There are many myths surrounding VA Mortgages (the Veterans Administration benefit that provides affordable housing loans to current and past members of the Military).

Many of these myths exist because many Mortgage Brokers and Bankers do not know the VA Loan program very well, or because many veterans have been given false information by well meaning family, friends, or co-workers regarding their VA benefits. Too many lenders that are not VA approved will often continue spreading myths regarding the VA program, simply to redirect a borrower to a program that will earn them a larger commission. I have worked with VA Loans for over 20 years, so here is a quick list of the top 10 VA Mortgage Myths that we have seen over the years.

1. You can only use your VA Mortgage benefit once.
   FALSE: Your Military VA Benefits are reusable, and you can use the benefit as many times as you want. For repeat users, there may be an increased VA Funding Fee, in some circumstances. More on this later.
2. VA Loan rates are higher than conventional loans, or FHA Loans.
   FALSE: VA Loan rates are comparable with conventional loans and FHA loans, and since VA Loan program is more flexible on Credit Score and DTI (your debt to income ratio); it’s possible to get qualified for a better rate through this program than you could find with a conventional loan.
3. VA Loans take a long time to close due to government red tape.
   FALSE: If you hear about a VA Loan took forever to close, it’s likely because the lender did a poor job of submitting the application. Last month, we completed a VA loan in 14 days from beginning to end! On average, there is little difference in length of closing between a VA Loan (when submitted properly) and a Conventional or FHA loan.
4. You are required to have PMI (Mortgage Insurance) on a VA Loan.
   FALSE: This is one that we hear a lot, and its mostly due to lenders who do not know the program very well. VA Loans are different than FHA loans, and VA Loans do not require Mortgage Insurance. Instead of PMI, VA loans require a VA Funding Fee. In a number of cases, we have seen this fee waived by the VA!
5. The appraisal process is tougher / takes longer / is more strict.
   FALSE: There are many different versions of this myth, but the fact is that, on a Mortgage for Active Military or Veteran applicants, the appraisal process is similar in every way to a conventional loan; the one difference? In a VA Loan, the appraiser is assigned by the VA, and not the lender or their appraisal service. In many cases, this is much better, as there are very specific standards that the VA appraiser must abide by. In addition, the VA appraiser can specify energy efficiency upgrades that should take place, and those can be paid for by the loan itself – a great benefit for a house in need of insulation, weather-proofing or duct repair.
6. You cannot refinance a VA Loan, or the VA program cannot be used to Refinance a loan.
   FALSE: You can refinance a current VA Mortgage, and use your VA benefit to refinance your mortgage.
7. You have to use it soon, or else it will expire.
   FALSE: We hear this one a lot. In fact, widowed spouses are allowed to use a VA benefit in many cases. But basically, your VA Benefit will not expire until you do. End of discussion.
8. Only certain veterans are eligible / certain branches of the military are ineligible / Military Reservists are ineligible.
   FALSE: This is another myth that comes up once in a while and is completely fabricated. If you are a veteran , you are eligible. If you are a member of the military (yes, even a reservist) you are eligible. One caveat to this: you must have received a honorable or “other than honorable” discharge. Also, If you are active duty, you are eligible.
9. VA Loans are difficult to get or qualify for.
   FALSE: There are a few extra pieces of paperwork that you must submit to confirm eligibility for the VA Program. They are not complicated forms and we can easily help you with them. Also, the VA loan program has more flexible guidelines for credit and income than most other programs, and there are no geographic restrictions (other than being part of the United States).
10. You can only access your VA Mortgage Loan benefit through the Veterans Administration directly.
    FALSE: The Veterans Administration (VA) approves lenders to directly access these benefits for eligible buyers. Our bank, PrimeLending, is one of these approved VA lenders as well as being one of the top VA lenders in the nation.

This morning, stocks jumped higher and bonds sunk 41bps – partially a reaction to the weak jobless claims report, which showed 456,000 initial claims and 4.5M continuing claims (down 255,000 from last month).  The big question is this – how many of those non-continuing jobless claims are just people who have given up on finding work?  One other thing that you aren’t going to see mentioned in the news?  This number doesn’t include people on Emergency Unemployment; a number estimated at around 5 million additional Americans.

One other reason stocks rebounded today?  The Euro has stabilized (for now) and even the Euro Central Bank is raising its forecast of Euro growth for the year.  Spain, Italy and Ireland are all successfully raising money through bond auctions.  China continues to broadcast the expectation that their growth will beat estimates; this almost a week after they announced that wages for Chinese workers were going up.  It seems to me that China is working hard to improve its image.

