VA Housing: Guaranteed Loans, Direct Loans, and Specially Adapted Housing Grants

May 26, 2017 (R42504)
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The Department of Veterans Affairs (VA) has assisted veterans with homeownership since 1944, when Congress enacted the loan guaranty program to help veterans returning from World War II purchase homes. The loan guaranty program assists veterans by insuring mortgages made by private lenders, and is available for the purchase or construction of homes as well as to refinance existing loans. The loan guaranty has expanded over the years so that it is available to (1) all veterans who fulfill specific duration of service requirements or who were released from active duty due to service-connected disabilities, (2) members of the reserves who completed at least six years of service, and (3) spouses of veterans who died in action, of service-connected disabilities, or who died while receiving (or were entitled to receive) benefits for certain service-connected disabilities (see Table 1). Under the loan guaranty, the VA agrees to reimburse lenders for a portion of losses if borrowers default. Unlike insurance provided through the Federal Housing Administration (FHA) insurance program, the VA does not insure 100% of the loan, and instead the percentage of the loan that is guaranteed is based on the principal balance of the loan (see Table 3).

Veterans who enter into VA-guaranteed loans must pay an up-front fee based on a number of factors that include the type of loan entered into (for example, purchase or refinance), whether service was active duty or in the reserves, whether the loan is the first or subsequent VA loan a borrower has entered into, and the amount of down payment (see Table 6). Borrowers are not required to make a down payment for a VA-guaranteed loan, but the up-front fee is reduced if there is a down payment of 5% or more. Most borrowers (82% in FY2016) do not make a down payment.

In addition to guaranteeing loans from private lenders, the VA also makes direct loans to borrowers in certain circumstances. The original VA direct loan, which was targeted to veterans in rural areas, is now available only to veterans or servicemembers with certain service-connected disabilities. Another direct loan program, originally enacted as a demonstration program in 1992, serves Native American veterans, including veterans living in American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. In addition, the VA may enter into direct loans in cases where a borrower is delinquent or defaults on a VA-guaranteed loan. The VA may either acquire a loan from a lender and continue servicing itself (called "acquired loans") or, in cases of foreclosure, the VA may purchase the property and resell it. In these cases, the VA may enter into a loan with a purchaser whether he or she is a veteran or not (called "vendee loans").

A third way in which the VA provides housing assistance to both veterans and active duty servicemembers is through the Specially Adapted Housing (SAH) Program. Through the SAH program, veterans with certain service-connected disabilities may obtain grants from the VA to purchase or remodel homes to fit their needs. The amount of a grant depends on the disability, and in some cases grants can be used to modify the homes of family members with whom veterans or servicemembers are staying (see Table 7).

This report discusses these three types of housing assistance—the loan guaranty program, direct loan programs, and Specially Adapted Housing program—their origins, how they operate, and how they are funded. The report also has a section that discusses the default and foreclosure of VA-guaranteed loans.

VA Housing: Guaranteed Loans, Direct Loans, and Specially Adapted Housing Grants


The U.S. Department of Veterans Affairs (VA) administers several programs that assist individual veterans in purchasing and/or rehabilitating homes. The specific ways in which the VA assists veterans include (1) guaranteeing home mortgages from private lenders (through the Loan Guaranty Program, a form of insurance) to help veterans obtain financing for home purchases, improvements, or refinancing; (2) providing direct loans for home purchases to Native American veterans and to purchasers of homes that are in the VA inventory due to default and foreclosure; and (3) extending grants and loans to veterans with service-connected disabilities so that they can adapt housing to fit their needs through the Specially Adapted Housing Program.

This report discusses some of the legislative history behind each of these housing programs, and provides details about how the programs currently operate. There is a separate section on funding for VA loan programs, and the final section of the report discusses VA efforts to assist borrowers who face default and foreclosure. While the VA also provides housing assistance for homeless veterans, this report does not address these programs. For more information about homeless veterans and programs that assist them, see CRS Report RL34024, Veterans and Homelessness, by [author name scrubbed].

The VA Loan Guaranty Program

The VA Loan Guaranty Program is a mortgage insurance program through which eligible veterans enter into mortgages with private lenders, and the VA guarantees that it will pay lenders a portion of losses that may be suffered as a result of borrower default. VA-guaranteed loans are available for the purchase, construction, or repair/rehabilitation of a "dwelling"—defined to include homes with up to four units, single condominium units, and manufactured homes classified as real property1—or a farm and farm residence. The guaranty is also available to finance the purchase of a manufactured home not classified as real property, and to refinance an existing loan.

