A plaque near the entrance to the Veterans Administration headquarters, a block from the White House, bears Abraham Lincoln's pledge "to care for him who shall have borne the battle, and for his widow and his orphan." Since World War II, the U.S. government has backed up Lincoln's promise with tangible rewards such as medical, education and housing assistance.
The home loan guarantee program, perhaps the most popular of these benefits, has helped about 12 million veterans buy houses since President Franklin D. Roosevelt signed it into law, as part of the GI bill of rights, 16 days after the D Day invasion of Europe 42 years ago.
Another 28 million veterans in the United States today are entitled to VA loan guarantees, including 3.5 million who served in Vietnam, its skies and coastal waters. Members of the armed forces on active duty also are eligible for the loan guarantee program.
But it is not just legions of veterans and their families who have benefited. The VA loan program also has been a $230 billion boon to the real estate, construction and financial industries since 1944.
Thus, when the Reagan administration announced on Feb. 6 that it was sharply reducing the level of loan guarantees, dropping the ceiling on the amount of loans that could be guaranteed to $11.5 billion to meet targets of the Gramm-Rudman-Hollings deficit reduction law, the cries of outrage came swiftly. The VA estimated that the money would be used up by April 1, sparking furious protests from veterans' groups and the real estate industry.
The House of Representatives and the Senate quickly came to the rescue, passing a bill that sets an $18.2 billion ceiling on the amount of home loans the VA can guarantee during the 1986 fiscal year, which ends Sept. 30. Although Gramm-Rudman requirements now will cut this figure to $17.4 billion, it will be enough to meet this year's demand, according to Senate and VA spokesmen.
The House passed the measure last Tuesday without a dissenting vote, and the bill cleared the Senate on a voice vote the next day.
President Reagan is expected to sign the bill despite Congress' refusal to raise from 1 to 2 percent the fee charged to veterans who take out VA loans, administration officials said last week. The White House asked for the fee increase as the price for support of the $18.2 billion ceiling.
Housing industry leaders say many of the veterans who borrowed under the VA guarantee could not have afforded a home without it, both because down payments are not required and because interest rates set by the agency range about one-half to 1 percent below rates for conventional loans. The Mortgage Bankers Association estimated that "at least 4 to 5 million" of the 12 million veterans who have used the VA loan program could not have bought houses without the agency's guarantees.
"Congress by their votes and actions show they feel the individuals who served their country with honor deserve some special help in certain cases such as VA loans, pensions and medical care," said Rep. G. V. (Sonny) Montgomery (D-Miss.), chairman of the House Veterans Affairs Committee. The loan guarantee "is one of the best programs we have," he said.
The VA touched off the furor when it announced changes in loan program rules the agency said were necessary to meet the deficit-reduction law's requirements. The new rules, which VA and private industry officials said could knock 90,000 veterans out of home purchases by the end of the summer, would prohibit refinancing, limit veterans to only one VA loan and lower the limit of a loan the VA would insure from $133,250 to $90,000. The regulations would go into effect March 1, the agency said. Under the present regulations, veterans can refinance high-interest loans to take advantage of lower rates and become eligible for new VA-insured loans when they pay off previously held mortgages.
The angry reactions from veterans' and industry groups and the speed with which Congress moved to appease them underscores the popularity and nearly untouchable status of the loan program.
Veterans affairs committees in both houses and individual senators and members of the House of Representatives reported receiving scores of phone calls protesting the VA action. Veterans jammed VA offices across the country, asking for eligibility certificates to submit before the March 1 deadline.
Callers asked, "How could you do this to us? . . . This was pretty dastardly of Congress," recalled James Moore, a spokesman for the Senate Veterans Affairs Committee. "It scared an awful lot of veterans and put the onus on Congress and on Gramm-Rudman."
Neither the Senate nor the House wanted to take the rap for cuts Moore said resulted from an "administrative oversight" by the VA, compounded when the Office of Management and Budget and the Congressional Budget Office took the VA's figures at "face value." The veterans' agency estimated it would be asked to guarantee $12 billion worth of mortgages this year, and the budget office used the figure to determine that the deficit-reduction law would cut the loan guarantee level to $11.5 billion.
The protests greeting the VA's plan to reduce the size and availability of guaranteed loans spurred the agency to switch signals, announcing it would continue to issue loans on the old basis. As a result, however, the $11.5 billion ceiling would be reached by April 1, and the program would be out of business for the rest of the year, the VA announced.
The VA reached its $12 billion estimate last December probably "feeling it meant nothing" beyond a nonbinding projection, according to Edwin L. Dale, OMB assistant director for public affairs. The estimate was made before interest rates began to drop dramatically, increasing the demand for VA-guaranteed mortgages, he said. Then, when officials examined Gramm-Rudman, they realized cuts must be computed on the basis of the estimate and would become a "binding commitment," Dale said.
Vietnam Veterans of America spokesman Mike Leaveck said, however, he believes "OMB was seeing an opportunity to accomplish its goal to dismantle the VA loan program."
Congress' rush to the aid of the VA loan guarantees cheered Leaveck and other veterans' groups, as well as financial industry leaders hoping that Congress might rescue other housing benefits threatened by Gramm-Rudman and the administration's 1987 budget proposals.
The action holds "a couple of pluses" for the housing industry, including the possibility that Congress will pass legislation exempting the VA and Federal Housing Administration programs from the deficit-reduction law's provisions, said Dale P. Riordan, executive vice president of the Federal National Mortgage Association, known as Fannie Mae.
"I hope this is a harbinger of Congress' views on user fees, but we aren't about to become complacent," said Warren Lasko, executive vice president of the Mortgage Bankers Association. "Veterans' benefits are the easiest case to make. There is a lot of public sympathy that veterans have paid their dues to the country and are entitled to them."
The administration budget proposals call for increasing the costs of FHA and VA housing benefits while decreasing the number of families eligible for FHA mortgage insurance by about one-third.
The proposals "sound the retreat for this nation's commitment to providing adequate housing for low-, moderate- and middle-income people," said David O. Maxwell, chairman and chief executive officer of Fannie Mae, in testimony before the House of Representatives Budget Committee.