The 15-year fixed rate mortgage is at a record low – an average of 4.17% according to Freddie Mac, which has tracked the data since 1991.  Other Mortgages posted near-record rates as well; the 30 year fixed mortgage came in at an average of 4.72% (that’s almost .9% lower than 1 year ago!) and a 5-year ARM is 3.92%, down .02% from last week.

This is the sweet spot for homebuyers, a perfect storm of conditions that is unfortunately wasted because most Americans in a home right now cannot afford to move up and precious few non-home-owners have the resources to buy.  If you have the opportunity to lock, it seems to be the perfect time for it; if rates do go lower, they will not drop far, and there is a HIGH LIKELIHOOD that we are going to only go up from here.

Fed Chairman Ben Bernanke spoke yesterday and warned about the unsustainability of the federal budget.  Side note: I keep waiting for him to say something that isn’t an obvious guess, or a truth that anyone could look out their window and see.  The fact remains that our economy is hurting, and experts predict that in a few short years, our national debt could grow larger than our GDP – a tipping point that could spell absolute disaster for the economy.

If or when this happens, it is likely that our credit will be downgraded; meaning that the government will have to do one of two things; print more money (a LOT more money) which will increase inflation, or continue to borrow at a higher rate.  Either way, the real loser is the American who cannot afford what little money he has to be devalued.

… and how can you avoid them altogether?

Personal Bankruptcy in America is a major issue and a concern for many.  Recent numbers show that close to 14% of homes are past due on their mortgage, with almost 2% of those homes currently in some level of foreclosure. How do you know when your debt is so toxic and overwhelming that bankruptcy is the right answer?   What alternatives do you have for avoiding foreclosure?

Capitalism without bankruptcy is like Christianity without hell.
- Frank Borman

If we don’t change, millions of American families are just one medical emergency, or one layoff, away from financial disaster and bankruptcy.
- Jim Cooper

Personal Bankruptcy

The number of personal bankruptcies peaked in 2005, when over 2 Million families filed for bankruptcy.  The law changed after that to require debt counseling prior to declaring bankruptcy, but the number is climbing once again, now back nearly to 2001-2004 levels.  There are two main types of personal bankruptcy, Chapter 7 and Chapter 13.

Chapter 7 bankruptcy is the most common choice, at 65% of bankruptcies.  In Chapter 7 bankruptcy, most debts are discharged (except some debts like student loans, spousal/child support) but much of the debtor’s property is forfeited to a trustee, who then sells the property to pay down the debts.  In Chapter 13 bankruptcy, less common at 35% of personal bankruptcies, the debtor keeps all of their property, but they are required to make payments over 3-5 years to a trustee in order to pay down a portion of their debt.  You can file for Chapter 7 every 8 years, and there is no set limit on frequency for Chapter 13 Bankruptcy.

California and Florida have the most Bankruptcies by sheer numbers, but Nevada beats both by a high margin in per-capita bankruptcies.  Entire city and state governments are considering bankruptcy as a solution to the mounting debt.

Foreclosure

If you stop paying on your mortgage, the bank will eventually kick you out of the house and take possession of it.  You will forfeit any equity that you have built up, and this foreclosure will show up on your credit report and public record for at least 7 years.  The number of people who are seriously delinquent on their mortgages has climbed drastically over the last few years.  Many factors play into this steadily climbing rate, but the main culprits are the recession and pre-recession loan practices, which often leave families with payments that they could not afford even if their incomes were at a normal or stable level.

What can you do?

The first thing to think about is prevention.  Many bankruptcies and foreclosures are the result of some lack of foresight.  What can you do to make sure that, barring a catastrophic financial event, you will be able to avoid foreclosure and/or bankruptcy?

1) Get educated

Consumer education on credit, home ownership and financial responsibility is the #1 way to avoid dealing with a bankruptcy or foreclosure in the future.  If you don’t know where to start, we recommend checking out http://www.mymoney.gov/, where you can find basic worksheets, calculators and advice.  Don’t assume that you are making the best financial decisions just because you are following the examples of others; as Dave Ramsey likes to say… “Normal is BROKE, I want to be WEIRD”.  Don’t take anyone’s word for it, find out what your options are, what you can actually afford, and plan for your long-term goals.

