Homeownership

Appropriations Made to Finance VA's Housing Program May Be Overestimated Gao ID: RCED-93-173 September 8, 1993

Under its Home Loan Guaranty Program, the Department of Veterans Affairs (VA) has partially guaranteed $389 billion in home loans made to veterans by private sector lenders. The outstanding balance on these loans was $171 billion as of September 1992. In an effort to pin down the actual cost to the government guaranteeing the loans for their full life--up to 30 years--VA was required, beginning in fiscal year 1992, to estimate the subsidy cost associated with its new loan guarantees. The estimate determines the budgetary appropriations that are provided in the years that the loans are originated to cover all estimated future losses from those years' portfolios of mortgage loans. This report (1) estimates the costs, under different economic scenarios, to the federal government of guaranteeing VA's fiscal years 1992 and 1993 home mortgage loans and (2) compares GAO's estimates with 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.

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