| Testimony
of
James B. Hubbard, Director National Economic Commission The American Legion Before the Subcommittee on Oversight and Investigations Committee on Veterans’ Affairs United States House of Representatives on Support for the VA Home Loan Guaranty Service March 16, 2000
Thank you, Mr. Chairman, for the opportunity to testify on behalf of the 2.8 million veterans of The American Legion. The Home Loan Guaranty Program continues to be of major importance to the people who have served honorably in the Armed Forces of the United States. The Home Loan Guaranty Program was a critical component of the Serviceman's Readjustment Act of 1944, the original GI Bill written by The American Legion. Over the years, not only have 16.5 million veterans benefited from this visionary program, but also both the home building industry and the financial community prospered. Clearly, the success of this program is well documented and must be continued for future veterans and their families. At the outset, The American Legion is generally pleased with the operation of the Home Loan Guaranty Program. The American Legion believes VA has done its best to keep this program accessible and user friendly, while at the same time keeping the interests of veterans as the primary focus of its decision making process. Ample evidence of this practice exists. Let me offer one example. In 1980, Congress authorized a program called Interest Rate Reduction Refinancing Loans that allowed veterans to take advantage of lower interest rates by refinancing their existing VA home loans. To encourage veterans to refinance, at least one lender contacted eligible veterans and offered a "deal." The lender suggested veterans to skip two or three payments on their existing mortgages. The lender would then refinance these loans at a lower rate, rolling in the missed payments and some "other fees" into the new loans. In some cases, veterans found the total of the new loans were actually greater than their previous loans and the new monthly payments were actually higher. In June 1998, VA initiated rulemaking to stop this irresponsible and unethical practice. The new rule prohibited lenders with automatic approval authority from approving any refinancing of loans delinquent more than thirty days. A private sector mortgage company began a national campaign to discredit VA's rulemaking effort. The new rule took effect in June 1999 even though the Mortgage Company filed a lawsuit. The new rule does not prevent veterans from refinancing. It simply stops lenders from using predatory lending practices to gouge veterans. The new rule also discourages veterans from intentionally skipping one or more mortgage loan payments and unwittingly creating a bad mark on their credit histories. This is a prime example of VA's Loan Guaranty Service looking out for the best interests of veterans. There is a move in the Federal government to make programs more useful to participants by using information technology. This is a laudable effort provided the proposed actions are advantageous, progressive, and taken with proper foresight. This new effort in the Loan Guaranty Program would help speed up the application process and allow lenders to submit information to VA for issuing a Certificate of Eligibility in an electronic format. The lender would receive certificates back in a more timely matter. This new technology would be a tremendous benefit to veterans. Currently, veterans have to plan for delays in settlement while waiting patiently for their Certificate of Eligibility to arrive. The American Legion heartily supports this initiative. Likewise, other technology efforts to improve the interface between veterans, lenders and VA, to enhance loan servicing, to improve financial counseling with delinquent veterans, to automated loan application, and to expedite loan approvals would significantly enrich this program for eligible veterans. Mr. Chairman, with respect to consolidation, The American Legion is concerned that in the proposed plan to restructure the loan processing and servicing from its current 45 regional offices to just 9 regional service centers, most of the existing West Coast regional offices disappear. The Los Angeles Regional Office is to be closed this August and the home loan operations transferred to Phoenix. The American Legion realizes there are efficiencies to be found in consolidating work of this nature; however The American Legion questions the wisdom of closing the office with roughly 10 percent of the nation’s veterans population. The American Legion suggests VA reconsider this decision and evaluate the possibility of making one of the regional service centers in Los Angeles. For some years now, VA's loan servicing program provided financial counseling for veterans delinquent in loan payments. The ultimate goal was to keep veterans in their homes. In some cases, VA would seek forbearance of the loan with the lender. In other cases, VA would purchase the loan from the lender and then counsel with the delinquent veteran to bring the payments up to date. In situations when there seems to be no realistic hope of bringing the loan up to date, a private sale is encouraged. In some extreme situations, a deed in lieu of foreclosure is proposed. In all cases, VA has the interests of both the lender and the veteran in mind. Every effort must be made to protect the lender's financial investment and to preserve the veteran's credit rating, when other alternatives are available. The American Legion believes this program should definitely be continued, since it produces an annual net savings to taxpayers of over $100 million. Mr. Chairman, The American Legion appreciates the opportunity to take part in this oversight hearing on an important veterans' readjustment benefit program that has helped so many Americans become homeowners. 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