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From hero to homeowner.

Last year, Tony Adkins was ranked by an industry trade publication as the 10th-busiest originator of Department of Veterans Affairs (VA) loans. What's particularly noteworthy about that achievement is Adkins is a senior vice president of the Western region for the relatively small Phoenix-based lender Alliance Financial Resources LLC (dba Alliance Home Loans). [paragraph] There are 1,500 licensed VA lenders in the country, and according to the government agency, by third-quarter 2015 loan volume, Alliance Financial squeezed into the top-100 rankings at position 94. That's just one spot behind North Texas Financial Network, Plano, Texas, and ahead of Colonial National Mortgage, Fort Worth, Texas. [paragraph] Unfamiliar with some of those names? That might be because the VA lending business has been dominated by a wide assortment of nonbank lenders--not the big commercial banks, with a few exceptions. [paragraph] According to the VA, from third-quarter 2014 to third-quarter 2015, the only big banks in the top 10 for loan volume were San Francisco-based Wells Fargo & Co. at No. 4 and Charlotte, North Carolina-based Bank of America at No. 10. [paragraph] The other lenders in the top 10: Quicken Loans, Detroit, (No. 1); Freedom Mortgage Corporation, Mount Laurel, New Jersey (No. 2); USAA, San Antonio, Texas (No. 3); Mortgage Research Inc., New York (No. 5); Navy Federal Credit Union (NFCU), Vienna, Virginia (No. 6); loanDepot LLC, Irvine, California (No. 7); Flagstar Bancorp Inc., Troy, Michigan (No. 8); and Sun West Mortgage Co. Inc., Cerritos, California (No. 9).

"Banks used to dominate the top 10," observes John Bell III, assistant director of loan production and valuation at the Department of Veterans Affairs. "At the end of the day, we are grateful that non-banks have been supportive of veterans and the program."

Independents "just crush the big banks when it comes to VA loans," asserts Louise Thaxton, a regional manager who heads VA lending efforts and the military boot camp campaign for Fairway Independent Mortgage Corporation (ranked No. 27 by VA for loan volume in the third quarter), from her office in Leesville, Louisiana.

"If you look at a fast-growing state like Arizona, USAA is No. 1. Wells Fargo is No. 5," she says. "The way I sustain market share even in military towns is that I can close a loan in 10 days. The big banks can take 45 days."

It's not just about speed. As Adkins points out, "I can't say I find a lot of competition when it comes to pricing, at least as compared to the big banks."

He adds, "I've done thousands ofVA loans, and I always say, 'Please shop around so that you are confidant you are receiving the best possible deal.' Many walk across the parking lot and stop at Wells Fargo. They come back and say to me, 'They offered the same loan with only $3,000 more in closing costs.'"

There are about 800,000 loan originators in the country, Adkins estimates, so a top-10 ranking for VA loans is pretty darn good--except this year it will be even better. For the first half of 2014, Adkins originated 261 VA loans. Through the first half of 2015, he estimates he's done 300 VA loans.

But better numbers don't necessarily ensure a better ranking. Everyone seems to be doing more VA loans in 2015.

A cannonade of work

The VA loan was always an enviable financial construct. It could cover 100 percent of the mortgage, there's no down payment or mortgage insurance and it's cheaper than a conventional mortgage.

The VA loan offers a lower interest rate than any other product out there, Bell says. When Mortgage Banking checked in with Bell in late summer, he reported the average interest rate on a conventional loan was 4.218 percent, the Federal Housing Administration (FHA) loan sat at 4.047 percent and the VA loan looked good at 3.81 percent.

The attractiveness of the VA loan was always there, but the program was somewhat under the radar even for some veterans. That all has changed in recent years.

The VA has amped up marketing and education, and then on the technical end, new efficiencies have been introduced from further automation of loan processing. Lenders have found the VA loan to be a good product offering and they, too, have improved their own education and outreach.

Also, the mindset of new veterans is much different than those who served in the Vietnam War--the last lengthy, major war involving the United States before its participation in Middle East/Persian Gulf conflicts.

Finally, with President Obama seeking a drawdown of active-duty personnel after extended conflicts in Iraq and Afghanistan, a wave of new veterans has been entering the market and most are of the sought-after age group known as millennials (anyone born in the years 1982-2004).

