VA Credit

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.

The maximum amount of guaranty available to a veteran was increased to $4,000 for home loans.  The term "normal" was removed from the requirement of "reasonable normal value", leaving it as "reasonable value."  The maximum maturity for real estate loans was extended to 25 years and for farm loans to 40 years.

No longer was the home loan benefit aimed at immediate readjustment aid.  It was to be a long-range benefit open to any eligible veteran wishing to buy a home within 10 years if he/she could meet the credit requirements.  The original idea of keeping the purchase price low by the use of "reasonable normal value" was abandoned in favor of a large volume of transactions at current market prices.

These changes constituted an almost complete revision of the loan guaranty program.  It changed many of the basic objectives, such as holding the price of properties to prewar level.  An even more basic philosophical change was that the original Act was considered only as a readjustment aid for the veteran who wanted to start a home, a business, or buy a farm when he/she got out of the service.  The extension of ready-made credit by the Government was to make up for his/her lost time.  The new Act provided something different.  It could no longer be considered solely as an adjustment benefit for the few who had immediate and specific plans after leaving service.  It was now open to all veterans who might decide to avail themselves of the benefit at any time within 10 years after the official end of the war.  In terms of aiding the economy over the conversion period the objectives had also changed.  It was now a long-range housing program for veterans.  This list of the new objectives has been maintained consistently throughout the subsequent changes in the program.  Nearly all changes have been designed to help the veteran become a homeowner by extending the terms, making mortgage money available, protecting him/her from excessive charges and faulty construction.

In the years 1948 and 1949, residential construction reached successive new all-time highs each year.  Yet the demand for new dwelling units was still far from satisfied.  Consequently, in the Spring of 1950, Congress enacted legislation changing both the Servicemen's Readjustment Act and the National Housing Act.  There were eight basic changes in the VA home loan program included in the Housing Act of 1950, Public Law 81-475.  Five of these changes involved, or at least implied, a change in objectives from the original legislation.  These changes in objectives were, in a sense, extensions of the changed objectives which were started by the 1945 amendments, that is, liberalizing the benefit so that more veterans could participate.

First, the maximum amount of guaranty was changed from 50 percent of the loan amount, but not to exceed $4,000 to 60 percent and $7,500.  Second, the maximum maturity of loans was lengthened from 25 to 30 years.  Third, unremarried widows of veterans who had died in service or as a result of service-connected injury or disease were given the same loan privileges as veterans.  Fourth, veterans whose homes were obtained with VA loans but lost through fire or natural hazards, or were taken by public condemnation, or were disposed of for other compelling reasons not the fault of the veteran, were given back their full entitlement on a loan provided the VA no longer had any liability on the original loan.  Fifth, the law authorized the Veterans Administration to establish minimum construction standards; these standards were intended to lend additional support to the appraisal procedures and thus protect the veteran from getting an inferior product.  Sixth, section 505 of Title III of the Servicemen's Readjustment Act, which had provided for combination VA-FHA loans, was repealed; the combination loan carried an effective interest cost of about 4.8% (i.e., 4-1/2% interest plus one-half percent insurance on the 80% portion insured by FHA and 4% on the remaining 20% or less guaranteed by the VA).  Seventh, the law authorized VA to issue regulations setting the amounts of fees and charges which the lenders might impose on the veteran.

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