Is More Regulation the Secret to Avoiding Another Mortgage Meltdown?

While Ben Bernanke argues that regulation can help prevent another housing bubble, too much regulation does more damage than good. The key to prevent another housing bubble is common sense lending, like that found with VA Loans.

VA home Loan, VA Streamline Loan, VA Cash Out, are all loans that are designed to allow Veterans and current members of the military take advantage of their VA benefits. Regarding a VA Home loan purchase, benefits include allowing the veterans to qualify for a home with no money out of pocket with loan amounts up to $729,000. This VA Entitlement also allows the seller to contribute up to 4% of the closing costs, essentially sweetening the deal further. Moreover, once a veteran is in the home, they can complete a VA streamline refinance loan with no appraisal, income, or asset verification. With such guidelines, many would argue that the VA Loans would more than likely be the loans with the highest foreclosure ratings amongst the different types of loan classes. However, this is simply not the case. In 2009 only 2.06% of VA Loans were in Foreclosure, and only 8.06% were in default.

While Veterans have not been exempt from the economic down turn, many have been able to refinance and stay in their homes. Unfortunately, other Veterans have not been so fortunate. At VALoanDesk, we work exclusively with veterans looking to either purchase or refinance their existing mortgage. With those that are currently in a VA mortgage; our ability to lower their interest rate is about 90%, while those that are currently in a subprime loan or conventional loan the percentage is less than 3%. Therein lies the problem: Many veterans were talked in to doing a loan and to not use their VA Benefits. Why? Many of the borrowers whom we question about this move mention a number of reasons, but the main one being the ease of doing a sub prime loan that gave them the ability to purchase more house with little or no documentation. Sound familiar? It is the story as loan originators we run in to every day.

So, in moving forward is more regulation the answer? Yes and no. Yes, when it comes to people qualifying using income documentation and asset verification. No, when it comes to lowering the combined loan to value, and taking away the ability for people to purchase a home with no money down. VA Loans are a perfect example of common sense lending. If regulation moved closer to equal that of VA Loans we would see a decrease in foreclosures, less money the Government would need to put out in stimulus, and a greater chance of home appreciation.

Chet J Wall is the founder of http://www.valoandesk.com. The site is designed to give veterans an easy form that allows them to quickly qualify for va loans, including purchase, cash out and streamline refinances.

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