The VA loan guaranty came about as an alternative to a cash bonus for veterans returning from World War II, considered less expensive than a bonus, but still a way to provide benefits to veterans.2 Credit was seen as one of the areas where veterans were at a disadvantage compared to their non-veteran counterparts because they had not had the time to establish a career or credit history that would allow them to obtain a mortgage without a guaranty.3 The Servicemen's Readjustment Act of 1944 (P.L. 78-346) created the loan guaranty as part of a package of benefits for returning veterans. The act also included educational benefits (the 1944 act introduced the GI Bill), employment counseling and placement services, and payments for unemployed veterans. The package of benefits was meant to help veterans reintegrate into the civilian economy.4 The law provided that the VA would guaranty loans for veterans to purchase or construct a home, purchase a farm or farm equipment, or purchase a business. The guaranty was limited to the greater of 50% of the loan or $2,000, and loans could not have an interest rate above 4%. The VA paid the interest on the guaranteed portion of the loan during its first year. Veterans had the greater of two years from the termination of the war, or two years from their date of separation from the military, to apply.

Within a year, Congress amended the loan guaranty to address some of the aspects of the program that did not seem to be working (P.L. 79-268). The maximum guaranty was raised to $4,000 (prices of homes had risen), the maximum maturity was increased from 20 to 25 years (the shorter maturity period had resulted in higher payments), and veterans were given 10 years from the end of the war to apply (two years had been too short a time frame).5

Over time, the loan guaranty has been expanded to include all veterans who served on active duty from World War II on, with varying length of service requirements, as well as those who served in the selected reserves; the amount of the guaranty has grown; business purchases are no longer eligible and farm purchases have been limited; and the uses have expanded to include refinancing, energy efficiency improvements, and the purchase of manufactured homes. This section of the report describes eligibility for the loan guaranty ("Borrower Eligibility"), ways in which it can be used ("Uses of the Loan Guaranty"), coverage ("Amount of Coverage Provided by the Loan Guaranty"), and how the VA loan guaranty differs from the Federal Housing Administration (FHA) mortgage insurance program ("How the VA Loan Guaranty Differs from FHA Insurance").

Borrower Eligibility

Service Criteria

Veteran eligibility for the VA loan guaranty started narrowly, targeted to individuals who served during World War II. As additional conflicts arose, veterans of those conflicts, as well as peacetime eras, were made eligible for the program.

A veteran is defined as "a person who served in the active military, naval, or air service, and who was discharged or released there from under conditions other than dishonorable."6 To be eligible for VA loan benefits (and most other VA benefits), veterans must fulfill specific time period and duration of service requirements. In addition, reservists with at least six years of service are eligible for the loan guaranty.7 Reservists need not have served on active duty, unlike what is required for some other veterans benefits, as long as they fulfill the duration of service requirement. The spouses of veterans who died in action, died of a service-connected disability, or who are missing in action, captured, or forcibly detained are eligible for the loan guaranty. In addition, P.L. 112-154, enacted in August 2012, expanded eligibility to include spouses of veterans who die while receiving compensation (or who were eligible to receive compensation) for a service-connected disability rated totally disabling for a specified duration.8 Previously, only surviving spouses of veterans who died from their service-connected disabilities were eligible for the loan guaranty. See Table 1 for a complete list of eligibility categories.9

Spouses of Veterans and Same-Sex Marriage

As discussed in the previous section, spouses of veterans may be eligible for the loan guaranty in their own right in certain circumstances. In addition, spouses may be co-applicants on a loan, with their additional income and resources a possible factor in helping to qualify for a loan.

Prior to the Supreme Court decision, Obergefell v. Hodges, issued June 26, 2015, same-sex spouses did not always qualify for VA loan benefits. The VA statute defines "surviving spouse" and "spouse" to include only those of the opposite sex.10 In September 2013, President Obama directed the executive branch to cease enforcing the VA definitions to the extent they did not recognize spouses of the same sex.11 However, the statute governing VA benefits also has a provision regarding the validity of marriages. A marriage is considered valid "according to the law of the place where the parties resided at the time of the marriage or the law of the place where the parties resided when the right to benefits accrued."12 So couples residing in a state not recognizing same-sex marriage at the time of the marriage or when applying for benefits may have been prevented from having a spouse apply for or qualify for a loan.

