VA Loans Outperform FHA Loans. Why? And What Can We Learn?

Abstract

While Veterans Administration (VA) mortgages and Federal Housing Administration (FHA) mortgages are often lumped together as “government mortgages”, the programs have significant differences, as do the borrowers who use them. In addition, delinquency rates on VA loans have consistently been much lower than on FHA mortgages, even after correcting for borrower characteristics. In this paper, we look at the programs, the profiles of the borrowers, and default rates to identify lessons from the favorable VA experience that can be incorporated into FHA or other programs.