H.R. 2791, Homes for Heroes Act

H.R. 2791 would make changes to the home loan guarantee program administered by the Department of Veterans Affairs (VA). The costs of the program are paid from mandatory appropriations and thus are reflected in the budget as direct spending. CBO estimates that enacting the bill would decrease net direct spending by $85 million over the 2025-2035 period (see Table 1). The costs of the legislation fall within budget function 700 (veterans benefits and services).

Subsequent Loans. VA provides loan guarantees to lenders that allow eligible borrowers to obtain better loan terms—such as smaller down payments and lower interest rates—to purchase, construct, improve, or refinance a home. VA typically pays lenders up to 25 percent of the outstanding mortgage balance if a borrower’s home is foreclosed upon. Those payments, net of fees paid by borrowers and recoveries by lenders, constitute the subsidy cost for the loan guarantees.^[1] CBO projects that, on average, VA will annually guarantee 525,000 loans of roughly $490,000 each at a subsidy rate of about 0.81 percent. Those loan guarantees are projected to cost $21 billion over the 2026-2035 period.

Subject to residency requirements, borrowers can obtain multiple VA-guaranteed home loans. On subsequent loans, VA typically guarantees amounts not to exceed 25 percent of the conforming loan limit, determined annually by Freddie Mac, less any outstanding guaranteed amounts from prior VA home loans.

Section 2 of the bill would increase the maximum amount that VA guarantees on loans obtained by borrowers with outstanding VA-guaranteed loans to 37.5 percent of the conforming loan limit. Accordingly, VA would guarantee a larger portion of subsequent loans obtained by borrowers, thereby increasing the subsidy costs for those loans. Using its projection of loan volume based on data provided by VA, CBO expects that on average each year over the 2026‑2035 period, roughly 2,100 borrowers with outstanding loans would obtain loans for which VA would guarantee an additional amount of about $285,000 at a subsidy rate of 0.57 percent. Overall, CBO estimates that those loan guarantees would increase direct spending by $36 million over the 2025‑2035 period.

Refinancing Loan Fee. Section 3 would modify the fee that VA charges borrowers for certain refinancing loans. Under current law, the fee for those loans is 0.5 percent of the loan amount. The bill would temporarily reduce that fee to 0.25 percent from December 31, 2025, to December 31, 2027, return it to 0.5 percent through September 30, 2031, then increase it to 0.75 percent until December 31, 2035. After that date, the fee would return to 0.5 percent. Those fee modifications would change the number and subsidy cost of loans guaranteed. Using its projection of loan volume based on data provided by VA, CBO estimates that modifying the rates as specified in the bill would decrease net direct spending by $121 million over the 2025‑2035 period. (Because an increase in the fee would reduce the subsidy cost of the loans, such an increase would reduce direct spending.)

The CBO staff contact for this estimate is Paul B.A. Holland. The estimate was reviewed by Christina Hawley Anthony, Deputy Director of Budget Analysis.