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108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    108-107

======================================================================



 
                 SELECTED RESERVE HOME LOAN EQUITY ACT

                                _______
                                

  May 19, 2003.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Mr. Smith of New Jersey, from the Committee on Veterans' Affairs, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 1257]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Veterans' Affairs, to whom was referred 
the bill (H.R. 1257) to amend title 38, United States Code, to 
make permanent the authority for qualifying members of the 
Selected Reserve to have access to home loans guaranteed by the 
Secretary of Veterans Affairs and to provide for uniformity in 
fees charged qualifying members of the Selected Reserve and 
active duty veterans for such home loans, having considered the 
same, reports favorably thereon without amendment and 
recommends that the bill do pass.

                              Introduction

    The reported bill reflects the Committee's consideration of 
H.R. 1257, the Selected Reserve Home Loan Equity Act.
    On March 13, 2003, Honorable Lane Evans, Ranking Member of 
the Committee, introduced H.R. 1257, along with Honorable 
Michael H. Michaud, Ranking Member of the Subcommittee on 
Benefits, Honorable Bob Filner, Honorable Luis V. Gutierrez, 
Honorable Corrine Brown, Honorable Ciro D. Rodriguez, Honorable 
Silvestre Reyes, Honorable Ted Strickland, Honorable Tom Udall, 
Honorable Timothy J. Ryan, Honorable Bernard Sanders, Honorable 
Tim Holden, Honorable Susan A. Davis, and Honorable Maxine 
Waters.
    On May 7, 2003, the Subcommittee on Benefits met and 
unanimously ordered H.R. 1257 reported favorably to the full 
Committee.
    On May 15, 2003, the full Committee met and ordered H.R. 
1257 reported favorably to the House by unanimous voice vote.

                      Summary of the Reported Bill

    H.R. 1257 would:

    1. LMake the VA home loan program for members of the 
Selected Reserve permanent, and reduce the funding fee charged 
to Select Reserve home loan applicants to the same amount as 
the amount paid by active duty servicemembers.

    2. LIncrease the amount of fees paid by a veteran who is 
purchasing a home with no down payment for a second or 
subsequent time.

                       Background and Discussion

    On April 11, 2002 (107th Congress), the Subcommittee on 
Benefits held a hearing on a number of bills, among them H.R. 
2095, introduced by Ranking Member Evans. This bill proposed to 
equalize fees between members of the Selected Reserve and other 
veterans. Veterans service organizations and the Department of 
Veterans Affairs testified in support of the bill. Although 
legislation passed the House of Representatives in 2002 to 
equalize fees on a temporary basis, the provision was not 
included in the final legislation approved in conference. H.R. 
1257 is similar to H.R. 2095, but makes the home loan program 
for members of the Selected Reserve permanent, and provides for 
equalization of funding fees.

    Permanent authority for housing loans for members of the 
Selected Reserve.--Section 2 of the bill would make the home 
loan program for members of the Selected Reserve permanent. In 
1992, Congress granted eligibility for VA home loans to persons 
who served in the Selected Reserve (which includes the National 
Guard). This benefit is a useful recruiting and retention tool 
for members of the Selected Reserve. Under current law, the 
program is scheduled to expire on September 30, 2009.
    In order to qualify for this benefit, a member of the 
Selected Reserve must have honorably served for at least six 
years and meet other requirements. In recent years, reservists 
have been increasingly called upon to participate on active 
duty for extended periods to support the national defense. As 
the recent actions in Afghanistan and Iraq clearly demonstrate, 
reservists are an integral part of America's ``total force.'' 
They have earned the right to participate in VA's home loan 
program on a permanent and equal basis.

    Uniform home loan guaranty fees for qualifying members of 
the Selected Reserve and active duty veterans.--Section 3 of 
the bill would amend the Loan Fee Table to provide uniformity 
in the funding fees charged to members of the Selected Reserve 
and active duty veterans for VA home loans. Under current law, 
in most cases a reservist pays a funding fee that is 0.75 
percent higher than the fee charged to veterans who have served 
on active duty. For example, the current fee for a veteran to 
obtain an initial VA home loan with no down payment is 2 
percent; a reservist is charged a fee of 2.75 percent for the 
same loan. Reservists who have a service-connected disability 
are exempt from the fee.

    According to VA, members of the Selected Reserve have a 
lower foreclosure rate than other loan guaranty beneficiaries. 
Since its inception, the foreclosure rates for members of the 
Selected Reserve have been almost one-third lower than that of 
other veterans; therefore, a higher rate is not justified on 
the basis of foreclosure risk. Reservists have earned equality 
in fees with other veterans.
    In order to pay the cost of equalizing benefits between 
reservists and other veterans, section 3 of the bill would also 
increase the home loan guaranty fees for veterans qualifying 
for a second or subsequent home loan with no down payment. The 
bill would amend the Loan Fee Table to increase the fees for 
veterans who obtain a subsequent VA home loan from 3 percent to 
3.3 percent for loans closed before October 1, 2011. This fee 
would be reduced to 2.15 percent for loans closed between 
October 1, 2011 and September 30, 2013.