Since 2008, the origination volume of VA loans is up 141 percent, reports Bell.

The overall trend line for the past 10 to 15 years has been upward, but not necessarily steady as outside economic factors such as the Great Recession in the mid-2000s depressed the overall mortgage business.

From 2003 through 2007, VA loans were in a decline, dropping all the way from 489,000 loans originated to 133,000, according to the VA. Then as financial markets collapsed and the recession ensued many kinds of mortgages became very difficult to obtain. Yet during this period VA lending started to pick up again, climbing to a peak of 629,000 by 2013. The mortgage market tightened up in 2014, and VA lending dropped as well to 438,000 loans.

By the end of the third quarter, the VA had already surpassed 600,000 again this year, says Bell, and there are some additional indicators that are very encouraging.

"Prior to fiscal year 2013, the last big year was in fiscal year 1994 when the VA guaranteed just over 600,000 loans--but the big difference is the makeup of the portfolio. In 1994 and 2013, the VA Interest Rate Reduction Refinance Loan [IRRRL], which [is a loan] where veterans refinance an existing VA loan, made up 48 percent of originations, whereas in 2015 it only accounts for 31 percent of loans closed. This means that 69 percent of veterans are either purchasing property or refinancing an existing non-VA loan into a VA loan," he says.

The lenders' perspective

Individual lenders with a strong commitment to VA lending boasted similar numbers. In 2012, VA loan volume for Alliance Financial was $75 million, which jumped to $170 million in 2013 and then $200 million in 2014, reports Jamie Korus, CMB, president of Alliance Financial.

When Mortgage Banking interviewed Korus toward the end of the summer, the company's volume was already at $180 million and it was fully expecting to break last year's record numbers for VA loans.

Even though other high-water marks could be partially attributed to refinance booms, not this year, says Bell. "In 2015, our purchase volume was up considerably. We have achieved a 50-50 type balance between purchase and refinance," he says.

Asked what has made the difference in the market, especially for homebuyers, Bell attributes a good part of that success to automation and invigorated education efforts with the Realtor[R] and real estate agent community.

"We have been doing a lot of proactive communications with Realtors and real estate agents," he says. "

And we have been automating our processes, which makes our program more attractive. In particular, we have streamlined our eligibility process. Right now, over 90 percent of our eligibility inquiries go through an automated review; 70 percent of applicants receive an automatic determination in seconds."

There is also a different mindset among young veterans.

How veterans see the program

"The saddest things I hear from the Vietnam veterans--the baby boomers--is that because of the times in which they served, they just want to forget they ever served," says Thaxton.

"We have done VA loans for Vietnam veterans who are first-time homeowners--first time to use their VA eligibility--and they are in their 60s. That's because, as a borrower said to one of our Fairway people, 'I didn't feel like I deserved a VA loan.' Over and over as I have traveled the country teaching the CMRS [Certified Military Residential Specialist] class, Vietnam veterans have shared their stories of coming home and being disrespected and never being thanked for their service. The best thing an American can do today for a Vietnam veteran is to say, 'Thank you for your service--and welcome home.' It just may be the first time they have heard it," Thaxton says.

Between Vietnam and prior to current military conflicts, the mortgage industry saw relatively few VA loans being made in relationship to the number of conventional and FHA loans being originated, says Scott Potter, a senior underwriter for Alliance Financial and a Vietnam-era veteran who has spent more than 40 years in the mortgage industry.

Although there has been an increase in VA loan volume primarily due to a shift in veterans' awareness, it is not enough, Potter adds.

Alliance Financial Resources, along with the VA, is pushing veteran mortgage awareness and education, and we have helped enlighten the veterans [about] the mortgage benefits the VA offers. "As veterans become more aware of these benefits, more and more are using [VA- guaranteed] mortgage loan programs as a great vehicle to acquire home loans with little or no money down," he says.

"I've noticed in the last 20 years, loan origination volume increased," Potter adds.

"When servicemembers leave the military, it can be like leaving the hospital--especially when someone says to you, 'Here's all the things you'll need to do when you get home,"' says Thaxton.

"With the military, someone says, 'Here are all your benefits, one of which is the VA loan,' and when they return home they stick it all in a drawer and forget about it. People need to bring the VA loan to their attention," she says.

