The head of the Veterans Administration told Congress this week that he favors a sharp rise in the fees for VA loans, but he admitted that the amount of the increase "was sort of drawn out of the air" and that the agency has no clear idea of what the boost would do to the program.
The Reagan administration has proposed raising the fee for VA loans from the equivalent of 1 percent of the loan amount to 5 percent. The plan is part of a governmentwide strategy of imposing "user fees" on programs in which the actual or implied credit of the federal government is used to benefit individuals.
The administration is proposing to boost the fees on FHA mortgages to five points -- a "point" being equal to 1 percent of the loan amount -- from the current 3.8, and to raise or impose fees on the Government National Mortgage Association, the Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association, as well as some non-housing agencies.
The proposal has generated considerable opposition from both industry and consumer groups.
The VA fees would cost the average veteran borrower about $3,000 if paid in cash at settlement, or, according agency officials, about $29 a month if financed over a 30-year mortgage.
VA Administrator Harry N. Walters told hearings of both House and Senate Veterans Affairs committees this week that he thinks the fee is needed because the agency's revolving fund, which provides money to pay off loan guarantees in the event of default, is badly in the red.
VA loan foreclosures have been running at more than 20,000 a year recently, and if the fee increase is not approved -- and legislation is required for it -- Walters said the agency will be forced to seek a $406 million appropriation for the revolving fund.
At the same time, he characterized his endorsement to the House panel as "reluctant," adding that "it seems to me we ought to be very careful and cautious about what impact that fee rise will have on a veteran being able to start his new life . . . ." While the revolving fund is plainly in need of assistance, "I don't want to throw the baby out with the bath water," he said.
"We have all the way from the mortgage bankers who say they won't make one more loan . . . to my own people who say the program might be reduced as high as 50 percent . . . to people who say it won't have any impact at all. I don't know the answer to that. I just subscribe to the fact that there is a possibility here that an old-time, very resourceful veterans' benefit might be in danger," Walters told the House committee.
It was pointed out at both hearings that if loan volume declines drastically, the higher fee will not raise enough money to take care of the revolving fund. If, on the other hand, there is no impact, as the administration's budget proposal assumes, the fees would raise some $200 million more than the fund needs. That money would go toward reducing the federal deficit, but some veterans groups have characterized it as a tax on veterans.
At the Senate hearing, several senators made it plain that they have questions about how and whether the fee proposal would work.
After several attempts to elicit comparisons between fees for conventional loans and those proposed for the VA, Sen. Spark M. Matsunaga (D-Hawaii) said, "What I was searching for is how you base your elevation" of the fee.
Said Walters, "I would suggest that the standard was sort of drawn out of the air in order to supply enough income to make up for the deficit in the account."
"All they've done here is throw five points at it and see if that will help," said committee chairman Frank H. Murkowski (R-Alaska).