The Department of Veterans Affairs (VA) plays an important role in financing housing for eligible veterans and others by guaranteeing that originating lenders will be partially protected from losses if borrowers do not repay their mortgages in full. Since the Congress authorized VA to guarantee mortgages in 1944, the program has backed more than 25 million loans.
The annual dollar volume of VA’s loan guarantees began to increase in 2000 before reaching a peak in 2003 and then declining through 2007. Since the financial crisis of the late 2000s, VA’s guarantees have generally increased both in dollar volume and as a share of total federal loan guarantees. Fiscal year 2020 was a record year for VA, with guarantees totaling more than $375 billion and accounting for 12 percent of all single-family home mortgages issued that year.
This report by the Congressional Budget Office describes VA’s mortgage guarantee program, including eligibility and underwriting criteria, the structure of the guarantees, and the volume and characteristics of borrowers who obtain such guarantees. The report also describes CBO’s estimates of the budgetary costs of the program and compares those costs with expenditures for other federal guarantees.
CBO’s findings are as follows:
Under the accounting rules used in the federal budget (as specified in the Federal Credit Reform Act of 1990, or FCRA), the guarantees of $268 billion in new mortgages that VA is projected to issue in fiscal year 2022 would increase the budget deficit by about $2.8 billion.
Subsidies that reduce fees for VA’s borrowers are the primary driver of those budgetary costs. Such fees are lower, on average, than those for mortgages guaranteed by the Federal Housing Administration, Fannie Mae, and Freddie Mac. When compared with the other three mortgage guarantee programs, VA’s is the only one that has net budgetary costs on a FCRA basis.
Under fair-value accounting—in which estimates of costs are based on the market value of the government’s obligations—that 2022 cohort of VA guarantees would increase the deficit by $9.7 billion.