VA Increases Net Value Percentage
by: Sarah Lagattolla
August 9, 2012 the Department of Veteran Affairs has announced that the percentage used to determine Net Value for properties will increase to 14.95%. The change will take place effective October 8, 2013.
The Net Value is a key component in the formulas for determining whether a loan holder has the option to convey a property to the VA following termination.
The Net Value is defined as the fair market value of a property less the costs estimated to be incurred by the VA resulting from the acquisition and disposition of the property. Costs associated with the acquisition and disposition of a property, other than those for property improvement, are estimated as a percentage of the fair market value.
Each year the VA will review and calculate the average property operating, selling and administrative expenses for properties acquired under 38 CFR 36.4320 as well as any gain or loss experienced on the resale of acquired properties sold during that same time period. Based on the results of this analysis, VA will determine if any changes to the net value percentage will be required.
For the last 12 year the net value percentage has remained at 11.87%. The VA had elected not to make changes to the figure in recent years citing many extenuating circumstances including data difficulties from the implementation of a new computer system. In addition, due to the prolonged recession and the privatization of the property management function the VA opted to avoid any significant changes which could adversely impact the ability of veterans to obtain housing loans.
The new net value percentage of 14.95% is still below the historical high of 15.11%. The VA has indicated that the market is showing signs of stability and can sustain a change to the percentage without being a detriment to veterans. The new net value percentage will more accurately reflect the costs of acquiring, management and reselling properties based on recent data.
About the Author:
Sarah Lagattolla is Vice President and Director of Credit Risk at Bankers Advisory, Inc. She can be reached at sarah@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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