FHA and VA loans could be processed faster and at less cost if the federal government relied more on local lenders for underwriting activities, the General Accounting Office has concluded.

The GAO, the investigative arm of Congress, said annual savings could be realized of between $4 million and $8 million--or about 4 1/2 to 9 percent of current processing costs for the FHA and VA programs.

The FHA and VA programs are designed to provide home loans to moderate-income and first-time buyers and veterans who otherwise might not be able to get credit. All or part of the loans are insured by the government, to cover the lender's risk in case of a default.

Underwriting activities involve determining a potential borrower's credit and establishing property values. The Department of Housing and Urban Development, in administering the FHA insurance program, and the Veterans Administration mostly rely on their own staffs rather than lenders for the underwriting, the GAO said.

The GAO noted that HUD has been testing a program at some of its offices for using lenders both for determining a borrower's ability to pay and for getting appraisals of property values and that the VA uses lenders for assessing ability to pay only.

GAO recommended that HUD extend its program to as many lenders as possible and that the VA do the same but also have lenders determine property values based on appraisals from agency-approved appraisers. About 40 percent of all HUD- and VA-insured loans could be processed this way, GAO estimated. The agencies could not rely entirely on lenders because some would not meet agency qualifications and others process too few loans to make approval cost-effective, GAO explained.

"Both agencies recognize the potential cost savings from greater reliance on approved lenders for underwriting but are concerned with the added risk, particularly in delegating property value determinations," the GAO report said. "The key concern is that lenders and appraisers may tend to overvalue property, thus decreasing the agency's ability to recover full value from the property if the borrower defaults."

But GAO said that having agency-selected appraisers do the work and having sample field reviews of appraisals would guard against abuses.

A comment from HUD on the report said that HUD already was working on expanding its efforts to use lenders for underwriting activities. VA Administrator Robert Nimmo said his agency agreed with recommendations to expand lender determinations of ability to pay but disagreed with using them in the determination of property values.

FHA and VA together insure about 20 percent of all mortgages, according to government figures.