Understanding the History Behind VA Lending

Transcript

I’m Scott Dill, the owner of Texas Home Loans. I’m here to talk to you about the practice of lenders making a higher margin on VA loans, the history behind it. How it’s continued and how it affects you today. The history behind the higher margins is VA loans used to require a lot more work. You used to have to send away for physical certificates, you had to call the VA entitlement center.

The benefits, this took a lot of time, a lot of effort. As a result, the lender said, Hey, if I’m gonna put all this time and effort into it, because of the extra bureaucracy with the VA loan, we need to make more money on it. So they moved up the margins. That was how the processes were before, that’s continued to today.

And as a result, the VA loans have a much higher margin, so they more or less they support the rest of the lending organization. So today the VA loans have a much higher margin and. This actually subsidizes the rates of conventional. The reason these lenders can’t change it back is this other business is run.

They would either have to shut down completely and restructure their entire business, which anybody’s run a business. They know this is very difficult to do, or they would have some very unhappy customers with their conventional rates would have to go up to compensate for the income they would lose for the VA to make those competitive.

How does this affect you? Like in a $400,000 loan, you’re looking at 1% higher in rate. You’re looking at almost a hundred thousand dollars more in payments over 30 years. So this is a legacy business model that’s affected people o for the past few decades and the past probably justified now. It’s outdated and it’s a little.

It’s almost penalizing the veterans by not giving them the rate they deserve because the insurance is placed on that loan and we go into the insurance and how that should give you a lower rate and other videos. Hopefully this is informative. Hopefully this tells you their history behind it and it pulls back the curtain on the pricing of what a veteran should get as opposed to what they are getting and how these legacy banking practice.

Might not be the best thing for the veterans in 2023. Hopefully this is helpful. If you want more information, look at our other videos. Check this out @ texashomeloans.com and thank you for your service.