Housing Programs:

VA Can Reduce Its Guaranteed Home Loan Foreclosure Costs

RCED-89-58: Published: Jul 12, 1989. Publicly Released: Aug 15, 1989.

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Pursuant to a congressional request, GAO reviewed the Department of Veterans Affairs (VA) Home Loan Guaranty Program, focusing on: (1) program effects of Deficit Reduction Act requirements that limited estimated VA losses per foreclosed property to the amount of guaranty on each property, and increased the percentage of foreclosed properties that VA sold for cash; and (2) whether VA could improve the property acquisition and disposition process to reduce program costs.

GAO found that: (1) VA limited its estimated loss to the guaranty amount to meet the act's requirements, but did not estimate the interest costs of holding property in inventory until the property was sold; (2) VA could have reduced its costs by about $16.6 million in 1987, if it had considered interest costs; (3) VA could also have reduced losses incurred from declines in property value and from cash discounts offered for property resale by about $25 million in 1987; (4) cash sales for acquired properties increased from about 5 percent prior to the act to about 34 percent in 1987; (5) to increase cash sales, VA gave preference to cash offers that were equal to or greater than 90 percent of the property's listed price; (6) although cash sales had benefits, VA could have offset those benefits in some cases where buyers were willing to pay more than the listed price if VA financed the mortgage loan; (7) VA used third-party bidding in only 5 percent of its foreclosure sales in 1987; (8) the use of third-party bidding at foreclosure sales precluded VA from using its resources to hold and resell property, which avoided substantial depreciation on property costs; and (9) VA did not buy the least expensive title insurance policies on foreclosed properties.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: VA was implementing a regulation to consider interest costs; however, Congress prohibited the consideration of interest costs.

    Recommendation: To ensure that VA property acquisition and disposition procedures result in the best financial interests of the government, the Secretary of Veterans Affairs should consider the interest costs associated with acquiring and disposing of properties in deciding whether to leave properties with lenders.

    Agency Affected: Department of Veterans Affairs

  2. Status: Closed - Not Implemented

    Comments: VA developed a procedure to determine the most cost-effective way of selling properties. Although testing of the new procedure was over 2 years ago, VA has not implemented the new procedures.

    Recommendation: To ensure that VA property acquisition and disposition procedures result in the best financial interests of the government, the Secretary of Veterans Affairs should determine the cost-effectiveness of the VA policy of always giving preference to qualified cash offers over offers requiring VA financing as part of the VA study on cash-sale incentives.

    Agency Affected: Department of Veterans Affairs

  3. Status: Closed - Not Implemented

    Comments: VA does not concur that action would be beneficial to the program.

    Recommendation: To reduce the costs of the loan guaranty program, the Secretary of Veterans Affairs should, to improve the property acquisition and disposition process, encourage more successful third-party bidding at foreclosure sales by establishing a minimum amount for lenders to bid that reflects VA acquisition and disposition costs, including cash discounts.

    Agency Affected: Department of Veterans Affairs

  4. Status: Closed - Not Implemented

    Comments: While VA has informed its field offices of the availability of less costly means of obtaining property titles, it has not required its offices to obtain titles through such means.

    Recommendation: To reduce the costs of the loan guaranty program, the Secretary of Veterans Affairs should, to improve the property acquisition and disposition process, encourage VA offices to obtain from lenders assurance of good and marketable title through the least expensive means available. If VA offices continue to obtain title insurance policies, they should purchase the least expensive policies.

    Agency Affected: Department of Veterans Affairs

 

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