Description:
As ordered reported by the House Committee on Veterans’ Affairs on February 12, 2015
H.R. 189 would enhance certain protections for veterans with home mortgages. CBO estimates that any change in direct spending under the bill would be insignificant.
Under current law, veterans may receive a judicial stay of foreclosure proceedings on loans that were originated before they entered the military. Those veterans are currently eligible to obtain a stay during the one-year period after they leave military service; however, that period of eligibility will be shortened to nine months beginning on January 1, 2016. H.R. 189 would retain the one-year period of eligibility through December 31, 2016. (The duration of the stay of proceedings itself is determined by the courts.)
Some of the loans that would be affected by that foreclosure protection are guaranteed by the Department of Veterans Affairs (VA) or the Federal Housing Administration (FHA). Under its home loan program, VA pays lenders up to 25 percent of the outstanding loan debt in the event that the borrower defaults. Unpaid interest can be added to the guaranteed debt, within certain limits. FHA provides a similar guarantee on mortgages it insures, compensating lenders for up to 100 percent of the loss.
Delaying foreclosure on borrowers who default would lengthen the period during which unpaid interest would accrue, increasing the indebtedness of the borrower. If the loan is eventually terminated, the claim filed by the lender would be larger by the amount of the additional interest, and the subsequent claim payment from VA or FHA would rise as a result. Those larger claim payments would raise the costs of both agencies.
Loans that could be affected by the bill would be those that were originated prior to enactment of H.R. 189. Changes to the cost of extant mortgages would be treated as loan modifications and the increased costs would be recorded as direct spending when the modifications became effective—that is, at the start of calendar year 2016, when the eligibility period for the benefit would be shortened under current law.