In Obergefell v. Hodges, the Supreme Court held that the Fourteenth Amendment requires a state to permit a marriage between two people of the same sex and to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out of state.13 This means that because same-sex couples may now marry in all states, spouses may qualify for the VA loan program as long as they fulfill other statutory requirements.

Table 1. Service Eligibility for the Loan Guaranty

Eligibility Category

Public Law

Time Requirement
(if any)

Active Dutyb Service during World War II
(9/16/40 to 7/25/47)

P.L. 78-346

90 daysc

Active Duty Service during the Korean Conflict
(6/27/50 to 1/31/55)

P.L. 82-550

90 daysc

Active Duty Service during the Vietnam Era
(8/5/64 to 5/7/75)

P.L. 95-476

90 daysc

Active Duty Service Post-

  • World War II (7/26/47 to 6/26/50)
  • Korea (2/1/55 to 8/4/64)
  • Vietnam (5/8/75 to 8/1/90d)

P.L. 100-322

181 days

Service Begun Aftere

  • 9/7/80 (enlisted personnel) or
  • 10/16/81 (officersf)

P.L. 97-66

  • 24 months or
  • full period ordered to active duty, but no less than 181 days during peacetime or 90 daysc during wartime

Service in the Selected Reserveg

P.L. 102-547

Six years

Released from Active Duty or Selected Reserve due to Service-Connected Disability
(any service after 9/15/40)

P.L. 78-346

Spouse of a Veteran who Died in Action or of a Service-Connected Disability Who Has Not Remarriedh

P.L. 81-475

Spouse of Member of Active Duty Military who

  • is missing in action,
  • captured, or
  • forcibly detained

P.L. 91-584

Surviving Spouse of Veteran Who Died While Receiving Compensation for a Service-Connected Disability Rated Totally Disablingi

P.L. 112-154

Source: 38 U.S.C. §§3701-3702, 38 U.S.C. §5303A, and U.S. Department of Veterans Affairs, Manual M26-1 Guaranteed Loan Processing Manual, September 16, 1996, pp. 2-1 to 2-28,

Note: The two categories not included in the table are (1) sole surviving child in a family where a parent or sibling was killed while in the Armed Forces, captured or missing in action, or permanently disabled and (2) in some circumstances, commissioned officers of the Public Health Service and the National Oceanic and Atmospheric Administration.

a. Subsequent laws may have extended the period of service or otherwise modified eligibility requirements.

b. Active duty service refers to full time service in the Army, Navy, Air Force, Marines, or Coast Guard.

c. A veteran qualifies if any part of his or her 90 days of service was during wartime.

d. While the Vietnam era extends to August 1, 1990, benefits for veterans who began service after September 7, 1980, are subject to 38 U.S.C. §5303A(b). See table note e.

e. 38 U.S.C. §5303A(b). The two-year minimum service requirement for many veterans' benefits was added to the law in 1980 as part of P.L. 96-342, the Department of Defense Authorization Act of 1981. A year later, P.L. 97-66, the Veterans' Disability Compensation, Housing, and Memorial Benefits Amendments of 1981, amended the law to include officers as well as enlisted personnel, and to exempt those discharged for reduction-in-force purposes. Congress was concerned that "excessive numbers of servicemembers were, through inappropriate or unproductive conduct, bringing about their early discharges, that many of them had enlisted for the purpose of obtaining eligibility for veterans' benefits based on short periods of service, and that it is wasteful for the Federal government to provide veterans' benefits to those who fail substantially to fulfill their active-duty service commitments." U.S. Congress, Senate Committee on Veterans' Affairs, Veterans' Disability Compensation, Housing, and Memorial Benefits Amendments of 1981, report to accompany S. 917, 97th Cong., 1st sess., July 16, 1981, S.Rept. 97-153, pp. 36-37.

f. The dates for officers and enlisted personnel differ because the original law implementing the 24-month length-of-service requirement (P.L. 96-342) only applied to enlisted personnel and not officers. See U.S. Congress, House Committee on Veterans' Affairs, Veterans' Compensation Amendments of 1981, report to accompany H.R. 3995, 97th Cong., 1st sess., July 16, 1981, H.Rept. 97-179, pp. 20-21. P.L. 97-66 amended the law to apply to officers.

g. The Selected Reserve includes the Army, Navy, Air Force, Marine Corps, and Coast Guard Reserves, the Army National Guard, and the Air National Guard. 10 U.S.C. §10101.

h. The term "surviving spouse" is defined at 38 U.S.C. §101 to mean someone who has not remarried.

i. The disability must meet one of three duration requirements: (1) it was continuously rated totally disabling for 10 or more years before death; (2) it was continuously rated totally disabling for at least five years from the date of discharge from active duty; or (3) it was continuously rated totally disabling for not less than one year, and the veteran had been a prisoner of war and died after September 30, 1999.