                      Section-By-Section Analysis

    Section 1 would provide that this Act may be cited as the 
``Selected Reserve Home Loan Equity Act''.

    Section 2 would amend section 3702(a)(2)(E) of title 38, 
United States Code, to provide permanent authority for housing 
loans for members of the Selected Reserve.

    Section 3 would amend paragraph (2) of section 3729(b) of 
title 38, United States Code, to provide uniform home loans 
fees for qualifying members of the Selected Reserve and active 
duty veterans and would increase the fee for second or 
subsequent use of the VA home loan program with no down 
payment.

                    Performance Goals and Objectives

    The reported bill would authorize veterans benefits 
enhancements and program improvements under laws administered 
by the Secretary of Veterans Affairs. The veterans programs and 
activities affected by the reported bill are currently 
authorized. Their performance goals and objectives are 
established in annual performance plans and are subject to the 
Committee's regular oversight.

               Congressional Budget Office Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, April 4, 2003
Hon. Lane Evans
Ranking Democratic Member, Committee on Veterans' Affairs,
House of Representatives, Washington, DC

    Dear Congressman: As you requested, the Congressional 
Budget Office has prepared the enclosed cost estimate for H.R. 
1257, the Selected Reserve Home Loan Equity Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Sunita 
D'Monte, who can be reached at 226-2840.

            Sincerely,
                                       Douglas Holtz-Eakin,
                                                           Director
    Enclosure.

               Congressional Budget Office Cost Estimate

            H.R. 1257, Selected Reserve Home Loan Equity Act

                    As introduced on March 13, 2003

    H.R. 1257 would permanently extend the home loan benefits 
guaranteed by the Department of Veterans Affairs (VA) to 
members of the selected reserve and amend certain fees charged 
for the program. CBO estimates that enacting the bill would 
reduce direct spending by $51 million over the 2004-2013 
period, but would not affect administrative expenses for the 
program, which are provided for in annual appropriations acts. 
The changes in direct spending are shown in the following 
table. The budgetary impact of this bill falls within budget 
function 700 (veterans benefits and services).

 
----------------------------------------------------------------------------------------------------------------
                                                            By Fiscal Year, Outlays in Millions of Dollars
                                                   -------------------------------------------------------------
                                                    2004  2005  2006  2007  2008  2009  2010  2011   2012   2013
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING
Estimated Budget Authority........................    -4    *     *     *     *     *     -2    -2    -21    -21
Estimated Outlays.................................    -4    *     *     *     *     *     -2    -2    -21    -21
----------------------------------------------------------------------------------------------------------------
* = Between -$500,000 and zero.


    Under current law, reservists are eligible for home loans 
guaranteed by VA through 2009. CBO estimates that under the 
bill, VA would guarantee 9,000 additional loans a year over the 
2010-2013 period, with an average loan amount of $153,000. The 
bill also would alter the fee structure for the VA home loan 
program in two ways. First, it would require VA to charge the 
same fees for active-duty veterans and reservists by reducing 
the fees paid by reservists by 75 basis points. And second, it 
would increase the fee charged for repeated use (when a veteran 
uses the benefit more than once) of the home loan benefit by 30 
basis points over the 2004-2011 period and by 90 basis points 
in 2012 and 2013.
    CBO estimates that revising fees in the manner specified 
above would reduce direct spending by $4 million in 2004, but 
have no significant effect on direct spending over the 2005-
2009 period as the fee changes would approximately offset each 
other over that period. Savings in 2004 result from lower 
interest rate assumptions for that year compared to those 
projected for the 2005-2009 period.
    Starting in 2010, when VA would guarantee additional loans 
for reservists under the bill, CBO estimates direct spending 
would fall by $2 million a year in 2010 and 2011, and by $21 
million a year in 2012 and 2013. Savings result because 
reservists have fewer home loan defaults than do other 
veterans, according to VA, and this lower default rate would 
reduce the subsidy rate for the program as a whole over the 
2010-2013 period. Annual savings would increase significantly 
from 2011 to 2012 because the fees would rise substantially in 
2012 under the bill.
    H.R. 1257 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, and tribal 
governments.
    The CBO staff contact is Sunita D'Monte, who can be reached 
at 226-2840. This estimate was approved by Peter H. Fontaine, 
Deputy Assistant Director for Budget Analysis.

