The Veterans Administration is planning to start collecting the Social Security numbers of VA loan applicants and checking them with the Internal Revenue Service to prevent tax delinquents from getting the government-assisted mortgages.
The VA plan is part of a larger government effort to collect unpaid taxes and to keep people who don't pay what they owe from getting federal aid. Under the Debt Collection Act of 1982, agencies administering an "included federal loan program" must require anyone applying for benefits to furnish a taxpayer identification number, which in the case of an individual is a Social Security number. If the applicant is found to be a tax delinquent, his application is to be rejected.
An included federal loan program is any one under which the government makes, guarantees or insures loans and for which it is believed that disclosure of this sort would cut delinquency. The VA guarantees home mortgage loans to eligible veterans.
"We have no way of knowing" if there are many tax delinquents among VA loan applicants, said Robert M. O'Toole, director of the VA's Loan Guaranty Service. "I'm sure we'll get some."
O'Toole said the plan is still in its preliminary stages. The agency published a proposed regulation Aug. 2 that would allow it "with appropriate safeguards" to collect applicants' Social Security numbers. "Loan applications from individuals refusing to provide their Social Security number will not be approved," the proposal states.
A 30-day comment period for the proposed regulation ended Tuesday. O'Toole said the agency had been expecting comment, particularly from lenders, and planned to review it carefully.
Checks with industry representatives turned up little opposition to the plan, but some concern that it be administered in such a way that loan applications not be delayed.
"We understand the idea behind this, and it's difficult to argue with it since we are firmly on the record in favor of reducing the federal deficit," said Glen S. Corso, vice president of the Mortgage Bankers Association of America.
Nonetheless, he added, "we are concerned from an administrative standpoint . . . the time involved, can loan processing go ahead while the check is being made . . . ? The VA was a little vague on details of how this will take place."
O'Toole said that the new check will be carried out in much the same way that the agency now looks for other indebtedness. "One of the steps that takes place now is to check for outstanding debts, and taxes will become one that will be checked," he said.
"We really haven't focused in on what mechanism will be used," he said, adding, "We are going to be very careful; we don't want to get into causing delays. Implementation will probably be put off until there is some kind of automated system in place."
Industry sources indicated that there are currently few delays in processing VA loan applications. High interest rates and consumer switches to adjustable-rate mortgages have cut VA loan volume.
O'Toole indicated that the check will be a simple match-up with IRS files. If an applicant believes there has been an error, he will have to resolve it with the IRS, not the VA.