legislative history

LEGISLATIVE HISTORY

OF THE

VA HOME LOAN

GUARANTY PROGRAM

PROGRAM HISTORY

The Department of Veterans Affairs home loan programs serve a clientele

which is diverse in many ways. The only common denominator of this

clientele is service in the Armed Forces of the nation. Since the inception

of these programs the objective has been to assist eligible veterans to

become homeowners. Veterans are assisted by making it possible for

them to compete in the market place for credit with persons who were not

obliged to forego the pursuit of gainful occupations by reason of service in

the Armed Forces of the nation. The VA programs are intended to benefit

men and women because of their service to the country, and they are not

designed to serve as instruments of attaining general economic or social

objectives.

VA has guaranteed over 18 million home loans to veterans to purchase or

construct a home, or refinance another home loan on more favorable

terms. The VA home loan program has made mortgage credit available to

many veterans whose loans otherwise would not have been made. In this

connection, although VA borrowers have been directly favored by the more

liberal terms on those loans, it is also likely that these terms have induced

a competitive liberalization of the terms on conventional mortgages, whose

recipients have benefited as well. As a result, the impact of the VA home

loan programs on the economy and on the mortgage market vastly

exceeds the actual volume of VA home loans.

Initial Objectives and Philosophy

The home loan guaranty program was originally conceived in 1944 as a

part of an attack on the harsh aftermath associated with wars. The overall

objectives of this attack were to diminish to the greatest possible extent the

economic and sociological problems of post war readjustments of millions

of men and women then serving in the Armed Forces.

The program was one of the major innovations and a most important part

of the original Servicemen's Readjustment Act of 1944, Public Law 78-346.

The first legal framework was set forth in Title III of that Act. In a way, the

loan guaranty program was advanced as an alternative device to a cash

bonus, because it would be vastly less expensive to the Government, and

because it would better serve the needs of veterans.

Credit was viewed as one of the cornerstones of a program to aid the

veteran in his/her effort to readjust to civilian life. In the opinion of the

supporters of the original legislation, the Government should provide the

means whereby the veteran could obtain favorable credit which would

permit him/her to shelter his/her family or begin a business or farming

venture. This concept arose because of the feeling that veterans, in view

of their service in the Armed Forces had missed an opportunity to establish

a credit rating which could be the basis of borrowing to acquire a home or

to establish a business. The establishment of the loan guaranty program

was an attempt to place the veteran on a par with his/her nonveteran

counterpart.

The loan guaranty program also provided an investment outlet for large

amounts of savings which existed in the economy at the end of World War

II. During the years of the war, normal investment outlets were restricted

because of the shift from the production of civilian goods to war production.

By imposition of price and production controls on many items, the normal

flow of consumer durable goods had been reduced. Thus, individual

savings reached record proportions, and large amounts of money became

available for investment purposes. Expectations at the time that there

would be a normal postwar depression shortly after termination of the war

made it seem important that planning be done to stimulate the redirection

of accumulated liquid capital into normal peacetime avenues.

Historical Development

Under the foundation law -- Public Law 78-346 -- the maximum amount of

guaranty was limited to 50 percent of the loan, but not to exceed $2,000;

loans were limited to a maximum 20 years, with a maximum interest rate of

4 percent; the purchase price paid or to be paid, or the construction cost,

including the value of the land, could not exceed the reasonable normal

value as determined by an appraisal; and loans could be made by persons,

firms, associations, corporations or by governmental agencies and

corporations under either state or Federal jurisdictions. Home loans could

be used for the purchase, construction, improvement or repair of residential

property which veterans intended to occupy as their homes. With

reference to terms of the loan, the Act further stated that such terms should

bear a proper relation to the veteran's present and anticipated income.

Initially, all loans had to have the prior approval of the Veterans

Administration.

To be eligible to make use of the loan guaranty benefit, the veteran must

have served in the active military or naval forces of the United States for a

period of 90 days or more any time on or after September 16, 1940 and

before official termination of World War II. In this connection, a veteran

could apply for a loan anytime within 2 years after separation from the

service or 2 years after the official end of the war, whichever was the later

date. However, no applications were to be received more than 5 years

after the termination of the war.

The original version of the loan guaranty program contained various

shortcomings which became evident during the first year of operation.

First, real estate prices had risen so much that the $2,000 maximum

guaranty was not large enough. Second, the requirement that the price of

the real estate must be "normal" caused difficulties because to many this

indicated prewar prices. Third, the limitation of two years after the war as

the period during which loan guaranties could be obtained was feared to be

too short because of the great potential number of veteran borrowers and

the possible inflationary potential. And, fourth, the 20-year maturity on

loans required by the Act meant that monthly payments were so high that

many veterans were precluded from obtaining loans.

These various shortcomings of the program were considered in hearings

before committees of the House and Senate and amendments were

enacted to Title III in 1945 by Public Law 79-268.

The maximum amount of guaranty available to a veteran was increased to

$4,000 for home loans. The term "normal" was removed from the

requirement of "reasonable normal value", leaving it as "reasonable value."

The maximum maturity for real estate loans was extended to 25 years and

for farm loans to 40 years.

No longer was the home loan benefit aimed at immediate readjustment aid.

It was to be a long-range benefit open to any eligible veteran wishing to

buy a home within 10 years if he/she could meet the credit requirements.

The original idea of keeping the purchase price low by the use of

"reasonable normal value" was abandoned in favor of a large volume of

transactions at current market prices.

These changes constituted an almost complete revision of the loan

guaranty program. It changed many of the basic objectives, such as

holding the price of properties to prewar level. An even more basic

philosophical change was that the original Act was considered only as a

readjustment aid for the veteran who wanted to start a home, a business,

or buy a farm when he/she got out of the service. The extension of ready-

made credit by the Government was to make up for his/her lost time. The

new Act provided something different. It could no longer be considered

solely as an adjustment benefit for the few who had immediate and specific

plans after leaving service. It was now open to all veterans who might

decide to avail themselves of the benefit at any time within 10 years after

the official end of the war. In terms of aiding the economy over the

conversion period the objectives had also changed. It was now a long-

range housing program for veterans. This list of the new objectives has

been maintained consistently throughout the subsequent changes in the

program. Nearly all changes have been designed to help the veteran

become a homeowner by extending the terms, making mortgage money

available, protecting him/her from excessive charges and faulty

construction.

In the years 1948 and 1949, residential construction reached successive

new all-time highs each year. Yet the demand for new dwelling units was

still far from satisfied. Consequently, in the Spring of 1950, Congress

enacted legislation changing both the Servicemen's Readjustment Act and

the National Housing Act. There were eight basic changes in the VA home

loan program included in the Housing Act of 1950, Public Law 81-475.