                     Statement of Federal Mandates

    The preceding Congressional Budget Office cost estimate 
states that the bill contains no intergovernmental or private 
sector mandates as defined in the Unfunded Mandates Reform Act.

                 Statement of Constitutional Authority

    Pursuant to Article I, section 8 of the United States 
Constitution, the reported bill is authorized by Congress' 
power to ``provide for the common Defense and general Welfare 
of the United States.''

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

               CHAPTER 37 OF TITLE 38, UNITED STATES CODE

CHAPTER 37--HOUSING AND SMALL BUSINESS LOANS

           *       *       *       *       *       *       *


SUBCHAPTER I--GENERAL

           *       *       *       *       *       *       *


Sec. 3702. Basic entitlement

  (a)(1)  * * *
  (2) The veterans referred to in the first sentence of 
paragraph (1) of this subsection are the following:
          (A)  * * *

           *       *       *       *       *       *       *

          (E) For the period beginning on October 28, 1992, 
        [and ending on September 30, 2009,] each veteran 
        described in section 3701(b)(5) of this title.

           *       *       *       *       *       *       *


SUBCHAPTER III--ADMINISTRATIVE PROVISIONS

           *       *       *       *       *       *       *


Sec. 3729. Loan fee

  (a)  * * *
  (b) Determination of Fee.--(1)  * * *
  [(2) The loan fee table referred to in paragraph (1) is as 
follows:

                             [LOAN FEE TABLE
------------------------------------------------------------------------
                                 Active duty                    Other
         Type of loan              veteran      Reservist      obligor
------------------------------------------------------------------------
(A)(i) Initial loan described          2.00          2.75            NA
 in section 3710(a) to
 purchase or construct a
 dwelling with 0-down, or any
 other initial loan described
 in section 3710(a) other than
 with 5-down or 10-down
 (closed before October 1,
 2011)........................
------------------------------------------------------------------------
(A)(ii) Initial loan described         1.25          2.00            NA
 in section 3710(a) to
 purchase or construct a
 dwelling with 0-down, or any
 other initial loan described
 in section 3710(a) other than
 with 5-down or 10-down
 (closed on or after October
 1, 2011).....................
------------------------------------------------------------------------
(B)(i) Subsequent loan                 3.00          3.00            NA
 described in section 3710(a)
 to purchase or construct a
 dwelling with 0-down, or any
 other subsequent loan
 described in section 3710(a)
 (closed before October 1,
 2011)........................
------------------------------------------------------------------------
(B)(ii) Subsequent loan                1.25          2.00            NA
 described in section 3710(a)
 to purchase or construct a
 dwelling with 0-down, or any
 other subsequent loan
 described in section 3710(a)
 (closed on or after October
 1, 2011).....................
------------------------------------------------------------------------
(C)(i) Loan described in               1.50          2.25            NA
 section 3710(a) to purchase
 or construct a dwelling with
 5-down (closed before October
 1, 2011).....................
------------------------------------------------------------------------
(C)(ii) Loan described in              0.75          1.50            NA
 section 3710(a) to purchase
 or construct a dwelling with
 5-down (closed on or after
 October 1, 2011).............
------------------------------------------------------------------------
(D)(i) Initial loan described          1.25          2.00            NA
 in section 3710(a) to
 purchase or construct a
 dwelling with 10-down (closed
 before October 1, 2011)......
------------------------------------------------------------------------
(D)(ii) Initial loan described         0.50          1.25            NA
 in section 3710(a) to
 purchase or construct a
 dwelling with 10-down (closed
 on or after October 1, 2011).
------------------------------------------------------------------------
(E) Interest rate reduction            0.50          0.50            NA
 refinancing loan.............
------------------------------------------------------------------------
(F) Direct loan under section          1.00          1.00            NA
 3711.........................
------------------------------------------------------------------------
(G) Manufactured home loan             1.00          1.00            NA
 under section 3712 (other
 than an interest rate
 reduction refinancing loan)..
------------------------------------------------------------------------
(H) Loan to Native American            1.25          1.25            NA
 veteran under section 3762
 (other than an interest rate
 reduction refinancing loan)..
------------------------------------------------------------------------
(I) Loan assumption under              0.50          0.50          0.50
 section 3714.................
------------------------------------------------------------------------
(J) Loan under section 3733(a)         2.25          2.25         2.25]
------------------------------------------------------------------------

  (2) The loan fee table referred to in paragraph (1) is as 
follows:

