Statement on Signing the Bill Amending the Veterans Administration Home Loan Guaranty Law


October 16, 1987


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 September 30, 1987. These provisions require payment of a fee by nonservice-disabled veterans who obtain VA housing loans, and contain the criteria for determining when the VA may acquire the property which secured a guaranteed loan that has gone into default.


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.