Five of these changes involved, or at least implied, a change in objectives

from the original legislation. These changes in objectives were, in a sense,

extensions of the changed objectives which were started by the 1945

amendments, that is, liberalizing the benefit so that more veterans could

participate.

First, the maximum amount of guaranty was changed from 50 percent of

the loan amount, but not to exceed $4,000 to 60 percent and $7,500.

Second, the maximum maturity of loans was lengthened from 25 to 30

years. Third, unremarried widows of veterans who had died in service or

as a result of service-connected injury or disease were given the same loan

privileges as veterans. Fourth, veterans whose homes were obtained with

VA loans but lost through fire or natural hazards, or were taken by public

condemnation, or were disposed of for other compelling reasons not the

fault of the veteran, were given back their full entitlement on a loan

provided the VA no longer had any liability on the original loan. Fifth, the

law authorized the Veterans Administration to establish minimum

construction standards; these standards were intended to lend additional

support to the appraisal procedures and thus protect the veteran from

getting an inferior product. Sixth, section 505 of Title III of the

Servicemen's Readjustment Act, which had provided for combination VA-

FHA loans, was repealed; the combination loan carried an effective interest

cost of about 4.8% (i.e., 4-1/2% interest plus one-half percent insurance on

the 80% portion insured by FHA and 4% on the remaining 20% or less

guaranteed by the VA). Seventh, the law authorized VA to issue

regulations setting the amounts of fees and charges which the lenders

might impose on the veteran.

The eighth change was a provision for a direct loan program. In addition to

changes affecting the loan guaranty program, the Housing Act of 1950

further extended the possibility of veterans participating in the loan program

by providing for direct loans in areas where guaranteed loan could not be

obtained readily or where private mortgage money was not available.

These loans could be used for the purchase or construction of homes or for

construction or improvement of farm-houses. The authority for the

Veterans Administration to make such loans was granted for about a year

but was extended subsequently from time to time. Since October 1, 1980

direct loans have been available only in connection with specially adapted

housing grants to veterans with certain severe disabilities. The Direct Loan

Revolving Fund for VA direct loans was established by Public Law 139

(82nd Congress), approved September 1, 1951.

The Korean conflict posed the same problems for its veterans as World

War II in terms of impact upon schooling, jobs or building up an equity for

the purchase or construction of a home, starting a business, or buying a

farm or farm equipment. Congress readily recognized that these veterans

were also entitled to aid in readjustment to civilian status upon leaving the

service, and passed the Korean GI Bill, Public Law 82-550, in 1952. An

increasing number of complaints as to the quality of new houses

constructed under the provisions of the loan guaranty program led the

Veterans Administration to require minimum planning and general

acceptability standards relative to land development, sanitary and drainage

systems, water supply, and other development improvements. The 1950

legislation had permitted only actual construction standards.

In order to give added enforcement powers to both construction and

planning standards, the Administrator of Veterans Affairs was given

authority to refuse to appraise any dwelling unit or project owned by a

person or firm who had previously sold housing to veterans and which had

been found to have substantial deficiencies or to those whose transactions

had been in other ways unduly prejudicial to veteran purchasers. The

Administrator was also empowered to refuse to guarantee loans made by

lenders who had failed to keep accurate records or otherwise willfully

engaged in practices detrimental to veteran's interests.

As stated above, in 1952 Public Law 82-550 extended the home loan

benefit to Korean veterans. Therefore, Public Law 84-898, approved

August 1, 1956, extended the home loan program for World War II

veterans until December 31, 1958. The home loan program was also

extended by the 85th Congress and the 86th Congress. Public Law 86-

665, approved July 14, 1960, established the Loan Guaranty Revolving

Fund from which to pay the operating expenses of the program.

In 1960, the veteran's home loan program reached its lowest point in 15

years despite the fact that more than 14 million veterans of World War II

and the Korean conflict had not used their entitlement to home loans.

Public Law 87-84, approved July 6, 1961, removed the expiration dates of

the home loan program for World War II and Korean veterans, from the

then existing law. In lieu, the law put into effect a new phase-out formula.

In essence, the new Act provided for all World War II veterans to have at

least until July 25, 1962, to obtain guaranteed or direct loans; or World War

II veterans to have 10 years from the date of discharge from active duty

during World War II, plus an additional period equal to one year for each 3

months of active duty during World War II, but in no case beyond July 25,

1967. All World War II veterans with a service-connected disability

discharge had until July 25, 1967 to use their guaranteed or direct loan

benefits.

A similar formula was developed for Korean veterans. These veterans had

at least until February 1, 1965, to obtain a guaranteed or direct loan; or 10

years from the date of discharge from active duty during the Korean

conflict, plus an additional period equal to one year for each 3 months of

active duty during the Korean conflict, but in no case beyond

January 31, 1975. As in the case of World War II veterans with a service-

connected disability, Korean conflict veterans with a service-connected

disability had until January 31, 1975 to use their home loan benefits.

In addition to the phase-out formula, the Act also authorized additional

funds for the veterans' direct home loan program. Funds for direct loans

had been inadequate and a big waiting list had been accumulated.

In 1966, Congress passed and the President approved Public Law 89-358,

the Veterans' Readjustment Benefits Act of 1966, better known as the

"Cold War GI Bill." This Act, among other things, made post-Korean

veterans (those who served in active-duty in the Armed Forces after

January 31, 1955) eligible for VA guaranteed home and farm loans and

direct loans. The requirement for discharge or release from service was

waived for veterans who served 2 years on active duty and continued in

such service without a break therein. Although the loan benefits for post-

Korean veterans was similar in type to those available for World War II and

Korean veterans, there was one noticeable difference. Unlike the loans

available to World War II and Korean veterans, the post-Korean loan

program was subject to a one time funding fee in the sum of 1/2 of one

percent of the loan. This fee, which was in effect until it was terminated by

Public Law 91-506 on October 23, 1970, formed a reserve fund to cover

any losses that might arise under the program.

The law also authorized the Administrator to adjust the VA home loan

interest rate ceiling according to the demands of the loan market. In

addition, it increased the direct loan amount from $15,000 to $17,500. The

law also had a provision requiring the consent of an individual before there

is any offsetting or withholding of VA benefit payments on account of an

indebtedness arising out of a defaulted loan. In approving the Act in 1966,

Congress believed that post-Korean veterans were beset with problems

almost identical with those to which the two previous GI bills were

addressed. In the Senate Committee Print which accompanied S. 9, the

proposed Veterans' Readjustment Benefits Act, it was stated: "Like their

fathers and elder brothers, post-Korean veterans lost time from their

competitive civil lives directly because of military service." The cold war

and the compulsory draft law, according to the Committee Print, brought

about a compelling need for the GI Cold War Bill.

