![]() Residual income test - While the VA’s uses a residual income test and debt-to-income (DTI) guidelines to assess a borrower’s ability to pay, the FHA and conventional lenders rely exclusively on DTI.We hope to explore FHA and VA default rates for lenders who originate both types of loans. As a result, VA loans tend to be concentrated in lenders who are familiar with the VA’s special underwriting and servicing systems. Skin in the game – Unlike the FHA’s 100 percent insurance, VA lenders remain on the hook for losses after the VA’s limited guaranty is exhausted.While this might improve the likelihood that a delinquent loan reperforms, often referred to as the cure rate (it actually doesn't seem to), it is unlikely to explain the difference in the substantially higher rate at which FHA loans go 90 days delinquent. As a result, the VA intervenes at an earlier point in a more uniform manner. FHA does not engage in direct contact the servicer contacts the borrower. Direct contact – The VA has a statutory requirement to service its borrowers and contact them directly.Military culture – Could military culture or special incentives not to default, such as potential loss of a security clearance, cause a significant difference? Evidence is weak to support this theory and in 2013, only 17 percent of VA borrowers were on active duty when they took out their loan.Why does the difference persist over time? In a commentary posted today, we looked at some possible explanations: ![]() But even if we apply VA borrower characteristics to FHA borrowers, the FHA default rate for 2008 loans would still have been 20.1 percent. For 2008 loans, for example, the default rate for FHA loans was 26.1 percent compared with just 11.6 percent for VA loans. When controlling for income and credit score, VA borrowers still have considerably lower default rates. In the end, it could turn a denial into a VA loan approval.While FHA and VA borrowers spend roughly the same percentage of their income on their mortgage payments, FHA borrowers have lower incomes and lower credit scores. Better yet, exceeding the minimum VA residual income by 120% is considered a major compensating factor. One of the key factors, actually requirement, is that the borrower(s) meet the VA residual income chart. ![]() While underwriters are considering qualification, having as many benefits or compensating factors possible could sway the reviewer to an approval. These guidelines are traditionally more conservative than automated guidelines. Manually underwritten VA loans are required when an automated approval is not available. Although high credit scores, low debt ratios, low payment shock, and high residual income are all compensating factors, this is especially true when it comes to a VA loan manual underwrite. For instance, higher debt to income ratios, low credit scores, no assets, and prior foreclosures are considered risks. These are weighing the risks versus benefits of giving the loan. Whether it is a software program or a human underwriter, some serious calculations are going on. There are all kinds of factors that contribute to mortgage loan approvals. Using VA Residual Income as a Compensating Factor for Loan Approval
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |