Fresh Look at How To Set VA Rates

Responding to pressure from mortgage bankers, the Department of Veterans Affairs is considering changing the way interest rates are set on the home loans it insures.

For more than 50 years, the government has controlled the rate, periodically altering the maximum rate lenders may charge. But mortgage bankers, the main originators of the loans, want rates to move with market forces.

Deregulation, they say, would give them room to negotiate lower up-front charges for veterans willing to accept higher interest rates. In addition, the move would end disruptions caused by the department's adjustments in the rate ceiling, which usually come in increments of 50 basis points.

"I think there is quite possibly some merit in going with a negotiated rate," said Keith Pedigo, director of loan guarantee services at the department. "But we need to do further analysis to determine that for sure."

At least one major veterans' group said it is wary of eliminating the rate ceiling. "We would oppose it unless someone showed us that it was a clear improvement," said Jim Hubbard, director of economics for the American Legion.

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