Public Law 90-301, approved May 7, 1968, made some additional changes

to the VA home loan programs all designed to improve their operations and

to adjust to credit problems. First, the maximum guaranty amount was

increased from $7,500 to $12,500. Second, the law also empowered the

VA to extend aid to distressed veteran homeowners who, after relying on

VA or FHA construction standards and inspections during construction,

found major structural defects in their properties which were purchased

with VA mortgage loans. Third, the law also authorized the VA to

guarantee a loan even though the purchase price exceeds the reasonable

value of the property.

Public Law 90-301 also established the Commission on Mortgage Interest

Rates. The statutory charge to the Commission grew out of a general

background of rapidly rising interest rates and increasing shortages of

mortgage credit and the specific congressional action of temporarily

suspending the statutory ceiling of 6 percent on the interest rate of FHA-

insured and VA-guaranteed mortgages. In broad terms, the Commission's

assignment was to study and recommend ways of dealing with VA-FHA

ceilings and of increasing the availability of mortgage credit at reasonable

rates of interest to help assure that the nation's housing goal is met. On

October 23, 1970, the President signed into law the Veteran's Housing Act

of 1970, Public Law 91-506. The new Act was a milestone for the VA

home loan program, making important changes which greatly enhanced

the viability of the loan guaranty and direct loan programs.

The law made seven major changes in these programs. It removed the

delimiting dates on veterans' entitlement. It authorized a manufactured

home loan program. It authorized direct loans for veterans qualified for

Specially Adapted Housing Grants irrespective of location. The law also

eliminated the terminal date of the direct loan program. In addition, the law

eliminated the funding fee for post-Korean veterans and authorized loans

on condominium units and refinancing loans.

The elimination of charging a funding fee to post-Korean veterans was a

change rendered inevitable by events in Southeast Asia since 1965. The

funding fee requirement was imposed by Public Law 89-358, in the

interests of distinguishing between the "hot war" veterans of World War II

and the Korean conflict and the "cold war" veterans of service after January

31, 1955.

Of all the changes made by the Veterans' Housing Act of 1970, the removal

of the delimiting dates on veterans' entitlement had the most salutary

effect. The expired unused entitlement of nearly 9 million World War II and

Korean conflict veterans was revived. The entitlement of every eligible

veteran remains available until used. A veteran's entitlement is now

insulated against periodic intervals of stringency in the availability of

mortgage capital. The refinancing loan provision was born out of concern

for veterans who had purchased homes at high interest rates. The

reasoning behind the provision was that such veterans should have the

opportunity to avail themselves of lesser interest cost when rates come

down. This new authority, however, permits refinancing for any reason.

There are millions of veterans who have built up substantial equities in their

properties and who can now use their GI loans to cash in on these equities.

The VA loan program now affords veterans the opportunity to realize cash

by refinancing paid down loans and this gives them the means to make

improvements in their homes, to pay for educating their children, and to

accomplish other worthwhile purposes.

Taken as a whole, the Veterans' Housing Act of 1970, restructured the loan

guaranty and direct loan programs so that the future of those programs will

be much more active and dynamic. The Veterans Housing Act of 1974,

Public Law 93-569, enacted December 31, 1974, contained a number of

provisions which further expanded VA home benefits.

Restoration of Entitlement. The Act made it possible for a veteran who had

used his/her GI loan benefit, to regain the use of his/her entitlement

provided the veteran disposed of the property and the loan had been paid

in full or another veteran agreed to assume the outstanding balance on a

GI loan and consented to the use of his/her entitlement. Restoration of

entitlement was previously restricted by a requirement for a compelling

reason for the veteran's disposition of the property, or loss of the property

by condemnation or hazard. As a consequence of the elimination of the

compelling reason requirement, over 4 million veterans whose GI home

loans have been paid in full became potentially eligible for new loans.

Expanded Automatic Processing. Previously the law provided that only

supervised lenders (those subject to State or Federal supervision and

examination, such as savings and loan associations, banks and insurance

companies), could make VA loans without prior VA approval. Public Law

93-569 authorized VA to extend the automatic processing privilege to non-

supervised lenders which meet standards prescribed by VA.

Condominiums. The new Act authorized VA to approve condominium

projects for guaranteed loans without the previous stipulation that HUD

must have, prior to VA guaranty of any loan in such a project, insured at

least one loan in the project. This feature was also expected to generate

new business of substantial volume.

Increases -- Specially Adapted Housing Grant and Guaranty. The

Specially Adapted Housing Grant (made to assist severely disabled

veteran in constructing or modifying their home) was increased from

$17,500 to $25,000. The maximum guaranty for conventionally

constructed housing was raised to $17,500. These changes were made in

recognition of the increasing costs of housing.

Manufactured Homes. The Act removed the July 1, 1975 expiration date

for VA's manufactured home program and authorized the following

increased loan maximums: $12,500 for single-wide manufactured homes,

$20,000 for double-wide units (maximum for double-wide and undeveloped

lot was $27,500).

The loan maturity for double-wide homes was set at 20 years. Under the

Act VA received authority to guarantee loans for the purchase of used

manufactured homes which meet VA requirements for construction, design,

general acceptability and safety. VA may now guarantee loans for the

purchase of manufactured home lots in those cases where veterans

already own manufactured homes. These loans may include the cost of

making necessary site preparations.

Farm and Business Loans. The Act repealed VA's authority to guarantee

loans for these purposes. (VA is still authorized to guarantee loans for the

purchase or construction of farm houses which veterans will occupy as

their homes.) The Act also amended the Federal Credit Union Act to

permit credit unions to make GI manufactured home loans at maturities set

forth in the new law.

The Veterans Housing Amendments Act of 1976, (Public Law 94-324)

made further refinements in the program. The Act extended eligibility to

veterans whose only service was between World War II and the Korean

conflict, increased the maximum direct loan from $25,000 to $33,000,

increased the guaranty on manufactured home loans from 30% to 50%,

and continued the direct loan revolving fund. The Act also made veterans

with service after January 31, 1955 eligible for housing benefits in Chapter

37, separating the benefits for education purposes from housing eligibility

thus expressing the intent of Congress to continue the housing benefits for

future veterans.

