Mortgages backed by the Veterans Affairs have generally performed better than other mortgage products, even though VA loans require no down payment.
In the most recent quarter, the percentage of mortgages going into foreclosure for VA loans was 0.3 percent compared 0.4 percent for all mortgages. The differences were even more pronounced during the housing collapse with VA foreclosure starts running at around 0.7 percent during 2009-2010, half the rate of other mortgages.
Among the mortgages that are past due by over 3 months but not yet in foreclosure, a similar performance difference is observed. The serious late payment rate on VA loans was 1.85 percent while it was 2.31 percent for all mortgages.
Worth reiterating is that VA loans are zero-down payment products. The better performance could be due to American veterans’ sense of duty of fulfilling their contractual obligation and demonstrating responsibility. The better outcome is also likely caused by the fact that veterans are required to stay well within their budget, and not take on super-large mortgages. Washington policy makers need to be mindful of these results and not impose artificially high down payment requirements on people stretching their budget that could tip them over.
USAA – an insurance company that underwrites various policies for people who had served in the Armed Forces – is said to do well financially year-in year-out. That is because there are lower cases of accidents and insurance frauds among this group of people compared to the rest of the population. Knowing this trend as well as that of mortgage performance, employers, lenders, and other business leaders may want to give extra consideration for people who have served.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.