Congress pits VA mortgage costs against veterans’ health care

Mortgage

WASHINGTON — The mortgage industry is stepping up its fight against legislation that would raise the Department of Veterans Affairs’ mortgage fees in order to fund health care for Vietnam War veterans affected by Agent Orange.

The Blue Water Navy Vietnam Veterans Act would hike the VA’s mortgage “guarantee fees” to cover medical costs of roughly 90,000 Navy veterans who served in Vietnam’s territorial seas between 1962 and 1975 and suffer from diseases connected to the U.S. military’s forest-clearing herbicide.

But mortgage lenders charge that a negative repercussion of caring for older veterans could be pricing younger veterans out of the housing market, including those trying to buy a first home or get zero-down-payment financing for a second home as a result of having to move.

Department of Veterans Affairs

The Department of Veterans Affairs’ home loan program offers veterans the ability to fold closing costs into the amount of a loan and not to have to provide a down payment or pay mortgage insurance.

Bloomberg News

If the bill “goes through as written in the House … and gets passed that way, you’ll get to a point where nobody will use a VA loan,” said Ed Wallace, the executive director of the Community Mortgage Lenders of America.

The biggest hike in guarantee fees would be for veterans looking to buy a subsequent home. The g-fees for first-time users of the VA mortgage program would increase 11% to 240 basis points, but for non-first-time borrowers, the fees would rise 15% to 380 basis points.

The bill unanimously passed the House last year but stalled in the Senate after two senators objected to its cost and claimed there was not sufficient evidence to connect Agent Orange exposure with certain diseases. The chemical weapon has been linked to certain cancers, diabetes and Parkinson’s disease, among other conditions.

The bill was swiftly reintroduced in the House at the beginning of this year and people familiar with the proposal say it is expected to get a vote and draw bipartisan support.

But critics object to the idea of taking from one veterans benefit to pay for another.

The VA home loan program offers veterans the ability to fold closing costs into the amount of a loan and not to have to provide a down payment or pay mortgage insurance. Many veterans and active-duty service members use the program to buy a subsequent home if the military requires them to move.

“All of the veterans that would be receiving the medical benefits are at this point in the later stages of life, and when you think about who’s getting hit with these increased mortgage costs, frankly the ones that are going to be hit the hardest would be younger veterans trying to buy their first homes,” said Dan Fichtler, the director of housing finance policy at the Mortgage Bankers Association.

Veterans groups, many of which have been pushing the VA for decades to extend health care coverage for the 90,000 Navy Vietnam War veterans, agree that diverting funds from the home loan program is not the best way to pay for the medical benefits. However, those groups by and large support the legislation.

“They say that veterans have to have an offset, meaning you take something away from another veteran in order to compensate and treat a veteran who is deserving of it,” said Rick Weidman, the executive director for policy and government affairs at the Vietnam Veterans of America. “That’s bull, but they had no problem passing a trillion-dollar tax cut for the rich people and corporations with no offset.”

Wallace said Vietnam veterans deserve appropriate medical care, but it would be unfair to put the burden of the cost on younger veterans trying to get a mortgage.

“With the enormous budget that the United States government has, aren’t there other avenues to fund the medical costs outside of the mortgage industry and the g-fees?” he said.

The issue is further complicated by a court case decided in January in the U.S. Court of Appeals for the Federal Circuit that would effectively require the VA to provide disability compensation to cover health care costs for 70,000 of the Blue Water Navy veterans, without affecting the mortgage program.

The VA has until the end of April to decide whether or not it will appeal the case to the Supreme Court, which could overturn the lower court’s decision.

If the VA decides to let the case stand and provide coverage for the 70,000 veterans, a member of Congress would likely introduce new legislation to cover just the remaining 20,000, said Weidman. This would result in a lower price tag but would still raise overall costs if the VA home loan program is used as an offset.

“How many veterans are covered will factor directly into how much money is needed,” said Fichtler.

Weidman said veterans would prefer that Congress pass a bill to provide the benefits no matter the direction the VA decides to take with the court case.

“We want it done by Memorial Day,” he said. “It’s gotten to the point where we’re no more Mr. Nice Guy.”

Although he disagrees with using the mortgage program as a funding mechanism, Weidman said he doesn’t believe the Blue Water Navy Vietnam Veterans Act would make VA mortgages too expensive to use.

“We don’t agree with what they’re doing, but actually, I don’t think it would prevent anybody from buying a mega-mortgage,” he said. “Everyone who is theoretically affected by the bill is not going to file a claim. You know they’re not, and many of these people are already dead. The longer they delay, the more will have died.”

Still, Wallace and others maintain that the legislation could turn veterans needing to buy a home away from the VA program.

Rob Zimmer, head of external communications for the Community Mortgage Lenders of America and a veteran who has used the VA mortgage program himself, said higher fees to fund medical benefits “seems wrong on a couple counts.”

“It’s especially troubling because it can signal policymakers in town that something is wrong with this program, otherwise why would it be so expensive?” he said.

If the Blue Water Navy Vietnam Veterans Act is successful, it could open the door to using mortgage costs to pay for other programs in the future, Fichtler said.

“This was not the first time even in recent history where we have seen proposals out there to use the housing market to pay for other things,” he said, “and so we worry generally that this is just part of this larger trend that we’re really trying to nip in the bud.”

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