The Veterans' Housing Benefits Act of 1978 (Public Law 95-476) increased

the maximum loan guaranty entitlement from $17,500 to $25,000 for home

and condominium loans, and reduced the minimum service requirement for

eligibility purposes for Vietnam Era veterans (August 5, 1964 to May 7,

1975) from 181 days to 90 days in order to equate Vietnam service with

that performed in prior wartime periods. Authority to guarantee

condominium loans was expanded to include units in a project or structure

converted to a condominium. New authority was provided to guarantee or

make loans to improve a dwelling or farm residence by installing solar

heating, solar heating and cooling, or combined solar heating and cooling,

or by application of a residential energy conservation measure. Also, the

Act authorized the Administrator to establish a higher interest rate for such

energy conservation loans and for other home improvement loans.

The Specially Adapted Housing Grant was increased from $25,000 to

$30,000, and a number of changes were made to the manufactured home

program: Maximum loan limits were eliminated and instead a maximum

guaranty was provided for manufactured home loans of $17,500, similar to

the $25,000 maximum guaranty arrangement for conventionally-

constructed home loans. The Act removed the requirement that a veteran

have maximum entitlement available for use in order to obtain a

manufactured home loan, specifying that a veteran could use remaining

entitlement for manufactured loan purposes provided the veteran has

disposed of any previously-acquired manufactured home unit purchased

with VA financing. Finally, the Act increased the maximum term for a loan

to purchase a single-wide manufactured home or manufactured home lot

from 12 years and 32 days to 15 years and 32 days.

The Veterans' Disability Compensation and Housing Benefits Amendments

of 1980 (Public Law 96-385) increased the maximum loan guaranty

entitlement from $25,000 to $27,500 for home and condominium loans.

The maximum loan guaranty entitlement for manufactured home purposes

was similarly increased from $17,500 to $20,000. The Act added a new

loan purpose for the home and condominium loan program and the

manufactured home loan program. A veteran may now refinance his or her

home, condominium or manufactured home loan currently guaranteed,

insured or made by the VA with a VA guaranteed loan for the purpose of

reducing the interest rate payable on the loan. No additional charge is

made against the veteran's entitlement as a result of a loan for the purpose

of an interest rate reduction. The third major amendment made by the Act

authorized a new Specially Adapted Housing Grant of up to $5,000 for

veterans with service-connected disabilities of blindness in both eyes or the

anatomical loss or loss of use of both hands.

In 1981 the VA was authorized to guarantee graduated payment

mortgages by Public Law 97-66. The Act also increased the specially

adapted housing grant from $30,000 to $32,500 and extended maximum

loan terms on manufactured homes. Terms were extended to 15 years for

manufactured home lots, to 20 years for single-wide units and to 23 years

for double-wide manufactured homes. The law also added a new minimum

active-duty service requirement, which was codified at 38 U.S.C. 3103A,

and later amended by Public Law 97-306. Essentially, a person who

enlists after September 7, 1980 is eligible for home loan benefits only if he

or she completes the shorter of: a) 24 months of continuous active duty; or

b) the full period for which called or ordered to active duty. The law

provides exceptions from the requirement, including an exception for

persons discharged or released from active duty for a disability incurred or

aggravated in the line of duty.

Public Law 97-72 authorized until September 30, 1986 a small business

loan program in the Veterans Administration for disabled and Vietnam era

veterans. The Administrator was authorized to make or guarantee

business loans up to $200,000 to business concerns at least 51% owned

by veterans of the Vietnam-era or rated by the VA as 30 percent or more

disabled. There were no appropriations of money to the VA to implement

this program. Funds were provided to the Small Business Administration to

make business loans especially to veterans, as that agency had greater

expertise in business loan matters.

In 1982, the charging of a one half of one percent funding fee was

reinstituted by Public Law 97-253. The fee was to be collected on all VA

guaranteed loans with the proceeds deposited into the Treasury of the

United States as miscellaneous receipts. Individuals receiving VA

compensation, or those who would receive it but for the receipt of military

retired pay and surviving spouses of veterans who died from a service-

connected disability are currently exempt from payment of the funding fee.

Public Law 97-306 authorized refinancing loans on manufactured homes in

order that veterans could purchase the lot on which the manufactured

home is or would be placed.

The Housing and Urban-Rural Recovery Act of 1983, Public Law 98-181,

included a requirement that the Secretary of Agriculture, the Secretary of

Housing and Urban Development and the VA Administrator each accept an

administrative approval of any housing subdivision made by any of the

others, so that not later than January 1, 1984, there would be total

reciprocity for housing subdivision approvals.

In 1984, Public Law 98-223 expanded section 3702(b)(2) (formerly 1802)

concerning restoration of a veteran's home loan entitlement upon

substitution of another veteran's entitlement. This act eliminated the

previous requirement that the substituting veteran be the "immediate-

transferee" of the property. The act also allowed the Administrator to

guarantee a loan for a manufactured home permanently affixed to a lot and

considered real estate in the area it is located, on the same basis as a loan

for a conventionally built home under 38 U.S.C. 3710 (formerly 1810).

Public Law 98-369 increased the loan funding fee from one half of one

percent to one percent, required collection of the fee on VA-acquired

property sales financed by the VA, and provided for deposit of the fees

collected directly into the loan guaranty revolving fund. The act also

specified that not more than 75% nor less than 60% of VA-acquired

property sales would be sold with VA providing the financing. With respect

to defaulted loans, the act prescribed that the holder of the loan would have

the option to convey the property to the VA only if the "net value" of the

property to VA exceeds the total indebtedness less the amount of the

guaranty, or if a larger bid was made as the minimum amount permitted

under state law. "Net value" was defined as the fair market value less VA's

estimates of the costs of acquiring and disposing of the property, including

taxes, maintenance and resale expenses. Public Law 98-543 increased

the specially adapted housing grant for severely disabled veterans to

$35,500 and increased the housing grant to $6,000 for veterans with the

service-connected disabilities of blindness in both eyes or the anatomical

loss or loss of use of both hands.

In 1986, Public Law 99-576 authorized special housing adaptation grants

for homes already adapted with the necessary special features. This law

also requires the Administrator to adopt VA credit underwriting standards in

regulatory form. Lenders would be required to certify that loans conformed

to the standards. A new section 1831 (since renumbered 3731) was added

to Title 38, U.S. Code to require adoption of qualification standards for

appraisers and a list of approved appraisers. Lenders and veterans are

given the right to obtain a second appraisal if either disagrees with the first

estimate of value. In these cases, VA must consider both appraisals in

determining the reasonable value of the property.

