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VA loan qualms deter sellers

The VA has streamlined the process to appease sellers put off by what the agency calls a misconception.

Published June 27, 2005

TAMPA - Army infantryman Jorge Cabrera wanted to move to Hillsborough County with his new wife.

The Department of Veterans Affairs approved him for a $195,000 mortgage. While Cabrera trained in Kentucky with the 101st Airborne Division, his mother, Lyann Goudie, began the search.

All she found was rejection.

An agent in Brandon gave her little hope. A seller in Tampa wouldn't show her a house. A seller's agent in Riverside Heights told her not to bother even making an offer.

The scenario played out again and again.

"The minute I said "VA loan,' it was like I said I had an atomic bomb in my purse," said Goudie, a veteran Tampa trial attorney. "I couldn't say anything to get them to agree to go with it."

VA-backed loans, used by hundreds of thousands of people each year, have a shaky reputation in some parts of the real estate world. They take longer to close, critics say, and create more headaches.

The VA also requires stringent home appraisals that cost sellers time and money, critics say.

The real estate boom has made the issue more prevalent, particularly in places with lots of veterans, such as the Tampa Bay area, said Gerald Kifer, the VA's supervisory appraiser.

Much of the resistance toward VA-backed loans is based on perception, not reality, Kifer believes. Most sellers who get over their initial reluctance find the process runs as smoothly as with conventionally backed loans, he said.

The VA fights a "constant public relations battle on the issue," Kifer said. He knows that in a sizzling seller's market, even misconceptions can send some veterans' offers to the bottom of the pile.

"During this time of war, active duty personnel are coming home and trying to use their benefits and people are saying, "No thanks,"' said Kifer, from his office in Washington, D.C. "It's not against the law. But it's upsetting."

* * *

Congress set up the VA Loan Guaranty Program in 1944 to help World War II veterans return to civilian life. Since then, the VA has backed almost 18-million loans worth about $850-billion.

About 23-million people are eligible for the program, including hundreds of thousands of reservists called up to serve in military operations in Afghanistan and Iraq.

The government does not actually lend veterans the money to buy a home. It promises to pay lenders if borrowers default on loans. The program provides several benefits to eligible borrowers. Flexible credit requirements. No private mortgage insurance, and perhaps the biggest advantage - no down payment on loans up to $359,650. The lending institutions accept the VA guarantee in lieu of money down.

"It's a great benefit, especially for young veterans who could not afford a down payment and might not have enough credit history to get a bank to lend them money," VA spokesman Scott Hogenson said.

Twenty years ago, the program had problems. Eligible veterans sometimes ran into months-long delays in securing a loan. Appraisals could take a month or longer, Kifer said.

The VA has streamlined the process during the past two decades, reducing the time it takes for eligible borrowers to qualify for loans. Technology has also allowed the VA to cut the number of days it takes a veteran to close on a house after making an accepted offer.

The improvements have made the VA process as timely as conventional financing in most cases, Kifer said. The cynicism felt by some sellers and their agents is rooted in the distant past, he said.

"Very often I find the complaints I hear are based on some 20-year-old wound, a case from the '80s when something did not go very well," he said. "Those days are gone."

They may be, but perceptions linger.

A 194-page evaluation of the program released last year showed most of the borrowers were satisfied with the process. But the difficulty that caused borrowers the greatest delay in owning a home:

Convincing sellers to accept VA loans.

* * *

Navy veteran James Edwards and his wife went looking for a new home in May.

The couple found a quaint three-bedroom home with a beat-up roof. The seller was asking $150,000. The Edwards offered $160,000 - $5,000 extra to cover the roof repairs, and $5,000 to persuade the sellers to accept the VA loan.

The sellers rejected the offer.

"They told our agent that it was the highest bid," said Edwards, a 55-year-old crane operator.

"They always say the same thing, "We don't want to deal with VA appraisers."'

Ben Friedlander, who heads his own real estate agency, Big Ben Realty in St. Petersburg, said VA appraisers have a tough reputation, earned or not. "Everyone in the industry has heard some nightmare story about dealing with a VA appraiser," he said.