Financial Criteria

In addition to length of service requirements, the VA loan guaranty has underwriting criteria designed to ensure that veterans have the financial means to make mortgage payments. The statute gives the VA Secretary the authority to set underwriting standards in regulation, which are further supplemented by the VA Lenders Handbook.14 The underwriting standards consider a veteran's income, expenses, and credit history in determining whether he or she qualifies for a guaranteed loan. In seeking to balance income and expenses, a veteran must meet requirements established via a debt-to-income ratio standard and a residual income analysis.

The Loan Guaranty Program does not require veterans to have a specific credit score to qualify for a loan, but the underwriting guidelines require lenders to analyze a borrower's credit history.19 Lenders must be able to explain decisions to extend credit to borrowers who have an adverse credit history, and certain situations, such as an unpaid court-ordered judgment or a bankruptcy within the previous one or two years, may disqualify a borrower from obtaining a guaranteed loan. A previous foreclosure is not a bar to obtaining a VA-guaranteed loan, but borrowers who had previous VA-guaranteed loans that were foreclosed upon may have to repay the government for any losses suffered prior to obtaining a new loan.20

Uses of the Loan Guaranty

Financing the Purchase, Construction, or Improvement of Dwellings or Farm Residences

Loan guarantees are available for the purchase or construction, or to make improvements (including energy efficiency improvements) to either a "dwelling" or farm residence.21 A dwelling is defined as a building primarily used and occupied as a home (defined as a "place of residence"),22 and that consists of no more than four single family units (under most circumstances),23 one of which will be occupied by an eligible veteran. While a daily physical presence is not necessary to occupy the property as a home, occupancy of the property must be more than intermittent.24 For example, the property should be near a borrower's place of employment, and if his or her job requires an absence for a "substantial amount of time," there must be a history of continuous presence in the community prior to the absence, and there should be no attempt to establish a principal residence elsewhere.25 Use of a property as a vacation home would not qualify for the VA loan guaranty. An exception exists for instances where veterans are called away for active duty—their spouses or dependent children may satisfy the requirement by occupying the property as a home.26

A range of housing qualifies as a dwelling for VA loan guaranty purposes. A single condominium unit qualifies as a dwelling, and a manufactured home may also be a dwelling if the veteran owns the land to which it is affixed and the state classifies it as real property.27 Note, however, that a manufactured home that does not meet these requirements may qualify separately under the manufactured housing section of the law (for more information, see the next section of this report entitled "Loan Guaranty for Manufactured Housing"). The loan guaranty can also include the purchase of land for both the construction of a single-family home28 or for placement of a manufactured home.29

In addition to purchasing property, an eligible veteran may enter into a guaranteed loan for the construction of housing or to make improvements to property the veteran already owns. In general, the loan guaranty cannot be used to purchase a property that requires significant work (i.e., a fixer-upper) due to minimum property standards for homes purchased with VA-guaranteed loans.30 However, if a property meets minimum property standards, and a veteran wants to include funds for improvements in a purchase money loan, the appraiser is to take the value of the improvements into account, increasing the loan amount for which a borrower could potentially qualify.31 The loan guaranty can also be used for loans to make "energy efficiency improvements" to a property a veteran is purchasing or to a property already owned. Energy efficiency improvements were added as a permissible use of the loan guaranty in 1978 as part of the Veterans' Housing Benefits Act (P.L. 95-476). Energy efficiency improvements are limited to $6,000, and may include such things as solar heating and cooling or conservation measures, such as insulation, weatherizing, and furnace replacement.32

Loan Guaranty for Manufactured Housing

The VA loan guaranty has evolved so that there are two ways in which manufactured housing is classified and guaranteed. First, as mentioned in the previous section, manufactured housing can be classified as a dwelling that may be guaranteed under the regular guaranty provisions of the statute (38 U.S.C. §3710). In addition, it can be classified and guaranteed under a separate manufactured housing portion of the law (38 U.S.C. §3712). Congress created the latter program first in 1970 (see the Veterans' Housing Act of 1970, P.L. 91-506), and later specified that manufactured housing could be included as a dwelling for the regular guaranty provisions in Section 3710 (see the Veterans' Compensation and Program Improvements Amendments of 1984, P.L. 98-223). Despite this flexibility, it appears that the VA has not guaranteed new manufactured housing loans under Section 3712 of the law since 1996.33