Public Law 100-198 was signed into law on December 21, 1987. Section 2

extended the one-percent funding fee for guaranteed and vendee loans

until September 30, 1989, and assured that all surviving spouses of

veterans who died from service-connected disabilities would be exempt

from payment of the funding fee, by exempting those who had eligibility in

their own right based on active duty service.

Section 3 increased the guaranty amount to $36,000 and established

a new formula for the calculation of the guaranty, as follows: for loans of

$45,000 or less, 50% of the loan is guaranteed; for loans above $45,000,

40% of the loan is guaranteed up to $36,000, whichever is less, but never

less than $22,500; for manufactured home loans the guaranty is 40% of the

loan up to $20,000. The amount of any manufactured home loan

guarantee was limited to 95 percent of the purchase price of the property

securing the loan.

Section 4 required the VA to provide information, and to the extent

possible, counseling, to veterans in default as to the alternatives available

to foreclosure, what VA's and the veteran's liabilities would be in the event

of foreclosure, and the availability of counseling.

Section 5 provided additional instructions for computing interest on

foreclosed loans. The provisions apply to defaults which occur on or after

February 20, 1988. Under the new formulas, VA will exclude from the

guaranty claim payment and from the no-bid calculation interest which

accrues during periods of forbearance granted at VA's request and when

the veteran files for bankruptcy. This adjustment will only be made if doing

so would result in VA offering to acquire the property when the case would

otherwise be a no-bid. In cases where VA is at fault for the delay in

foreclosure, for example, a failure to provide bidding instructions in a timely

manner, VA will also exclude from the no-bid calculation interest which

accrues during the period of delay, but will allow such interest in the

computation of the guaranty claim.

Section 6 of Public Law 100-198 changed the percentage of properties

that can be sold with VA financing. The law required that "not more than

65 percent, nor less than 50 percent" may be sold with VA financing. This

provision was effective October 1, 1987. VA loans made to finance the

purchase of an acquired property were limited to 95 percent of the

purchase price, except for newly authorized loans which include additional

funds for rehabilitation of the property and in cases where it was

determined that market conditions required an exception. The cash sale

provisions applied to loans made on or after January 21, 1988, and ceased

to have effect on October 1, 1990.

Section 7 provided that on interest rate reduction refinancing loans,

either present or previous occupancy of the home by the veteran would be

sufficient to satisfy the occupancy requirement. If the veteran is in active

duty status, present or previous occupancy by the veteran's spouse would

satisfy the requirement. On rate reduction loans, the term of the loan may

now exceed that of the original loan by up to 10 years, subject to the

maximum of 30 years and 32 days. This section limits the amount of all

other refinancing loans, i.e., those under section 3710(a)(5) (formerly

1810), to 90 percent of the appraised value of the dwelling.

Section 8 provided that occupancy of the spouse of a veteran on

active duty, in certain circumstances, is sufficient to meet the requirements

of the law for loans made on or after January 21, 1988.

Section 9 of Public Law 100-198 authorized, under specific conditions,

the sale of acquired properties to certain entities to assist homeless

veterans and also authorized the sale of such properties to individuals or

groups that will rehabilitate the property using veterans enrolled in a job

training program. Such properties are to be then offered for sale with

priority given to veteran-purchasers.

Section 10 of Public Law 100-198 provided detailed and specific

limitations concerning the assumption of guaranteed loans. These include

a requirement for underwriting of the assumer, automatic release of liability

of the veteran in certain cases, a one-half of one percent funding fee

applied to the transaction and the possibility of accelerating the loan if the

requirements are not met. These provisions applied to loans for which

commitments were made on or after March 1, 1988. They do not apply to

loans made prior to that date.

Section 11 of Public Law 100-198 provided minimum qualifications

requirements for appraisers and provided authorization for the appraisal

report to be forwarded to and reviewed by certain lenders. Policies and

procedures were to be published in regulations.

Section 12 exempted VA guaranteed loans from sequestration under

the Gramm-Rudman Act, effective November 19, 1987.

Section 13 required the Secretary to use State statistics, if available

and reliable, in determining minimum residual income requirements.

Section 14 of Public Law 100-198 required the listing of VA acquired

properties with real estate brokers to facilitate sales.

Public Law 100-253 signed February 29, 1988, corrected a technical

drafting error in Pub. L. 100-198. This law reinstated the veteran's bank of

guaranty entitlement and raised it from $27,500 to $36,000.

Public Law 100-322 increased the specially adapted housing grants for

severely disabled veterans to $38,000 and $6,500, respectively. Public

Law 100-322 also renumbered a number of sections in chapter 37 of title

38, United States Code.

Public Law 100-527 redesignated the Veterans Administration as the

Department of Veterans Affairs, effective March 15, 1989.

On December 18, 1989, the President signed Public Law 101-237, title III

of which is known as the Veterans Home Loan Indemnity and Restructuring

Act of 1989. This law established a new guaranty and indemnity fund for

loans closed on or after January 1, 1990, except manufactured home loans

guaranteed under section 3712 (formerly 1812). Under this law, the

veteran pays a loan fee of 1.25 percent with no downpayment, 0.75

percent with a 5 percent downpayment and 0.5 percent with a 10 percent

downpayment. The government also contributes 0.75 percent on each GI

loan (0.5 percent on 10 percent downpayment loans). Veterans who pay a

fee under this law or are exempt from payment of the fee, except for

purchasers of manufactured homes under section 3712, vendee borrowers

and assumers, will not be liable to the Secretary in the event of a default

unless there is fraud, misrepresentation or bad faith. The loan fee

continued at 1 percent for vendee loans and section 3712 manufactured

home loan borrowers, who do not receive the benefit of the new approach

on liability. Loan assumers continue to pay 0.5 percent, and do not receive

the new liability protection.

The 90 percent limit on "cash-out" refinancing loans will not apply to a loan

made to refinance a construction loan, an installment sales contract, or a

loan assumed by the veteran. However, these loans are limited to the

lesser of reasonable value or the balance to be refinanced plus closing

costs. Entitlement may be restored in cases in which a VA loan has been

paid-in-full and the veteran still owns the home if the restored entitlement

was to be used on a loan secured by the same property.

Additional guaranty entitlement was provided for loans over $144,000,

equal to 25 percent of the loan amount up to a maximum total guaranty of

$46,000. This applied only to loans to purchase or construct a home, farm

residence or condominium.

Holders were required to notify VA if a partial payment is refused from a

veteran in default. It also extended the "no-bid" formula for two years, until

October 1, 1991, and excluded the cost of government borrowing from the

net value formula. Provisions of 38 U.S.C. 3102 on waivers were

liberalized to eliminate "material fault" and "lack of good faith" as reasons

for denying a waiver, substituting "bad faith" as a reason for denial of

waiver.