With VA loans, the lender does not select the appraiser. They are selected on a rotational basis from VA-approved appraisers in each area. Whichever appraiser is at the top of the list performs the appraisal.

The appraisers generally like the system. They say it allows them to provide a fair market value for properties without the pressure some lenders apply to get higher appraisals.

Some lenders have complained that the VA appraisers are slow, uncooperative and undervalue homes. They are hard to contact since the lender doesn't hire them directly, they say. The delays can hinder or scuttle the loan approval process.

"Overall, there is tension between the views of the appraisal industry and those of the lending and real estate industries," a 2004 study of the VA loan program concluded.

Other complaints focus on the VA's postappraisal requirements.

The VA will only back homes that are "safe, sound and sanitary." To meet that standard, any major problems an appraiser finds with a home must be repaired before the VA loan closes. The idea is to protect veterans and taxpayers.

The VA does not want its borrowers to face unforeseen repairs. Such repairs, like a $5,000 roof job, could force a borrower to default on the loan.

"We don't want them to get stuck with a lemon," said VA spokesman Hogenson. "And we don't want taxpayers to have to pay for it."

In a hot real estate market, the requirement can put VA-backed borrowers at a disadvantage.

Many sellers know they don't need to make improvements to sell their homes. They get multiple offers soon after they put up the for sale sign. Buyers know it and acquiesce to paying for repairs themselves.

Borrowers with a VA loan don't have that option. The major problems must be repaired before they buy the home.

"It's a competitive disadvantage," Friedlander said. "What's the incentive for a seller to spend $10,000 out of their pocket for repairs when they don't have to?"

* * *

In a time of war, the real estate listings seem brazen, even unpatriotic. "No VA loans," they state, sometimes in capital letters.

Pinellas/Pasco real estate broker Duke Tieman has seen similar prohibitions on home listings in the past. More often, the agents write, "Cash or conventional financing only," he said.

"It's a more polite way of telling you no," he said. "Either way, I think it's driven by ignorance."

Tieman knows the ins and outs of VA loans. In 18 years in the business, he has dealt with hundreds of first-time home buyers, many of them veterans.

The hot real estate market has brought an influx of inexperienced agents into the business. Many don't know much about how VA loans work, said Tieman, broker and owner of Bruce Taylor Realty.

"They don't know the answers," he said. "They don't know how easy the process can be."

Tieman will make offers for his VA clients even on listings that discourage VA-backed financing. He figures he knows enough about the system that he can educate the seller or the opposing agent.

"There really aren't any major problems with a VA loan if everyone is educated on what to do and what not to do," he said. "That means the seller, the agents, the buyer, the lender, the appraiser. Everyone."

The VA recently created several educational programs, some aimed at lenders, others at agents. The real estate professionals will be more likely to endorse VA loans if they are familiar with the rules and regulations, the thinking goes.

VA officials are working with the National Association of Realtors to offer certification programs. VA officials also regularly meet with counterparts at the National Association of Home Builders and the Mortgage Bankers Association.

The VA already has increased the number of approved appraisers to speed up service. Two years ago, it began requiring appraisers to contact lenders if an appraisal appeared likely to come in under the sales price. Direct communication allows lenders and agents to quickly provide additional information to justify the price.

"Lenders have told us that the program has helped a lot," Kifer said.

Home appraiser Stephen Melnick has worked with VA-backed borrowers and those with conventional financing.

"If people know how the system works, it can be easy," he said. "These days, I find the VA system is just as quick and just as efficient in almost every case I work on."

* * *

For Goudie, the message isn't spreading quickly enough.

She was willing to kick in extra money for any repairs. She'd even up the offers by several thousand dollars as extra incentive to the seller. Still, she ran into one roadblock after another. Eventually, a Tampa man, a veteran who was selling his home without an agent, agreed to consider her son's offer. They are set to close next month.

Cabrera, her son, the infantryman with the famed 101st Airborne Division, spent a year fighting in Iraq. Goudie said it's disheartening that it was so hard for her son to use one of his few benefits.

"The whole process has been so outrageous. I was stunned," she said. "Maybe I am a little overly patriotic. But I just sit here and wonder how people do this and feel good about themselves at the end of the day."

[Last modified June 27, 2005, 01:06:48]

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