The VA has slightly different definitions for manufactured housing based on the portion of the statute under which it is guaranteed. The definitions share in common that manufactured housing is

[a] movable dwelling unit designed and constructed for year-round occupancy on land by a single family, which dwelling unit contains permanent eating, cooking, sleeping, and sanitary facilities. A double-wide manufactured home is a movable dwelling designed for occupancy by one family consisting of (1) two or more units intended to be joined together horizontally when located on a site, but capable of independent movement or (2) a unit having a section or sections which unfold along the entire length of the unit.34

The definitions differ in that the regulations governing the Section 3710 guaranty require that the manufactured home be permanently affixed to a lot and classified as real property under state law. To be permanently affixed, the home must be placed on a foundation in a way that satisfies local building codes.35 This generally means being placed on a permanent foundation, and in some, but not all cases, connection to utilities and ownership of the land, although long-term rental agreements may suffice.36 Once a home is permanently affixed, it may be titled as real property rather than personal property (as a vehicle is titled). According to the Census Bureau, in 2010, approximately 73% of new manufactured homes were titled as personal property and 22% as real property.37

Separate Loan Guaranty for Manufactured Housing, 38 U.S.C. Section 3712

When Congress created the separate loan guaranty for manufactured housing in 1970, it was concerned that returning Vietnam veterans, some without significant financial resources, were unable to afford conventional homes and the costs of financing.38 The recommendation to include mobile homes as eligible properties for the loan guaranty originated from the President's Committee on the Vietnam Veteran, whose members saw growing construction costs of conventional homes as a barrier to home ownership for veterans.39 According to the committee, the lower costs of mobile homes represented "an enormous potential in meeting the housing needs of many veterans with low to moderate incomes."40 It was necessary to add a new manufactured housing portion to the law because, unlike loans for site-built homes, manufactured housing is often financed with "chattel mortgages," which are designed for moveable property and governed by different laws than mortgages for real property.

Manufactured housing loans that are guaranteed through Section 3712 differ from the Section 3710 loan guaranty in that the term of the mortgage is generally shorter depending on the type of manufactured housing,41 the maximum loan guaranty amount is set differently (see Table 3), and fees charged by the VA are less than for conventional housing (see Table 6), among other differences. However, as mentioned previously, the VA has not guaranteed loans pursuant to Section 3712 for a number of years. The VA cites several reasons that the Section 3712 loan has not been popular: interest rates are often higher for manufactured homes not permanently affixed to a foundation, the maximum loan amount cannot exceed 95% of the purchase price plus the VA fee42 (meaning that a veteran must make a down payment), and changed appraisal standards instituted in the 1980s that resulted in sales prices that exceeded appraised values.43

Refinancing Loans

Veterans may use the loan guaranty to refinance an existing loan in two different ways: to reduce the interest rate of an existing VA-guaranteed loan (sometimes referred to as an interest rate reduction refinancing loan or IRRRL),44 or to refinance generally with fewer restrictions. Loans in the latter category are sometimes referred to as "cash out" refinancings because veterans may choose to take out equity as part of the transaction. The ability to refinance a loan on a property owned and occupied by an eligible veteran became part of the loan guaranty law as part of the Veterans' Housing Act of 1970 (P.L. 91-506).45 Manufactured housing loans became eligible for refinancing as part of the Veterans' Compensation and Program Improvements Amendments of 1984 (P.L. 98-223).

IRRRL: When a veteran refinances a loan that is already guaranteed by the VA as an IRRRL, generally the interest rate on the new loan should be lower than the loan being refinanced.46 However, a veteran may refinance from an adjustable-rate loan to a fixed-rate loan without the requirement for a lower rate. The amount of the new loan may not exceed the principal balance of the original loan, plus any closing costs, and the term of the new loan cannot exceed the original loan term by more than 10 years.47 A veteran may also take advantage of energy efficiency improvements as part of an IRRRL, in which case the principal balance of the new loan may be increased by the amount of the improvements.48 Another aspect of an IRRRL refinancing is that a veteran need not occupy the residence as a home after refinancing as long as it had been occupied as a home prior to refinancing. The limitation on occupancy was removed in 1987 (P.L. 100-198) due to concern that servicemembers who were transferred or stationed elsewhere were unable to take advantage of refinancing.49 In general, no appraisal and no new underwriting are required for an IRRRL,50 and, unlike purchase-money VA loans, closing costs may be financed as part of the loan.51