The Secretary of Veterans Affairs was required to conduct a study, jointly

with the Department of the Interior concerning Native American veteran

participation in the VA home loan program and report to Congress by June

1, 1990. Native Americans were defined to include Indians, and "Natives"

of Alaska, Hawaii, and the Pacific Islands.

The Omnibus Budget Reconciliation Act of 1990, Public Law 101-508

provided for a temporary increase in the funding fee for VA-guaranteed

home loans. For the period beginning November 1, 1990 and ending

October 1, 1991, the funding fee amounts are 1.875 percent for loans with

no downpayment or a downpayment of less than 5 percent; 1.375 percent

for loans with a downpayment of at least 5 percent but less than 10

percent; and 1.125 percent for loans with a downpayment of at least 10

percent.

Public Law 101-508 also authorized a new optional procedure for

manufactured home loan claims. Under the new procedures, holders may

file their claims immediately upon receipt of VA's resale price or liquidation

appraisal. They would then bear the risk of any future loss in value of the

property due to depreciation or other factors. Under prior law, VA could not

pay the claim until after the loan security was liquidated.

Public Law 102-23 extended benefits to veterans of the Persian Gulf War

and established August 2, 1990 as the beginning date for purposes of

determining VA benefits eligibility. The ending date of the war period will

be established by Presidential proclamation or by Congress. VA home

loan eligibility based on Persian Gulf War service requires at least 90 days

of service, any part of which was during the Persian Gulf War. The veteran

must also satisfy the minimum service requirements of 38 U.S.C. 3103A,

i.e., 2 years active duty or the full period for which ordered to active duty,

unless discharged early by reason of hardship or service connected

disability or pursuant to 10 USC 1171. There should be no instances of an

activated reservist who completes at least 90 days of active duty being

ineligible for home loan benefits for failure to complete the full period for

which called to active duty. The activation orders for the Persian Gulf War

were written in such a way that the deactivation of an individual prior to

completion of the maximum period specified in his/her orders would not be

seen as failure to complete the full period for which called to active duty.

Public Law 102-54, approved June 13, 1991, extended the maximum

guaranty of $46,000 to VA rate reduction loans. It extended the no-bid

formula and the lender appraisal processing program (LAPP) to December

31, 1992. It added a new section 1835 (since renumbered 3735) to title

38, U.S. Code to provide housing assistance to homeless veterans, similar

to the provisions originally set forth in Public Law 100-198. The new

homeless authority was extended through September 30, 1993. Public

Law 102-54 required VA to sell all loans with recourse, unless the loans are

sold at par or better. It also established a one year time limit to request

waiver of a home loan debt. The time runs from the date VA notifies the

veteran of the debt and VA must advise the veteran on how to apply for a

waiver.

Public Law 102-291, approved May 20, 1992, authorized VA to guarantee

the timely payment of principal and interest on REMIC pass-through

certificates backed by vendee loans issued or approved before December

31, 1992. Prior to the enactment of Public Law 102-291, VA guaranteed

the vendee loans themselves and not the certificates. The lack of a

guaranty promise running directly from VA to the investor meant that VA

did not get the best price when it securitized its loans.

Public Law 102-547, Veterans Home Loan Program Amendments of 1992,

signed by the President on October 28, 1992, brought the most significant

changes to the Loan Guaranty program in more than 20 years. It

authorized a 3-year test during which the Secretary has the option of

setting the maximum interest rate that may be charged on a VA-

guaranteed loan or to allow the rate to be negotiated between the veteran

and the lender and the payment of discount points to be negotiated

between veteran, seller and lender. The Secretary exercised the option to

allow the rate to be negotiated. The new law also authorized a 3-year test

of a VA-guaranteed Adjustable Rate Mortgage (ARM) which is modeled

after the FHA ARM.

The law established a new category of veteran eligible for VA home loan

benefits. Individuals who are not otherwise eligible and who have

completed a total of at least 6 years of honorable service in the Selected

Reserves (including National Guard) are eligible for VA home loans.

Reserves must pay a 3/4% higher funding fee than other veterans and their

eligibility expires October 28, 1999.

The law also required VA to carry out a program to demonstrate the

feasibility of guaranteeing mortgages for the acquisition of an existing

dwelling and the cost of making energy efficient improvements to the

dwelling or for refinancing and adding energy efficient improvements to a

dwelling owned and occupied by a veteran. It authorized an addition to the

loan for the cost of the energy efficient improvements up to $3,000; or

$6,000 if the increase in the monthly payment for principal and interest

does not exceed the likely reduction in monthly utility costs resulting from

the energy efficiency improvements.

The funding fee on IRRRLs (Interest Rate Reduction Refinancing Loans)

was reduced to .5% for all such loans, including those made to Reservists.

The law also provided for a minimum guaranty of 25% on all IRRRLs,

regardless of the amount of guaranty on the original loan.

Public Law 102-547 also authorized a pilot program to provide VA direct

loans to Native American veterans living on trust lands, who have

historically had difficulty in achieving homeownership. These loans are

limited to $80,000, except in areas that the Secretary has determined are

high cost.

Public Law 102-547 also extended the Lender Appraisal Processing

Program (LAPP) and the Enhanced Loan Asset Sale Authority provided by

Public Law 102-291 until December 31, 1995.

Public Law 103-66, the Omnibus Budget Reconciliation Act of 1993,

increased the funding fees charged on VA loans by 0.75 percent of the

loan amount. A new fee of 3 percent of the loan amount was established

for multiple users of the program except those who make a downpayment

of at least 5 percent. The new fees are effective through September 30,

1998. The fee increases do not apply to interest rate reduction refinancing

loans, for which the fee is 0.50 percent of the loan amount. This law also

amended the net value formula to include losses sustained on the resale of

VA acquired properties.

Public Law 103-353, approved October 13, 1994, increased the maximum

home loan guaranty entitlement amount from $46,000 to $50,750. The

new maximum affects only those loans above $144,000 to purchase or

construct a home, or refinance an existing VA guaranteed loan to a lower

interest rate. The basic entitlement amount remains at $36,000 for all other

loans.

Public Law 103-446, approved November 2, 1994, made a number of

changes. It allows VA to restore entitlement, on a one-time basis, for a

veteran who has paid off the prior loan but has not disposed of the

property. It extends loan guaranty eligibility to Reservists discharged

because of a service-connected disability, and to surviving spouses of

Reservists who died in service or as a result of a service-connected

disability. It also amended the 24 month minimum active duty service

requirement for loan guaranty benefits, by creating a limited exception for

persons who failed to meet the 24 month requirement because of a

reduction in force.

