H.R. 4482, a bill to amend title 38, United States Code, to make permanent home loan guaranty programs for veterans regarding adjustable rate mortgages and hybrid adjustable rate mortgages

Cost Estimate
May 24, 2012

As ordered reported by the House Committee on Veterans’ Affairs
on April 27, 2012

H.R. 4482 would make permanent the authority of the Department of Veterans Affairs (VA) to guarantee adjustable-rate mortgages and hybrid adjustable-rate mortgages (that is, mortgages with a rate that is fixed for an initial period and adjustable thereafter). Subsidy costs of those additional loan guarantees—totaling $144 million over the 2013-2022 period—would be paid from a mandatory appropriation; therefore, pay-as-you-go procedures apply.

Under its mortgage guarantee program, VA promises to pay lenders up to 25 percent of the outstanding loan balance (subject to some limitations on the original loan amount) in the event that the borrower defaults. Such guarantees enable veterans to get better loan terms, such as lower interest rates or smaller down payments. VA charges fees to some borrowers who use the program, which offset some of the costs of subsequent defaults.

The authority in current law to guarantee adjustable-rate mortgages and hybrid adjustable-rate mortgages expires at the end of fiscal year 2012. Based on the number of such mortgages that VA has guaranteed in recent years, CBO estimates that VA would guarantee about $1.3 billion worth of additional loans a year over the next 10 years. Additional subsidy costs for those loans would increase direct spending by $144 million over the 2013-2022 period, CBO estimates.

The Statutory Pay-As-You-Go Act of 2010 establishes budget-reporting and enforcement procedures for legislation affecting direct spending or revenues. The net changes in outlays that are subject to those pay-as-you-go procedures are shown in the following table.