A report spanning the years leading up to and after the housing crisis shows a sharp rise in the proportion of servicemember mortgages guaranteed by the Department of Veterans Affairs (VA) among first-time homebuyers that continued to grow post-crisis, the Consumer Financial Protection Bureau (CFPB) said Friday.
The trend was the reverse for non-servicemembers’ use of federally guaranteed mortgages for first-time home purchases post-crisis, according to the bureau’s quarterly consumer trends report, “Mortgages to First-time Homebuying Servicemembers.”
According to the CFPB report, the share of first-time homebuying servicemembers using VA mortgages increased from 30% before 2007 to 63% in 2009. Among non-servicemember first-time homebuyers, there was a parallel increase in the use of Federal Housing Administration (FHA) and U.S. Department of Agriculture (USDA) mortgages. But while non-servicemembers’ reliance on FHA/USDA mortgages declined after 2009, servicemembers’ reliance on VA loans continued to increase. In 2016, 78% of servicemember loans were VA loans, CFPB said.
The report notes differences between VA loans and other mortgages. For example, a VA loan can allow a purchase with no down payment and without mortgage insurance, the bureau noted. Servicemembers may also choose other mortgage products, including conventional loans or loans by a different government agency. VA reported in 2018 that nearly 90% of VA-guaranteed loans are made with no down payment. The bureau also said the servicemember and active-duty shares of first-time homebuyers stayed relatively constant during the 2006–2016 study period.
CFPB said the greater share of VA loans among servicemembers was part of a larger shift among consumers (both servicemembers and non-servicemembers) away from conventional to government-guaranteed mortgages between 2006 and 2009. Conventional mortgages – meaning non-government-guaranteed mortgages – accounted for about 60% of loans among first-time homebuying servicemembers in 2006 and 2007, but this share declined to 13% by 2016. By comparison, the conventional loan share among non-servicemembers fell from almost 90% before 2008 to 41% in 2009, then increased back to 60% in 2016. The combined share of FHA and USDA mortgages to these borrowers increased and then decreased accordingly.
The report shows the median loan amount for first-time homebuying servicemembers with a VA loan increased in nominal dollars from $156,000 in 2006 to $212,000 in 2016, closely tracking the median value of conventional home loans to non-servicemembers. By contrast, the median loan amounts in nominal dollars for servicemembers who used conventional or FHA/USDA mortgages during this period were lower in value compared to VA loans and increased at a slower pace, growing from $130,000 in 2006 to $150,000 in 2016.
CFPB said this is the first report in which researchers have been able to provide a description and analysis of servicemembers’ mortgage choices and mortgage performance, both during and after the housing crisis of the last decade. It includes both active-duty and veteran servicemembers, who both are able to obtain loans that are partially VA-guaranteed.