The law also made a number of technical adjustments. It allows veterans

to refinance adjustable rate mortgages to fixed rate mortgages in cases

where the fixed rate is higher than the current ARM rate. It allows interest

rate reduction refinancing loans to include funds for energy efficiency

improvements. It repeals the requirement for statements from state and

local officials concerning the feasibility of community water and sewage

systems. It eliminates the requirement for manufactured home inspections.

It authorizes VA to accept conveyance of a foreclosed property in cases

where the holder's bid at foreclosure exceed the specified amount.

Public Law 104-106, approved February 10, 1996, authorized VA and the

Department of Defense (DOD) to conduct a pilot program to assist military

personnel obtain VA home loans.

Under the pilot program, certain military personnel stationed at bases

where the supply of suitable housing is inadequate could qualify for VA

home loans with a special interest rate buy-down provision. The funds for

the buy-down are to be provided by DOD, and DOD would be responsible

for designating specific housing shortage areas where these special loans

would be available. VA's responsibility under the pilot program is to

develop underwriting standards for the loans and to work with mortgage

lenders to implement the program.

Public Law 104-110, approved February 13, 1996, extended and made

permanent VA's authority for loans with negotiated interest rates, energy

efficient mortgages, and the lender appraisal processing program. VA's

authority to enter into agreements for housing assistance for homeless

veterans and for certificate guaranty on loan sales were also extended, for

2 years and 1 year, respectively. VA's authority for adjustable rate

mortgages, which expired on September 30, 1995, was not extended.

Public Law 104-275, the Veterans Benefits Improvements Act of 1996, was

signed by the President on October 9, 1996. This act made three changes

in the VA Loan Guaranty Program. First, VA's authority to issue

Vinnie Mac securities was extended for 1 year, through December 31,

1997. Second, effective January 1, 1997, the term "Vietnam Era" has been

redefined for veterans who served in the Republic of Vietnam. For these

veterans, the "Vietnam Era" now begins on February 28, 1961, and ends

on May 7, 1975. For veterans who did not serve in the Republic of

Vietnam, the "Vietnam Era" begins on August 5, 1964, and ends on May 7,

1975. Any veteran who served on active duty at any time during the

Vietnam Era, and whose total service was for 90 days or more, is eligible

for VA home loan benefits. This means that for a veteran whose only

service was before August 5, 1964 and who did not serve in the Republic

of Vietnam, 181 days of continuous active duty service is required. Third,

VA was authorized to make direct loans to Native American veterans for

the purpose of reducing the interest rate on loans previously obtained

under the Native American Veteran Direct Loan Program.

On August 5, 1997, the President signed Public Law 105-33, “The

Balanced Budget Act of 1997”. This bill extended the funding fee

surcharge of 0.75 percent, the 3 percent fee for second time use, and the

no-bid formula through October 1, 2002. It increased from 1 percent to

2.25 percent the fee paid by purchasers of VA acquired properties who

obtain vendee loans. It extends through December 31, 2002, VA’s

authority to guarantee REMIC securities. It also permits VA to collect debts

established against veterans as a result of default on a VA home loan by

offsetting, for example, federal salary payments or tax refunds. VA must

provide the veteran with notice of the right to request a waiver and to

appeal denial of a waiver or release of liability. Previously, these offsets

could only be taken with the veteran’s written consent, or if there was a

judicial determination of the debt.

On November 21, 1997, President Clinton signed Public Law 105-114,

which extended the Native American Veteran Housing Loan Pilot Program

until December 31, 2001.

On November 11, 1998, Public Law 105-368 extended the home loan

eligibility of individuals who are not otherwise eligible and who have

completed a total of at least 6 years of honorable service in the Selected

Reserves to September 30, 2003.

The Veterans Millennium Health Care and Benefits Act of 1999, Public Law

106-117 authorized VA to restore the home loan eligibility of surviving

spouses who lost such eligibility as a result of remarriage if the remarriage

has been terminated by death or divorce. The home loan eligibility of

individuals who are not otherwise eligible and who have completed a total

of at least 6 years of honorable service in the Selected Reserves was

extended to September 30, 2007. VA’s authority to sell or lease acquired

properties to organizations to provide housing for homeless veterans was

extended to December 31, 2003.

Public Law 106-419, the

Veterans Benefits and Health Care Improvement

Act of 2000,

approved November 1, 2000, extended 3 legislative authorities

that were scheduled to expire in 2002 until 2008. They are: The enhanced

loan asset sale authority, the ¾ percent higher funding fee provision, and

the “no-bid” formula. The bill also contained a provision authorizing VA to

pay up to the full amount of an SAH grant in cases involving joint

ownership of the specially adapted home by someone other than the

veteran’s spouse.

The Veterans Education and Benefits Expansion Act of 2001, Public Law

107-103, made a number of changes to the Loan Guaranty Program.

First, it increases the maximum guaranty amount from $50,750 to $60,000

for certain loans that exceed $144,000. Eligible veterans can now obtain

no down-payment loans for up to $240,000 to purchase a home or

condominium.

It also increases the maximum grant for specially adapted housing for

severely disabled veterans from $43,000 to $48,000, and increases the

maximum housing adaptations grant from $8,250 to $9,250.

It extends the Native American Veteran Direct Loan Program for 4 years, to

December 31, 2005. It also eliminates the requirement for VA to have a

separate Memorandum of Understanding (MOU) with tribal authorities if

another federal agency has an MOU that substantially complies with VA's

requirement, and it extends the reporting period for the program.

It modifies the loan assumption notice requirement to require that the

notice appear conspicuously on at least one of the security instruments for

the loan. The notice must read substantially as follows: “This loan is not

assumable without the approval of the Department of Veterans Affairs or its

authorized agent”.

Finally, the new law extends the sunset dates of certain legislative

authorities as follows:

The home loan eligibility of veterans who served in the Reserves or

National Guard for six years is extended to September 30, 2009.

VA’s enhanced loan sale authority is extended to December 31, 2011.

The funding fee requirements are extended to October 1, 2011.

The formula governing whether a property that secures a defaulted loan

can be acquired by VA, referred to as the “Net Value” formula is extended

to October 1, 2011.

The Veterans Benefits Act of 2002, Public Law 107-330, increased the fee

for loan assumptions for a limited time, through September 30, 2003. It

also authorized hybrid adjustable rate mortgages for a period of 2 years,

beginning October 1, 2003.

