Housing Programs
Increased Use of Alternatives to Foreclosure Could Reduce VA's Losses Gao ID: RCED-90-4 December 20, 1989Pursuant to a congressional request, GAO reviewed the Department of Veterans Affairs' (VA) loan termination process for VA-guaranteed mortgages, focusing on how changes in VA practices could reduce the number and cost of foreclosures.
GAO found that: (1) VA lost $465 million on foreclosed homes it acquired and resold during fiscal year (FY) 1987; (2) VA predominantly used foreclosure to liquidate delinquent mortgages instead of such alternatives as compromise agreements, voluntary conveyance, and refunding; (3) VA typically did not collect foreclosure losses from the borrower; (4) VA generally did not consider the generally uncollectible foreclosure costs, interest costs on funds used to acquire and hold property, or price discounts on cash offers for sold properties, in making foreclosure decisions; (5) application of a GAO-developed model that incorporated those factors to typical properties in various regions indicated that refunding cost $10,420 less, compromise agreements cost $8,992 less, and voluntary conveyance cost $1,426 less than average foreclosure costs of $25,387; (6) VA could not always use such alternatives cost-effectively because of differences in state foreclosure laws, borrowers' individual financial situations, and the strength of local housing markets; and (7) private mortgage insurers, which generally guaranteed conventional mortgage loans in a manner similar to VA-guaranteed loans, tended to become involved with delinquent borrowers sooner than VA and used foreclosure alternatives more often than VA.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
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