2) Get Insured

Health Insurance, Life Insurance, Auto Insurance – make sure that you have the right coverage and the right plans.  Your insurance should cover you for major events that you cannot afford; like replacing your or someone else’s car, paying for surgery or losing a parent or spouse.  These policies are not investments, they are costs; avoid policies with investments built into them, like whole-life or universal life insurance.  Proper insurance coverage can help you altogether avoid bankruptcy or foreclosure due to a major medical event or another large out-of-pocket expense that will “never happen to you”.

3) Start Saving

Without this component, the other two are almost worthless.  If you are spending every penny that you bring in, you need to change something.  Career, spending habits, or housing situation – whatever it is, it is going to leave you in a position with no room for anything to go wrong.  Ideally; you will be in a position where you can live off of 75% of your Net Income, putting at least 10% in savings and throwing 15% into paying off debt.  This is a big step to take, and a budget will be helpful to accomplish this goal.

What if it’s too late?

If you have a recent bankruptcy, or you are currently behind on your Mortgage payment, there is hope.  First of all, Bankruptcy or Foreclosure is not a death sentence for your credit.  You will not qualify for very good rates, and you will definitely need to make changes to work around the negative impact of Bankruptcy or Foreclosure, but with diligence and planning, you can bounce back.  With Chapter 13 bankruptcy, you can be considered for a Home Loan after only 12 months of good payment to the trustee, and their permission.  With Chapter 7, you can typically be considered for a new Mortgage after 2 years, or less if you can prove that the bankruptcy was medically-related.

For some Americans, Foreclosure seems to be the only option; they are miles upside down on their mortgage and/or they cannot afford the payments.  Many Americans are in this same position – and banks are having a difficult time keeping up.  At this point, the average time it takes a bank to foreclose on a property is 14 months of delinquent payments.

What are my options?

For Bankruptcy, you are now required to complete debt counseling before you file; this is really the worst of both worlds because this debt counseling will usually trash your credit further by making underpayments on all of your already delinquent accounts (these payments are usually not reported to the credit bureau because the company you are paying is not getting the total payment due to them).  One better option?  Negotiation.  In many cases, companies are willing to work with you to avoid the paperwork and lower payoff of a bankruptcy situation or a collections agency.  If you are faced with an aggressive or abusive lender, you may try to contact the company through a different department to find someone who is willing to negotiate your debt.  If push comes to shove though, remember that in bankruptcy you are not allowed to discharge certain debts like taxes, student loans and support payments; prioritize those debts so that you are not left with large bills after a Bankruptcy.

In Foreclosure, there are new government mandated programs where banks are incentivized and in some cases required to restructure your loan, or forgive it altogether.  Many banks are resistant to this process though, so it helps to have an expert on your side to guide you through the process.  Many lawyers have made a LOT of money by being that expert, but there are many non-profit organizations that have entire departments dedicated to helping people navigate the Loan Modification, Restructuring or Loan Forgiveness options available.  Many of these non-profits are also able to help you clean up your credit after a foreclosure or a bankruptcy.

Whether you are just starting to feel the recession, looking at Bankruptcy or Foreclosure as an option, or trying to recover from one or both; there are options and alternatives for you to consider so that you can make the best of a bad situation. Get educated about your options, get insured so that you don’t lose everything overnight and start saving for a rainy day, even if it’s already pouring.

If you like us, please follow us on Twitter!

As always, you can leave a comment or question below, or send us an email at blogger@mortgageproblog.com

- Mortgage Pro Blog; Geoffrey Boyd; PrimeLending, Clackamas OR

Gold hit a new high this morning at $1254.50, a result of what I can only describe as intense risk-aversion.  In this economy, stability is a rare and precious commodity; people are looking at stocks, bonds, commodities, etc and seeing a lot of fluctuation in price that they cannot predict, control or reliably take advantage of.  Gold price fluctuations make for an excellent index of market fear.  People at this point are looking for talismans to protect themselves from the “evil spirits” in the market; I believe that Gold is one of those talismans.  If you are looking for something that will make you feel secure, then Gold might be your answer – after all, $1254.50 is a good-looking number.  The fact remains that Gold has never been a great investment, nor is it the answer for this recession.  The primary reason is that gold, in and of itself, does not create or build any value.  It is simply a commodity and should be treated as such, despite what the cheesy radio & TV advertisements will tell you.

First of all, before you start sending me nasty emails, I know that the economy is in bad shape; it seems like every time we look for some good news, we get the exact opposite; things are tough for a lot of people and others WISH that things were just “tough”.  I am not trying to say that the recession is any better than it is.  But I do believe that a lot of people, most of them in front of cameras, can and do profit from telling you that this recession is worse than it is.

