive vice president of First Mortgage Corp. in Diamond Bar and an officer with the California Mortgage Bankers Assn.

"We're not just talking about putting a dent in the housing market; we're talking about going back on a promise to the nation's veterans."

The proposed changes are contained in the $1.23-trillion fiscal 1991 budget package that Bush submitted to Congress about three weeks ago.

Although details of the plan haven't been finalized, veterans would apparently have to make a minimum down payment of 4% on the amount of the loan that exceeded $25,000.

For example, a veteran who took out a $144,000 loan--the maximum amount allowed under the VA program--would have to make a 4% down payment on the $119,000 overage. That would translate into a mandatory $4,760 down payment.

In addition, Bush would also raise the "funding fee" that veterans must pay to use the program to 1.75% of the loan amount from 1.25%. That would raise the fee on a $144,000 loan to $2,520 from the current $1,800--an increase of $720.

About 175,000 veterans use the VA loan program each year, according to the Mortgage Bankers Assn. of America, with more than 20,000 of those annual sales in California. It has helped 13 million vets buy a home since the program was launched 43 years ago.

It isn't known how many of those 13 million loans were made to vets who put nothing down, although the no-down-payment provision has long been the program's most popular feature.

"There's no question that this proposal would renege on the promises that Congress has made to American veterans," said Larry Rivers, executive director of the Veterans of Foreign Wars.

"President Bush wants to change the rules in the middle of the game. Our veterans were basically promised access to no-down-payment VA loans, and now they might have this benefit taken away."

However, a top official in the Department of Veterans Affairs defended the proposed changes, saying they're needed to make the VA program "more financially secure."

"The losses in this program have been staggering," said Anthony J. Principi, the VA's deputy secretary. "We've got to shore it up financially to ensure that VA loans will be available to veterans not just today, but for years in the future."

Many VA loans have gone into default, Principi said, especially in "Oil Patch" states where home prices in many areas have declined.

He estimated that the agency will need about $512 million to cover its expected losses in the 1991 fiscal year, which begins Oct. 1.

"If we require even a modest down payment, we'll cut down on defaults because borrowers are less likely to quit making payments if they have some of their own money tied up in the house," Principi said.

"We're not going back on a promise to veterans: The program has been changed several times since its inception. What we're trying to do is make this program financially stronger so it will be around for generations of vets to come."

Still, the President's chances of getting the changes adopted appear dim. Several powerful banking and realty trade lobbies have joined veterans groups in opposing the measure, putting even more pressure on an election-year Congress that wants to avoid angering constituents.

Some key congressmen have already voiced their opposition to the Bush plan. They include Sen. Alan Cranston (D-Calif.), chairman of the Veterans Affairs Committee, who said elimination of no-down-payment VA loans would be "totally unacceptable."

Any move to cut back on the VA loan program would likely have to go through Cranston's committee, and the senator indicated he would refuse to schedule a hearing for the proposed changes. That would effectively kill the plan, unless Bush Administration officials could get the measure tacked on to another bill and then defeat any attempt to have it referred back to Cranston's committee--a feat that one Washington insider said "would be harder to accomplish than parting the Red Sea."

Opposition to the proposed changes is also growing in the House of Representatives. Rep. G.V. Montgomery (D-Miss.), chairman of the House Veterans Affairs Committee, has already come out against the plan and a spokesman for the panel said it's doubtful that Montgomery will change his mind.

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