Fairway is much more aggressive today about getting the message out than it was a decade ago, says Thaxton.

"It is about understanding the culture, mindset and core value of the military," she explains. "Most combat veterans come home a changed person. You can take a warrior out of the war, but it's harder to take the war out of the warrior. What does this have to do with the mortgage? Well, you have to understand that mindset and you have to be empathetic. They don't want sympathy, but you can empathize to understand some of their challenges."

To successfully reach out to ex-military when it comes to VA home loans, some lenders such as The Federal Savings Bank (ranked No. 40 by VA in regard to third-quarter loan volume), Chicago, turns to ex-military.

"Our team is a combination of veterans and VA loan specialists, and as a result, we not only have tremendous understanding and sympathy, we speak the language--we understand the experience better than any other financial institution possibly could," says Steve Calk, chairman and chief executive officer of The Federal Savings Bank. "We've been there."

The Federal Savings Bank also plans to be there in the years ahead, because it understands that VA lending will be an expanding business in the near future--especially with the coveted millennial age group that the U.S. Census Bureau projects will surpass baby boomers in 2015 as the nation's largest living generation.

"Over 500,000 servicepeople per year are being discharged due to the drawdown," says Calk.

"More of them are entering the civilian workplace, making that transition from active duty to civilian lives, and they are finally at a point where they are in a place long enough to think about homeownership," he adds.

The ex-military millennials

Navy Federal Credit Union has an obvious built-in advantage when it comes to VA loans: Basically, if, as active-duty military, you are eligible to join the NFCU you are also going to be eligible for a VA loan.

Yet, even the NFCU has seen its business explode in recent years.

"We have been going gangbusters on VA loans," exclaims Katie Miller, Navy Federal Credit Union's vice president of mortgage lending.

"In 2014 it was about 54 percent of our business. Last year, we did almost 18,000 VA loans. Our total loan volume portfolio is up 80 percent in 2015--we could be doing as much as 50,000 loans this year, and 50 percent or more of that will be VA loans. At the beginning of autumn, NFCU had already surpassed 18,000 VA loans."

NFCU staffed up this year and has trained all personnel on the intricacies of VA lending. "We do beginner training for every loan officer, then training for processors, and the next course in their curriculum is specific VA training," says Miller.

The NFCU's top three markets are, as one would expect, around the Navy port cities of San Diego and Norfolk, Virginia; plus the Washington, D.C., metro area. As Miller notes, she can control the number of loan officers in her organization, but if there is any backup in processing because of excessive origination volume, it comes on the appraisal side, as "in certain areas of the country we need more VA-qualified appraisers for quicker turnarounds," she says.

As for the product, Miller says, "Everyone in the industry is talking about first-time homebuyers, because that is where the opportunities are going to come from in the future. Well, the VA product is 100 percent ideal for that population due to pricing, no down payment and the loan covering 100 percent of the purchase price."

Apparently Miller is right on about the VA loan, because the average age of the military first-time homebuyer was younger than the average age of the non-military homebuyer.

In February 2015, Navy Federal Credit Union published the results of a survey it had done that took a look at this market of ex-military millennials, trying to get a bead on the demographic group's financial needs, which surprisingly wasn't as profound as economists would have us believe about millennials in general.

Among the survey results:

* Millennials serving in the military are more likely to establish long-term financial goals compared with their civilian counterparts.

* Ex-military millennials feel better prepared to meet those long-term goals.

* Sixty-six percent of millennials on active duty or with an active-duty spouse have started planning their financial future, while 49 percent of civilian millennials can say the same.

* Fifty-eight percent of military millennials feel they have the financial literacy to meet their goals, compared with 37 percent of civilians.

* Eighty-nine percent of military millennials say they are currently on track to achieve their five-year financial goals, compared with 78 percent of millennials in the general population.

What does all this mean? If you are satisfied with your financial status, you are more ready to invest in a home--at least more ready than the average millennial.

"Once veterans get stable, they want to buy a house and live some of the American dream they fought so hard to defend," says Calk. "On the purchase side, there are a lot of ex-military millennials who are first-time homebuyers. That's why this market is so critical--that's why we spend so much money educating our veterans as to how they can buy a home, how to qualify, how the VA loan works and why it is the best loan for them."

About 30 percent of VA loan volume nationwide is going to millennials in the 25-to-34 age group, says Bell.

