Statement on Signing the
Bill Amending the Veterans Administration Home Loan Guaranty Law
I
have today reluctantly signed S. 1691, a bill containing amendments to the
Veterans Administration (VA) home loan guaranty law. This legislation was
originally intended to extend for a limited period -- 45 days as finally passed
by the Congress -- two provisions relating to the home loan program that
expired on
The
VA home loan program has been, and continues to be, of great importance to
present and former members of the Nation's Armed Forces but the costs of
operating the program and paying claims on bad loans are substantial. Thus, the
Congress, with the administration's support, in 1982 imposed a modest, one-time
fee on veterans using this unique benefit. Certain veterans and surviving
spouses, such as those receiving compensation for service-connected
disabilities, are exempt from paying this fee. The 1 percent fee, which has now
expired, should be extended. This fee will not ensure the solvency of the VA
home loan program but will provide almost $225 million in fiscal year 1988.
A
section was added to S. 1691, however, that I strongly oppose. It would have
the effect of generally requiring the VA to sell its vendee loans (i.e., loans
made to purchasers of VA-acquired foreclosed properties) with recourse. Under
this type of sale, the Government agrees to buy back the note from the holder
if the borrower defaults. This is bad credit policy.
This
administration has launched a program to improve Federal credit programs by
selling loan assets to the public without recourse. Loans sold with recourse
run counter to both credit reform and efficient debt management. The Federal
guarantee behind such loans makes them the credit risk equivalent of Treasury
securities and makes it difficult to obtain an accurate measurement of the
subsidy inherent in Federal credit, since adding guarantees effectively
disguises the original subsidy.
Moreover,
an effective prohibition of VA loan sales without recourse would have a
detrimental impact, by approximately $1 billion, on attempts to achieve the
deficit reduction target set in the recently revised Gramm-Rudman-Hollings (G -
R - H) law, thus requiring additional cuts of that amount in other programs to
avoid the automatic sequester.
Realizing
the merits of the administration's objections to the provision requiring VA to
sell its loans with recourse, the chairman and the ranking minority member of
the Senate Committee on Veterans' Affairs have pledged to work ``to repeal or
substantially modify'' this provision. They have also indicated that they
intend to move VA home loan guaranty legislation forward in the near future.
The
administration will work with these and other Members of Congress to repeal the
unwise recourse loan amendment in S. 1691 and to extend the loan fee and
streamline the home loan program. If such home loan guaranty legislation were
to be enacted promptly -- for example, before the November 15, 1987, expiration
date of the two expired provisions extended in S. 1691 -- the problem related
to the G - R - H reduction would not occur.
With
these understandings, I am signing S. 1691 into law.
Note: S. 1691, approved October 16, was assigned
Public Law No. 100 - 136.