The Veterans Benefits Act of 2003, Public Law 108-183, approved

December 16, 2003, increases the Specially Adapted Housing Grant from

$48,000 to $50,000, and increases the Housing Adaptations grant from

$9,250 to $10,000. It also makes permanent VA’s authority to guarantee

home loans for members of the Selected Reserve.

It adjusts the VA loan guaranty funding fees. The revised fee for an initial

loan with no down payment, closed on or after January 1, 2004 through

September 30, 2004, is 2.20 percent for an active duty veteran, and 2.40

percent for a reservist. The revised fee for an initial loan with no down

payment, closed on or after October 1, 2004 through September 30, 2011,

is 2.15 percent for an active duty veteran, and 2.40 percent for a reservist.

The fee for a subsequent loan, with no down payment, increases to 3.3

percent for loans closed on or after January 1, 2004 through September

30, 2011. The funding fee for an initial loan with a 5 percent down payment

closed before October 1, 2011 is 1.5 percent for an active duty veteran,

and 1.75 percent for a reservist. The funding fee for an initial loan with a

10 percent down payment closed before October 1, 2011, is 1.25 percent

for an active duty veteran, and 1.50 percent for a reservist.

Public Law 108-183 also requires VA to sell between 50 percent and 85

percent of acquired properties with vendee loans. This provision will expire

on September 30, 2013. It extends VA liquidation sales procedures set

forth in 38 USC 3732 (the no-bid formula), currently scheduled to expire on

October 1, 2011, for 1 year, so that they will now expire on October 1,

2012.

The Veterans Benefits Improvement Act of 2004, Public Law 108-454,

approved December 10, 2004, extends the full $50,000 specially adapted

housing grant to veterans who have lost the use of both upper extremities

such as to preclude use of the arms at or above the elbows. Previously,

such veterans were only eligible for the $10,000 special housing

adaptations grant.

It increases the maximum VA loan guaranty amount for loans over

$144,000 by indexing the maximum guaranty amount to 25 percent of the

conventional conforming loan limit. This amount would automatically adjust

every year, along with the annual conforming loan limit adjustment. Fannie

Mae and Freddie Mac have announced that effective January 1, 2005, the

conforming limit will be $359,650. Consequently, during 2005, VA no

downpayment loans will be available for up to $359,650 (the maximum

guaranty would be $89,913, which is 25% of $359,650).

The law also authorizes VA to guarantee traditional adjustable rate

mortgages, i.e., those that adjust every year, through the year 2008. VA

previously had authority for a 3-year pilot that ran from 1992 through 1995.

Congress declined to extend this authority at that time due to the fact that

the default rate on such arms was higher than for traditional fixed-rate

mortgages.

The law also amends the hybrid ARM authority, and extends it through the

year 2008. There would be a 1 percent limit on the initial interest rate

adjustment for hybrid ARMs with an initial fixed rate period of less than 5

years. For hybrid ARMs with an initial fixed rate period of 5 years or more,

the maximum initial interest rate adjustment would be such percentage as

determined by the Secretary. After the initial adjustment, subsequent

adjustments are limited to 1 percent. The statutory life of loan maximum

increase of 5 percent in the interest rate is eliminated and replaced with a

maximum number of percentage points as prescribed by the Secretary.

This law also exempts veterans from the funding fee if they are rated

eligible for compensation based on pre-discharge eligibility examinations,

without regard to the date compensation will start. Currently, a veteran

must actually be receiving compensation to be exempt from payment of the

funding fee.

It also extends authority for Native American Direct Loans through the year

2008.

On June 15, 2006, the President signed P. L. 109-233, the Veterans

Housing Opportunity and Benefits Act of 2006.

The law authorizes VA to provide Specially Adapted Housing (SAH)

assistance to veterans who are temporarily residing in a home owned by a

family member. This assistance would be in the form of a grant to assist

the veteran in adapting the family member’s home to meet his or her

special needs. Those eligible for the grant would be permitted to use up to

$14,000 of the maximum grant amount for a 2101(a) grant or up to $2,000

of the maximum grant amount for a 2101(b) grant. This new provision

does not authorize VA to make such grants available to assist active duty

servicemembers.

The law changes the one-time only usage of grant benefits. Although a

veteran may now use his or her benefits up to a total of three times, the

aggregate amount of assistance cannot exceed the maximum amounts

allowable for either the 2101(a) or 2101(b) grant.

The law reestablishes VA’s authority to make SAH grants (but not the

temporary grants referred to above) to active duty service personnel

awaiting disability discharge.

No temporary grant assistance may be provided after June 15, 2011.

The benefits administered under chapters 17, 21, and 31 of Title 38.

These provisions cover assistance provided under the Home Improvement

and Structural Alteration (HISA), SAH, and Independent Living (IL) benefit

programs.

The law increases the funding fee from 3.3 percent to 3.35 percent for

subsequent loans with less than a five percent down payment closed

during Fiscal Year 2007 (October 1, 2006 – September 30, 2007).

The law removes the current one percentage point restriction to

subsequent annual adjustments to interest rates on hybrid adjustable rate

mortgages (HARM) with an initial fixed-period rate of 5 years or more. The

Secretary now has the authority to determine annual adjustments for loans

where the initial rate is fixed for 5 or more years. Until further notice,

annual adjustments may now be up to 2 percentage points.

The provisions of this Act will not affect existing HARMs. VA HARMs made

prior to this Act will be subject to the terms in effect at the time they were

made. For example, a HARM with an initial fixed-period rate for 5 years or

more closed prior to this Act is limited to a 1 percentage point adjustment in

subsequent years.

The law makes the Native American Direct Loan (NADL) program

permanent.

The $80,000 maximum loan amount is eliminated, as is the need for

Secretarial determination of higher loan amounts in high cost areas.

Instead, the new limit on NADLs is the same as the Federal Home Loan

Mortgage Corporation (also known as “Freddie Mac”) single-family

conventional conforming loan limit. That limit is currently $417,000 for

loans located in the 48 contiguous States and $625,000 for loans in Alaska,

Hawaii, and the South Pacific. Increases in these loan limits will be

published annually, based upon the annual adjustment in the Freddie Mac

conventional conforming loan limit.

The law extends eligibility for NADL to a veteran who is not a Native

American, but who is married to a Native American non-veteran. To be

eligible for such a loan, the qualified non-Native American veteran and the

Native American spouse must reside on trust land, and both the veteran

and spouse must have a meaningful interest in the dwelling or lot.

UPDATED – 08/23/2006