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Refinance: New Law Makes It Easier for Veterans to Do So

Beth Orenstein
LoanBiz Columnist

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In the early part of the decade, many veterans and active duty military personnel took out subprime home loans to buy their homes before soaring prices made it impossible. The idea was to clean up their credit issues and refinance into better mortgages as soon as they could. But the recent housing slump reduced the value of their homes, making it difficult for many of them to refinance--and as interest rates reset to higher levels many of these borrowers can't make the higher payments and face foreclosure. Among the states hardest hit are California, Nevada, Arizona and Florida, where many veterans and military personnel live.

Veterans Benefits Improvement Act

In October, the Veterans Benefits Improvement Act of 2008 became law. It contains several provisions to help veterans and other military personnel secure low-cost home loans backed by the Veterans Administration (VA.) It should make it easier for veterans and military personnel to refinance unaffordable subprime home loans into safer, lower interest VA home loans. The change should make it easier for veterans to stay in their homes and not lose them to foreclosure.

Law Allows Refinance of up to 100 Percent of Value

Under the new law, veterans who want to refinance their subprime or their conventional mortgage loans may do so at up to 100% of the property's value. In the past, these refinances had been limited to 90%, says Eric Kandell, manager of the Government Loan Division of Flagship Financial in Lehi, Utah.

"Before this law," Kandell says, "veterans had to have…atleast 10 percent equity in their homes. Sometimes they had to have even moreequity. But with the sour economy and the housing slump, many people have littleequity left in their homes and those who have equity likely do not have much.The new Veterans Benefits Act makes it much more likely that they can refinanceand get out from their unaffordable loans."

New Law Should Help Most, Not All, Veterans Refinance

The law won't help everyone. "There are still those veterans who don't have any options because they bought a house a year-and-a-half ago with 100% financing and put no money down. The house since dropped in value. Those guys are out of luck," Kandell says. "Butwe have found that most everybody who bought before that, even though they lostequity, owes less than what the house is worth and can now refinance with a VAloan. There are exceptions but it is not as grim as the headlines suggest."

Mike Armao, a senior mortgage consultant for National City Mortgage in Bethlehem, Pennsylvania, agrees that while the new law won't help all veterans refinance, it should help many. "Every little bit will help," Armao says. "Butit is not a simple solution to all the problems that are out there for veteranswho need to refinance, unfortunately."

Borrower Doesn't Have to Have VA Loan to be Eligible to Refinance

Many veterans, although they may have been eligible for a VA home loan, ended up with conventional or subprime financing, Kandell says. "The new law opens up a huge opportunity for them to get out from underneath those other loans, even if they weren't VA to begin with, and refinance with a VA loan," he says.

Law Also Increases VA Loan Limits, Helping Refinancers

In enacting the new law, Congress also raised the VA's maximum amount for these types of refinancing loans. Such loans may be made up to $729,750, depending on where the property is located and even more in some locations. The higher loan limits should assist veteran borrowers wishing to refinance in many parts of the country, Armao says.

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About the Author
Beth W. Orenstein, of Northampton, Pennsylvania, is a freelance real estate writer. A graduate of Tufts University, she majored in English.

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