Homeownership:

Appropriations Made to Finance VA's Housing Program May Be Overestimated

RCED-93-173: Published: Sep 8, 1993. Publicly Released: Sep 20, 1993.

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Pursuant to a congressional request, GAO provided information on the Department of Veterans Affairs' (VA) Home Loan Guaranty Program subsidy costs, focusing on the: (1) estimated costs of guaranteeing fiscal year (FY) 1992 and 1993 VA home mortgage loans; and (2) comparison between its estimates and estimates prepared by the administration.

GAO found that: (1) the costs of the VA home loan program are overstated; (2) VA has received more appropriations than it needs to cover program costs; (3) the estimated cost of guaranteeing home mortgage loans will be $306 million lower than original administration estimates; (4) actual program subsidy costs will vary depending on the growth rate in housing prices; (5) the administration's estimates may not reflect actual subsidy costs because they are based on an unrealistic Office of Management and Budget (OMB) model and Federal Housing Administration loan data rather than VA loan data; and (6) although the differences in methodology and data cannot be accurately estimated without further analysis, its model estimates of subsidy costs more closely reflect actual subsidy costs because its model incorporates several associated factors and uses VA data.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: VA revised its economic model by incorporating the effects of other important factors that influence subsidy costs and using VA data developed new estimates for FY 1992 and 1993.

    Recommendation: To ensure that estimates of the VA Home Loan Guaranty Program's subsidy costs are based on a model that: (1) incorporates the effects of all important factors that influence these costs; and (2) uses the most relevant data, the Secretary of Veterans Affairs and the Director, OMB, should work together to revise the OMB economic model. Specifically, they should: (1) assess and incorporate into the model factors in addition to equity--such as the rate of unemployment, the age of the borrower, and the size of the loan--that significantly affect subsidy costs; and (2) use data on VA loans to estimate the effects of these factors on the likelihood of foreclosure and prepayment.

    Agency Affected: Department of Veterans Affairs

  2. Status: Closed - Implemented

    Comments: OMB included in the President's FY 1995 budget a $456-million payment to a Treasury receipt account established to recover the excess subsidy payments in FY 1992 and 1993 due to VA's revised economic model.

    Recommendation: To ensure that estimates of the VA Home Loan Guaranty Program's subsidy costs are based on a model that: (1) incorporates the effects of all important factors that influence these costs; and (2) uses the most relevant data, the Secretary of Veterans Affairs and the Director, OMB, should work together to revise the OMB economic model. Specifically, they should: (1) assess and incorporate into the model factors in addition to equity--such as the rate of unemployment, the age of the borrower, and the size of the loan--that significantly affect subsidy costs; and (2) use data on VA loans to estimate the effects of these factors on the likelihood of foreclosure and prepayment.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Implemented

    Comments: VA used the revised economic model to develop reestimates of the FY 1992 and 1993 subsidy costs and included them in the President's FY 1995 budget. OMB included these reestimates for FY 1992 and 1993 in the President's FY 1995 budget.

    Recommendation: The Secretary of Veterans Affairs and the Director, OMB, should use this revised economic model to develop: (1) reestimates of the FY 1992 and 1993 subsidy costs for inclusion in the President's FY 1995 budget; and (2) estimates of subsidy costs for VA mortgages guaranteed in future years.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  4. Status: Closed - Implemented

    Comments: VA used the revised economic model to develop reestimates of the FY 1992 and FY 1993 subsidy costs and included them in the President's FY 1995 budget.

    Recommendation: The Secretary of Veterans Affairs and the Director, OMB, should use this revised economic model to develop: (1) reestimates of the FY 1992 and 1993 subsidy costs for inclusion in the President's FY 1995 budget; and (2) estimates of subsidy costs for VA mortgages guaranteed in future years.

    Agency Affected: Department of Veterans Affairs

 

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