The Department of Veterans Affairs (VA) provides guarantees to lenders for eligible borrowers to obtain better loan terms—such as lower interest rates or smaller down payments—when purchasing, constructing, or refinancing a home. VA typically pays lenders up to 25 percent of the outstanding mortgage balance if a borrower’s home is foreclosed upon. Such payments, net of fees and recoveries, comprise the subsidy cost for VA loan guarantees, which is paid from mandatory appropriations; hence, changing the subsidy cost affects direct spending.
To obtain a loan guarantee from VA, lenders must determine that each applicant satisfies the department’s underwriting standards, including verifying that their income will be sufficient to repay the mortgage. H.R. 4657 would permit lenders to consider expected cost savings documented in an energy efficiency report prepared for a home in determining the sufficiency of an applicant’s income. The bill would first require VA to prescribe regulations concerning how the energy-efficiency reports are prepared and how lenders should consider savings from energy efficiency features when evaluating income.
On the basis of data published by the U.S. Census Bureau on the number of owner-occupied housing units, information from the Residential Energy Service Network on the number of homes rated for energy efficiency, and projections of VA loan guarantees under current law, CBO expects that VA would guarantee about 240 additional loans each year, averaging about $400,000, as a result of lenders including energy efficiency savings in their evaluation of applicants’ income. The average subsidy rate for those new loans would be about 1 percent, increasing direct spending by $9 million over the 2021-2031 period, CBO estimates.
