Congress is moving to reverse a recently enacted law that already has slowed sales of houses the Veterans Administration acquires when veterans default on their mortgages.
The law, which went into effect Jan. 21, requires buyers of the foreclosed properties to make a down payment of 5 percent of the purchase price.
Bids on the first group of VA-owned houses offered for sale in Houston after Jan. 21 dropped to about one-third of the usual number of offers, according to an aide to Sen. Frank Murkowski (R-Alaska), the ranking Republican on the Veterans Affairs Committee.
Alarmed by the prospect of declining sales while the number of foreclosed houses in the VA's inventory is mounting, the Senate last week passed a bill permitting the agency's administrator to waive the down payment and offer 100 percent financing to buyers when it is necessary to compete with other sellers. The legislation was approved on the same day it was introduced, and the House is expected to act on the measure soon after it reconvenes next week.
A slowdown in sales could be "catastrophic" to the VA's loan guarantee program, which has cost the government $3 billion in the last several years, according to Murkowski, who sponsored the legislation along with Veterans Affairs Committee Chairman Sen. Alan Cranston (D-Calif.) and two Texas senators, Republican Phil Gramm and Democrat Lloyd Bentsen. The amount needed for the loan guaranty fund in fiscal 1988 "is likely to be far greater than $389.8 million" that already has been appropriated, Cranston said last week.
Under the program, the VA guarantees home loans to veterans for up to 50 percent of a loan for $45,000 or less. For loans over $45,000, the agency guarantees 40 percent of the total loan or $36,000, whichever is less. The legislation passed by the Senate last week also makes a correction in last year's home loan improvement act, which prevents veterans from using the full amount of the guarantee. When the change is made, borrowers who do not use all of the guarantee to which they are entitled will be able to use the remaining amount if they buy another house.
The VA and other government agencies -- including the Federal Housing Administration -- and private lenders have accumulated hundreds of thousands of foreclosed homes in recent years and the rate of defaults is rising, spokesmen said. In economically depressed states like Texas, Oklahoma and Colorado, the competition to sell the foreclosed homes is fierce, and many private lenders do not require down payments from the buyers of their properties, according to the Murkowski aide.
The FHA asks for down payments as low as $100 and the Federal National Mortgage Association, a federally chartered secondary market agency that buys loans and sells securities, asks for a 3 percent down payment of the loan amount.
Congress passed the 5 percent down payment requirement on the VA's portfolio of foreclosed homes last year because between 20 percent and 25 percent of the buyers of foreclosed properties themselves defaulted on their VA loans, Murkowski said.
The agency provided nearly $1 billion for 22,563 loans to buyers of foreclosed properties during fiscal year 1987, which ended last Sept. 30.
About one-third of the estimated 24,000 foreclosed homes in the VA's inventory are in economically devastated Houston, where the foreclosed properties of all agencies and lenders has swelled to more than 200,000 in the last three years, according to Cranston.
Cranston introduced another bill last week to provide ways of tackling the VA's home loan problems. The measure would permit the agency to offer loans at interest rates that are less than the prevailing rates when selling homes in depressed areas and would tighten credit standards buyers must meet.
It also would establish an independent national commission to study reasons for the increase in VA foreclosures and associated costs, and propose solutions.
The FHA, which ended fiscal 1987 with more than 38,000 foreclosed properties on its hands, expects to acquire another 70,000 homes this year, according to James C. Nistler, HUD's deputy assistant secretary for single-family housing. The agency has noted "a fairly steady rise" in foreclosed property sales recently and hopes to sell 70,000 homes this year, he said. More than 52,000 were sold last year.