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A Review of VA Lending

Adam Rust's picture

Posted November 11, 2010

In honor of Veteran's Day, Bank Talk is going to take a look at the market for loans guaranteed by the Veteran's Administration.

One of the benefits set aside for our Veteran's is the opportunity to utilize VA financing to buy a home. There are some significant advantages. For one, VA loans can still be had without a down payment. There's also the psychological benefit. While many people enter a bank branch unsure if they will be well-received by a lender, veterans can feel secure in knowing that there is a designated program to help them.

I've pulled data for all 2009 VA loan applications reported by institutions that are regulated by the Office of the Comptroller of the Currency. The OCC regulates national banks. Any lender where the acronym "N.A." is appended to their name is an OCC bank.

The VA market is no different from the rest of the field. Most VA mortgages come from just a few lenders.

The Big Four (Citi, Wells, Chase, and Bank of America) have 63 percent of OCC-regulated VA loans. What is different is the degree to which one bank is dominant. Wells constitutes 42 percent of those loan applications.

In 2009, about 15 percent of mortgage applications to purchase a single family home were denied. There is a lot of variation in VA lending. Some banks are much more tight with their VA loans. Here is the difference in denial rates among the big four.

  • Wells: 10.4 percent
  • JP Morgan Chase: 25.5 percent
  • Citigroup: 42.9 percent
  • Bank of America: 15.5 percent

It is worth noting that these are only purchase loans for single-family homes. Denial rates are many times higher for manufactured homes. Manufactured home purchases are actually not as common among veterans as might be though: in 2009, there were just 9,211 purchases financed by VA loan. That's not a significant share in a market with more than 134,000 originations.

Veterans are still susceptible to the same forces that influence loan decisions for other consumers. The most frequent reason cited by a lender for turning down a vet was a lack of enough collateral.  Credit scores held back loans to only slightly fewer Veterans.  Lenders pointed to shortcomings income in more than 3,200 instances.

Government-backed lending is important, and it is a feature that is becoming much more signifcant in the marketplace. There were almost three times as many "non-conventional" loans in 2009 as in 2004. The contrast between 2008 and 2009 constitutes almost half (46.6 percent) of that change.