                             LOAN FEE TABLE
------------------------------------------------------------------------
          Type of loan                  Veteran          Other obligor
------------------------------------------------------------------------
(A)(i) Initial loan described in               2.00                  NA
 section 3710(a) to purchase or
 construct a dwelling with 0-
 down, or any other initial loan
 described in section 3710(a)
 other than with 5-down or 10-
 down (closed before October 1,
 2011)..........................
------------------------------------------------------------------------
(A)(ii) Initial loan described                 1.25                  NA
 in section 3710(a) to purchase
 or construct a dwelling with 0-
 down, or any other initial loan
 described in section 3710(a)
 other than with 5-down or 10-
 down (closed on or after
 October 1, 2011)...............
------------------------------------------------------------------------
(B)(i) Subsequent loan described               3.30                  NA
 in section 3710(a) to purchase
 or construct a dwelling with 0-
 down, or any other subsequent
 loan described in section
 3710(a) (closed before October
 1, 2011).......................
------------------------------------------------------------------------
(B)(ii) Subsequent loan                        2.15                  NA
 described in section 3710(a) to
 purchase or construct a
 dwelling with 0-down, or any
 other subsequent loan described
 in section 3710(a) (closed on
 or after October 1, 2011 and
 before October 1, 2013)........
------------------------------------------------------------------------
(B)(iii) Subsequent loan                       1.25                  NA
 described in section 3710(a) to
 purchase or construct a
 dwelling with 0-down, or any
 other subsequent loan described
 in section 3710(a) (closed on
 or after October 1, 2013)......
------------------------------------------------------------------------
(C)(i) Loan described in section               1.50                  NA
 3710(a) to purchase or
 construct a dwelling with 5-
 down (closed before October 1,
 2011)..........................
------------------------------------------------------------------------
(C)(ii) Loan described in                      0.75                  NA
 section 3710(a) to purchase or
 construct a dwelling with 5-
 down (closed on or after
 October 1, 2011)...............
------------------------------------------------------------------------
(D)(i) Initial loan described in               1.25                  NA
 section 3710(a) to purchase or
 construct a dwelling with 10-
 down (closed before October 1,
 2011)..........................
------------------------------------------------------------------------
(D)(ii) Initial loan described                 0.50                  NA
 in section 3710(a) to purchase
 or construct a dwelling with 10-
 down (closed on or after
 October 1, 2011)...............
------------------------------------------------------------------------
(E) Interest rate reduction                    0.50                  NA
 refinancing loan...............
------------------------------------------------------------------------
(F) Direct loan under section                  1.00                  NA
 3711...........................
------------------------------------------------------------------------
(G) Manufactured home loan under               1.00                  NA
 section 3712 (other than an
 interest rate reduction
 refinancing loan)..............
------------------------------------------------------------------------
(H) Loan to Native American                    1.25                  NA
 veteran under section 3762
 (other than an interest rate
 reduction refinancing loan)....
------------------------------------------------------------------------
(I) Loan assumption under                      0.50                0.50
 section 3714...................
------------------------------------------------------------------------
(J) Loan under section 3733(a)..               2.25                2.25
------------------------------------------------------------------------

                                                      

           *       *       *       *       *       *       *
  (4) For the purposes of paragraph (2):
          [(A) The term ``active duty veteran'' means any 
        veteran eligible for the benefits of this chapter other 
        than a Reservist.
          [(B) The term ``Reservist'' means a veteran described 
        in section 3701(b)(5)(A) of this title who is eligible 
        under section 3702(a)(2)(E) of this title.]
          (A) The term ``veteran'' means any veteran eligible 
        for the benefits of this chapter.
          [(C)] (B) The term ``other obligor'' means a person 
        who is not a veteran, as defined in section 101 of this 
        title or other provision of this chapter.
          [(D)] (C) The term ``initial loan'' means a loan to a 
        veteran guaranteed under section 3710 or made under 
        section 3711 of this title if the veteran has never 
        obtained a loan guaranteed under section 3710 or made 
        under section 3711 of this title.
          [(E)] (D) The term ``subsequent loan'' means a loan 
        to a veteran, other than an interest rate reduction 
        refinancing loan, guaranteed under section 3710 or made 
        under section 3711 of this title if the veteran has 
        previously obtained a loan guaranteed under section 
        3710 or made under section 3711 of this title.
          [(F)] (E) The term ``interest rate reduction 
        refinancing loan'' means a loan described in section 
        3710(a)(8), 3710(a)(9)(B)(i), 3710(a)(11), 
        3712(a)(1)(F), or 3762(h) of this title.
          [(G)] (F) The term ``0-down'' means a downpayment, if 
        any, of less than 5 percent of the total purchase price 
        or construction cost of the dwelling.
          [(H)] (G) The term ``5-down'' means a downpayment of 
        at least 5 percent or more, but less than 10 percent, 
        of the total purchase price or construction cost of the 
        dwelling.
          [(I)] (H) The term ``10-down'' means a downpayment of 
        10 percent or more of the total purchase price or 
        construction cost of the dwelling.

           *       *       *       *       *       *       *