VA to suspend its rate ceiling on mortgages

November 08, 1992

The Department of Veterans Affairs said it would suspend its ceiling on mortgage rates and allow veterans to negotiate their own rates during the next three years.

The change was authorized by the Veterans Home Loan Program Amendments of 1992, which were signed into law last month, the VA said.

Previously, the VA set a ceiling on mortgage rates, adjusting the rate from time to time to reflect market conditions. The current ceiling was 7.5%.

But the ceiling put veterans at a disadvantage in some areas, agency officials said. If the VA set its ceiling below market rates, a seller might have to bear the cost of all of the points paid at the closing, they said. Points are fees, separate from interest, that the lender charges.

Under the new program, a veteran buying a house can split the points with the seller or take a higher mortgage rate and pay fewer points, the VA said.

The VA plans to track the negotiated mortgage rates and compare them to rates on conventional loans and loans under the Federal Housing Administration's program, which also uses a negotiated system.

The legislation also authorizes a three-year program for VA-guaranteed adjustable-rate mortgages, or ARMs, similar to the FHA's program.

The rates on those loans will adjust annually, with increases limited to 1 percent each year and 5 percent over the lifetime of the mortgage, the agency said. Veterans may use ARMs to refinance their current mortgages.

In another change, the VA will offer its loan-guaranty benefit to homebuyers in the Selected Reserve.

The department said it would also guarantee loans that include increased funds for improvement of energy efficiency, reduce the funding fee for interest-rate-reduction refinancing loans to 0.5 percent from 1.25 percent, and extend the lender appraisal processing program through 1995.

The VA has also been authorized to make direct loans to Native American veterans living on trust lands, the agency said.

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