Joint Comments to VA on the Minimum Property Requirements for VA-Guaranteed and Direct Loans

Dear Director Bell,

In response to the Veteran's Affairs (VA) request for input on the VA Minimum Property Requirements (MPRs), and on behalf of the companies and veterans we represent, we recommend that the VA Home Loan Guaranty Program align with the standards established by Fannie Mae and Freddie Mac (the GSEs). One of the most direct and effective ways to remedy the market perception of the VA Program, and to improve the VA home loan benefit and its utilization overall, is to modernize the collateral valuation process to align it with the conventional market. Thus, our organizations appreciate the VA's issuance of an Advanced Notice of Proposed Rulemaking (ANPR) to seek information on ways to address collateral valuation processes, including the unique minimum property requirements. The ANPR conveys a receptivity to adopt approaches that align with other industry-wide collateral standards. We recommend that the VA Home Loan Guaranty Program should align its MPRs with the property condition standards established by Fannie Mae and Freddie Mac, the most widely used financing programs in the market, and one of the most common alternatives used by veterans.

While we share the VA’s objective – to protect the health and safety of prospective VA homebuyers – in practice the current standards hurt veterans. We have observed over the years, based on the experience of many stakeholders across the housing finance system, that the VA MPRs are one of the most significant impediments to the utilization of VA financing by prospective homebuyers. The standards impose an additional set of requirements that do not reduce the lenders' collateral risk or in most cases improve the overall soundness of the property. Instead, the MPRs delay and prevent consummation of sales transactions, making purchase offers based on VA financing less desirable than offers that rely on conventional mortgage loans.

Whether real or perceived, the MPRs are considered by market participants to make the VA program more difficult operationally, more time-consuming, and more likely to result in a failed deal. This causes adverse selection, which disadvantages VA home loans when other financing is available, and increases the costs to originate, underwrite and close a VA guaranteed loan.

Our organizations believe that the VA home loan program is one of the most important benefits that servicemembers receive for the sacrifices they make for the citizens of our country. Aligning the VA home loan program with conventional financing, to be both more efficient and more appealing, will enhance the utility of this unique benefit. In turn, this will assist veterans as they pursue the American dream, and it promotes the VA's fulfillment of its mission of serving those who have honorably served us.

Download the joint comment letter to read the full text.