The Veterans Benefit Act of 2004
Veterans Benefits Administration
Circular 26-04-12
Department of Veterans Affairs
December 10, 2004
Washington, DC 20420
1. PURPOSE: S. 2486, the Veterans Benefits Act of 2004, was signed by the
President on December 10, 2004. A Public Law number has not yet been
assigned. This circular explains provisions affecting the Loan Guaranty
Program.
2. BENEFIT CHANGES
a. Maximum Guaranty Amount. The law changes the maximum guaranty amount of
$60,000, for certain loans in excess of $144,000, to an amount equal to 25
percent of the Freddie Mac conforming loan limit determined under section
305(a)(2) of the Federal Home Loan Mortgage Corporation Act for a single
family residence, as adjusted for the year involved. To illustrate, the
maximum guaranty for 2005 would be $89,912. This is 25 percent of the 2005
Freddie Mac conforming loan limit for a single family residence of
$359,650. Under Freddie Mac’s charter, maximum original loan amounts are
50 percent higher for first mortgages on properties in Alaska, Hawaii,
Guam and the U.S. Virgin Islands. This higher amount would also apply to
VA loans in these areas.
b. Specially Adapted Housing. The law expands eligibility to the $50,000
Specially Adapted Housing (SAH) grant to veterans with permanent and total
service-connected disabilities due to the loss of, or loss of use, of both
upper extremities such as to preclude use of the arms at or above the
elbows. Detailed instructions to VA field stations will be forthcoming. In
addition, Title 38, Section 1151, is amended to specify eligibility where
any veteran has suffered an injury, or an aggravation of an injury, as the
result of hospitalization, medical or surgical treatment, as if it were
service-connected for benefits under Chapter 21, relating to SAH.
c. Adjustable Rate Mortgages. The law gives VA authority to guarantee
“traditional” Adjustable Rate Mortgages (ARMs) in a manner similar to that
by which HUD insures adjustable rate mortgages under section 251 of the
National Housing Act. VA previously had this authority but it expired
September 30, 1995. The legislation provides authority through September
30, 2008. Key features of this program are:
(1) Interest rate adjustments on an annual basis;
(2) Annual interest rate adjustments limited to a maximum increase or
decrease of 1 percentage point;
(3) Interest rate increases limited to a maximum of 5 percent points over
the life of the loan;
(4) This type of ARM loan MUST be underwritten at 1 percentage point above
the initial rate.
d. Hybrid ARM Loans
(1) Extension of Authority. The law extends VA authority to guarantee
hybrid ARM loans to September 30, 2008.
(2) Modification of Interest Rate Adjustment Requirements:
(a) If the initial contract interest rate remains fixed for less than 5
years, the initial adjustment is limited to a maximum increase or decrease
of 1 percentage point and the interest rate increase over the life of the
loan is limited to 5 percentage points.
(b) If the initial contract interest rate remains fixed for 5 years or
more, the initial adjustment will be limited to a maximum increase or
decrease of 2 percentage points.
(c) In cases where the initial interest rate remains fixed for 5 years or
more, the interest rate increase over the life of the loan will be limited
to 6 percentage points.
(3) Effect on hybrid ARMS Guaranteed prior to Enactment of the Act. The
provisions of this Act will not affect existing hybrid ARMs. VA hybrid ARM
loans made prior to this Act will be subject to the terms in effect at the
time they were made. For example, a hybrid ARM with an initial fixed rate
for 5 years or more made prior to this Act is limited to a 1 percentage
point initial adjustment and a 5 percent limit over the life of the loan.
e. Native American Direct Loan Program (NADL). The authority to make
direct loans under the NADL program has been extended to December 31,
2008.
f. Funding Fee Exemption. The law expands the definition of veterans who
are in receipt of compensation and thus entitled to a waiver of the VA
funding fee. Veterans who are rated eligible to receive compensation as a
result of a pre-discharge disability examination and rating will now be
considered as receiving compensation as of that date. This means veterans
still on active duty awaiting discharge, but who wish to close on a loan
before being released from the military, may be entitled to a waiver of
the funding fee.
g. Effective Date. All provisions became effective upon the signing of the
Act into law.
h. Temporary Procedures. Until we accomplish necessary system updates,
lenders processing loans involving entitlement greater than $60,000 or
traditional 1 year ARMs must submit them to the appropriate VA office for
processing. We will put notification on the Veterans Information Portal
when system updates have been accomplished and lenders can then process
applicable loans through Web-Based Loan Summary Sheet (WBLS).
3. STATION PROCEDURES. Stations should disseminate this information as
widely as possible using their local websites. It is not necessary to
prepare “hard copy” local releases, although, stations may do so at their
discretion. Central Office will place this circular on the Loan Guaranty
website and there will also be a link from the portal. Central Office will
be providing further information on aspects of the law as needed. We
anticipate that all necessary system updates will be completed sometime in
January 2005.
4. RESCISSION. This circular is rescinded January 1, 2006.
By Direction of the Under Secretary for Benefits
Keith Pedigo, Director
Loan Guaranty Service
Distribution: CO: RPC 2021
SS(26A1) FLD: VBAFS, 1 each (Reproduce and distribute based on RPC
2021)
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