Extra selling points

Apparently VA home loan education and marketing efforts have been successful. "There are a greater number of veterans who are now aware that this product exists and is exclusively for them," says Korus.

For independent lenders, the thing about VA lending is that the competition is not as great as with some other loan products, Korus adds. "If you look at, for example, credit unions, many don't offer this product. It does take additional personnel and costs associated with originating the loan because of the required designations and know-how to handle the additional requirements after the loan closes. In addition, being an independent mortgage banker means we have multiple outlets to deliver the product."

Alliance Financial sells all its VA loans, and there are many buyers that want these loans. For good reason, this is a mortgage that rarely defaults.

"We call this 'the filet of loans,' because it has the least amount of default rates," says Alliance Financial's Adkins.

"VA loans are some of the best-performing loans in any portfolio over time," says Calk. "The simple fact of the matter is, the character of the veterans is such that they make their mortgage payments."

The VA loan is a good investment all around, Calk adds, "It's a good investment on behalf of the people supporting the veterans to get homeownership, it's a good investment for those who lend them the money and it's a good investment for those who service the loans and buy the securities based on those loans."

As of the end of third-quarter 2015, the foreclosure inventory for a conventional prime loan was 1.19 percent, for a normal FHA loan it was 2.68 percent and for a VA loan it was 1.37 percent, reports Bell.

"It starts with sound underwriting standards, including the residual income requirement, which looks at net income after all expenses are paid in case a onetime, unexpected issue arises and veterans can still make their payments. We try to set the veterans up for success. We have loan technicians available to help veterans if they experience financial difficulty. These employees help veterans to navigate the servicing process, including giving advice and counsel to mitigate circumstances out of their control, and talking to servicers on the veteran's behalf."

A unique group of borrowers

The VA's mission is to maximize veterans' and servicemembers' opportunities to obtain, retain and adapt homes by providing a viable and fiscally responsible benefit program in recognition of their service to the nation.

"We believe very strongly about not just getting veterans into a home, but also staying in that home as long as they want to be there. That is one of the reasons that we continue to have the lowest foreclosure inventory rate of any loan program out there," says Bell.

For many of the successful independent lenders that really want and go after the VA loan market, it's also about going that extra mile to be of assistance to the veteran. Some lenders such as Fairway Independent Mortgage and The Federal Savings Bank go out of their way in several respects to support veterans.

Fairway's charitable program is called the American Warrior Initiative, which last year sponsored 22 Certified Military Residential Specialist boot camps around the nation. It was expected the American Warrior Initiative would do another 25 this year. The idea, says Thaxton, is to educate, train and inspire real estate, title and mortgage professionals to give back in some way to servicemembers.

In addition, most of the Fairway employees donate monthly to their nonprofit through payroll deduction, which goes toward initiatives to give back to "wounded heroes."

Over in Chicago, The Federal Savings Bank's Calk sits on the board of directors of the USO of Illinois, which helps veterans as they travel from duty station to duty station. The lender is also a big supporter of Chicago-based Bunker Labs, often just called The Bunker, which is a veteran-operated, veteran-focused effort with an emphasis on finding and offering entry points into the technology community, explains Todd Connor, chief executive officer of The Bunker, in a Youllibe[TM] video. Essentially, the program helps military veterans tap into existing government programs while also providing networking opportunities for breaking into the technology sector.

"To be a VA lender, there is nothing special about that," says Calk. "It's a special loan reserved for a special population. To be a good lender here, you just need to lend to people of character who have a history of paying their bills back. The single best way to judge future performance is to look at someone's past performance. There are ex-military who have earned that [reputation for] discipline and understand the principals of homeownership. These loans will outperform every other loan class out there."

Calk concludes, "Veterans acutely understand the value of homeownership. They spend a tremendous amount of time, energy and effort defending these values, and the American dream for them is still to own a piece of the rock."

Steve Bergsman is a freelance writer based in Mesa, Arizona, and the author of The Seduction of Mary Wells and Growing Up Levittown: In a Time of Conformity, Controversy and Cultural Crisis, available on He can be reached at
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Title Annotation:VA LENDING
Author:Bergsman, Steve
Publication:Mortgage Banking
Geographic Code:1U7TX
Date:Dec 1, 2015
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