One thing that has gone relatively unnoticed in recent weeks is the future of the Euro. Many economists believe that the Euro will be “retired” within 5 years.  Why, because the strong nations in the EU are having fundamental ideological problems with paying for their weaker brethren.  Germany truly didn’t want to participate in the Greek bailout because the Germans felt that they should not pay for Greek irresponsibility.  Can’t say that I blame them. This sentiment is fairly common among those nations that have handled their finances in a responsible manner and this is why many economists believe that the Euro will go away within a few years.  The expectation is that European nations will revert back to their own sovereign currencies.  So, why do I mention this? Because it is significant.  Why aren’t we hearing about this on the nightly “news”?  Because it’s not “sensational”.

So, you may have heard of the most recent boogeyman, the “double-dip” recession.  Ben Bernanke said today that he thinks that we have enough momentum to avoid it; he also projects long-term economic recovery, but that it won’t happen as quickly as we want it to.  Every news outlet talks about the double-dip recession in hushed tones; reminiscent of a certain “bad guy” from a popular book/movie series about young wizards.

I’m probably not the first person to say it, but I will go ahead and be one of the few: If we keep doing the things that we are doing, it doesn’t matter if the recession triple-dips or recovers tomorrow.  Why? Because the awful state of our economy is a direct consequence of the way that our financial system has functioned for years.  We reward the people who are able to game the system for personal gain, and ignore the flagrant abuses of power that have happened at all levels of our financial system.

Here’s the problem in a nutshell – we have a financial system that creates problems for itself to solve.  Instead of making real changes that deal with the underlying problems of predatory lending, poor oversight, over-consolidated power structures and bubble economics, we look at each financial boogeyman and design a nightlight that will last until we forget that he’s there.  The Auto industry was in trouble, so we do Cash for Clunkers – problem solved!  Failing Banks? Bailout and Sweetheart Fed Rates. The Housing market is down?  Tax credits!  Unemployment is high? Census Workers!  These temporary solutions did not fix the underlying problem.

If the recession double-dips, the government will simply issue another stimulus package; if we recover tomorrow, they will probably raise taxes to cover the first stimulus check and the subsequent government spending programs.  What I hope you are seeing is that our society has become largely reactionary as opposed to proactive.  How to fix the underlying problems in our system?  That’s way above my pay grade.  But the people who have a good chance of figuring it out are instead spending time creating temporary solutions like a game of financial whack-a-mole.

When it comes to our financial boogeyman problem, I propose that it’s time to lock the closet.

Happy Monday everyone! Coming out of a chaotic Friday which ended a 4-day trading week, we are looking at a surprisingly calm market. We saw investors react strongly on Friday to a discouraging employment report for May. The reaction by Wall Street now seems a bit over-dramatic, looking back on last week’s economic reports, there was good mixed with the bad. We saw pending home sales numbers rising month-over-month, the unemployment rate beat market expectations, and for all the excitement over the European economic crisis; US banks have very little exposure to European debt; and the most hard-hit parts of Europe are, at this point, non-significant trading partners. One other interesting bit of news? The average change in hours worked per employee ticked up from 34.1 to 34.2 hours, a change that equates to the creation of 315,000 jobs; it appears that, for now, employers are looking to satisfy increased demand for labor with their current workforce instead of adding new employees.

Anyways, we have relatively little economic data coming out this week. The major reports to watch are the New/Existing Unemployment Claims report on Thursday and the Retail Sales and Consumer Sentiment Index reports on Friday. Expectations are that the unemployment data will show a small contraction in new claims and about 60,000 fewer ongoing claims than the last report of 4.66 million. Fun Fact – If you got ONE PENNY from every person on continuing unemployment, you could buy a lovely home in Detroit. MI.

Other Things to watch for this week?

Federal Reserve rate change buzz. Note: I used the word buzz, meaning chatter, excitement or gossip. Our best guess is that by September, we only have a 12% risk of change.

More news out of Europe. This morning, Hungary started in on damage control; stating that the numbers showing impending default were speculative at best. More bad news out of Europe could make investors even more risk-adverse, and positive news may give us a needed boost in confidence.

The market has been unpredictable recently, but rates are extremely low.  These rates are being driven lower by poor housing demand, bond preference and government intervention.  If any of these factors let up or change, we could see an immediate rebound in rates.