PROGRAM HISTORY

The Department of Veterans Affairs home loan programs serve a clientele which is diverse in many ways.  The only common denominator of this clientele is service in the Armed Forces of the nation.  Since the inception of these programs the objective has been to assist eligible veterans to become homeowners.  Veterans are assisted by making it possible for them to compete in the market place for credit with persons who were not obliged to forego the pursuit of gainful occupations by reason of service in the Armed Forces of the nation.  The VA programs are intended to benefit men and women because of their service to the country, and they are not designed to serve as instruments of attaining general economic or social objectives. 

Cumulatively through September 1996, VA has guaranteed over 15.3 million home loans totaling over $562 billion to veterans to purchase or construct a home, or refinance another home loan on more favorable terms.  The VA home loan program has made mortgage credit available to many veterans whose loans otherwise would not have been made.  In this connection, although VA borrowers have been directly favored by the more liberal terms on those loans, it is also likely that these terms have induced a competitive liberalization of the terms on conventional mortgages, whose recipients have benefited as well.  As a result, the impact of the VA home loan programs on the economy and on the mortgage market vastly exceeds the actual volume of VA home loans. 

Initial Objectives and Philosophy 

The home loan guaranty program was originally conceived in 1944 as a part of an attack on the harsh aftermath associated with wars.  The overall objectives of this attack were to diminish to the greatest possible extent the economic and sociological problems of post war readjustments of millions of men and women then serving in the Armed Forces.

The program was one of the major innovations and a most important part of the original Servicemen's Readjustment Act of 1944, Public Law 78-346.  The first legal framework was set forth in Title III of that Act.  In a way, the loan guaranty program was advanced as an alternative device to a cash bonus, because it would be vastly less expensive to the Government, and because it would better serve the needs of veterans.

Credit was viewed as one of the cornerstones of a program to aid the veteran in his/her effort to readjust to civilian life.  In the opinion of the supporters of the original legislation, the Government should provide the means whereby the veteran could obtain favorable credit which would permit him/her to shelter his/her family or begin a business or farming venture.  This concept arose because of the feeling that veterans, in view of their service in the Armed Forces had missed an opportunity to establish a credit rating which could be the basis of borrowing to acquire a home or to establish a business.  The establishment of the loan guaranty program was an attempt to place the veteran on a par with his/her nonveteran counterpart.

The loan guaranty program also provided an investment outlet for large amounts of savings which existed in the economy at the end of World War II.  During the years of the war, normal investment outlets were restricted because of the shift from the production of civilian goods to war production.  By imposition of price and production controls on many items, the normal flow of consumer durable goods had been reduced.  Thus, individual savings reached record proportions, and large amounts of money became available for investment purposes.  Expectations at the time that there would be a normal postwar depression shortly after termination of the war made it seem important that planning be done to stimulate the redirection of accumulated liquid capital into normal peacetime avenues.

TODAY

VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.