VA's Home Loan Guaranty Program

GAO discussed the Veterans Administration's (VA) Home Loan Guaranty Program, focusing on: (1) the Deficit Reduction Act's impact on the program; (2) VA servicing of defaulted loans; and (3) whether VA could reduce the costs of its property acquisition and disposal process. GAO noted that: (1) the act resulted in an increase in the debt of defaulting borrowers because it required VA to include certain costs in deciding whether to acquire foreclosed properties; (2) the act also increased the number of properties that VA did not acquire; (3) loan servicing for delinquent loans varied between VA regional offices; (4) VA is not fully utilizing its option of refinancing defaulted loans; (5) despite a high potential cost avoidance, VA has not adequately utilized its option of refunding mortgages that would otherwise be foreclosed; (6) VA did not generally inform defaulting veterans that it could assist them in selling their homes to avoid foreclosure; and (7) VA lost an average of $14,400 on each foreclosed property that it sold in 1986. GAO believes that VA: (1) is not adequately attempting to avoid foreclosure costs through voluntary deed conveyance; (2) could reduce its acquisition costs if it encouraged more third-party bids at foreclosure sales; and (3) could further reduce its acquisition costs by eliminating or reducing its title insurance requirements.