"Cash-Out" Refinancing: A veteran may also refinance without the restrictions involved in an IRRRL. The loan or lien being refinanced need not be VA-guaranteed, the new loan does not have to have a lower interest rate, the loan balance on the refinanced loan may be higher than on the original loan, and the veteran may receive cash from the refinancing for any purpose approved by the lender. Property improvements are often undertaken as part of a refinancing.52 However, there are requirements for cash-out refinancings that are not required for IRRRLs. A veteran must occupy the property as his or her home after the refinancing, and, unlike the IRRRL, an appraisal, credit check, and underwriting are required.53

Number and Amount of Loans Guaranteed

VA-guaranteed loans make up a relatively small share of mortgage loans in the United States. According to the 2015 American Housing Survey, approximately 5.2% of primary mortgages outstanding were VA-guaranteed loans.54 Table 2 shows the number of loans that have been guaranteed by the VA from FY2000 through FY2016 broken down by purchase and refinance loans, the dollar amount of the loans, and the dollar amount of the portion guaranteed.

During periods where interest rates have fallen, refinance loans make up a greater share of the total VA loans extended. And during the mid-2000s, when housing prices were at their height, the numbers of VA-guaranteed purchase loans were lower than the number entered into at both the beginning and end of the last decade. Among the reasons for this are the fact that looser lending standards on private mortgage loans, particularly subprime loans, might have made them more appealing for veteran borrowers. This may have been particularly true in a climate where the ability to close loans quickly was considered appealing to sellers, and bypassing the VA loan fee was appealing to veteran borrowers.55 In addition, higher home prices during the mid-2000s could have made it difficult for veterans living in high-cost areas to take advantage of the loan guaranty. Until enactment of legislation in 2008, the VA loan guaranty did not cover properties in high-cost areas where the cost exceeded $417,000. (For more information about maximum mortgage limits, see the next section of this report entitled "Amount of Coverage Provided by the Loan Guaranty.")

Table 2. VA Loans Guaranteed by Fiscal Year, FY2000-FY2016


Number of Loans in Year

Volume of Loans Made
in Year
($ in billions)

Cumulative Volume of Loans Outstandinga
($ in billions)

Fiscal Year

Purchase Loans

Refinance Loansb


Amount of Loans

Amount Guaranteed

Amount of Loans

Amount Guaranteed









































































































































Source: The data on the number and dollar amount of guaranteed loans in a fiscal year are from the Department of Veterans Affairs, Annual Benefits Reports. Through FY2014, the data on the cumulative volume of loans come from the VA Performance and Accountability Reports. From FY2015 on, cumulative volume of loans is reported in the VA Agency Financial Report.

a. The cumulative volume of loans is the total dollar amount of all guaranteed loans that was outstanding at the end of the fiscal year.

b. Refinance loans include interest rate reduction refinancing loans and cash-out or other refinancing transactions.

c. The FY2000 Performance and Accountability Report did not provide information about the total loan volume.

Amount of Coverage Provided by the Loan Guaranty

Freddie Mac Conforming Loan Limit

The conforming loan limit is a ceiling on the value of loans that Freddie Mac, one of the Government Sponsored Enterprises, can purchase from lenders.56 The single-family home loan limit in statute was initially pegged to the FHA insurance limit—$33,750 in 197057—then revised to follow the loan limits for savings and loans.58 However, beginning in 1980 as part of the Housing and Community Development Act (P.L. 96-399), Congress inserted the maximum loan limit directly in the Freddie Mac statute. P.L. 96-399 set the single-family limit at $93,750, and it was to be adjusted administratively each year based on the national average single-family home price.59 While Congress did not amend the statute to increase the loan limit until 2008, the limit was changed administratively 27 times.60

As part of the Housing and Economic Recovery Act of 2008 (P.L. 110-289), Congress amended the Freddie Mac statute to raise the statutory conforming loan limit from $93,750 to $417,000, which was the level that had been established administratively for 2006 and 2007. P.L. 110-289 also added a sentence to the statute allowing the limit to increase in high-cost areas where 115% of the median home price exceeds the conforming loan limit. In these high-cost areas, the loan limit may go up to 115% of the area median home price, not to exceed 150% of the loan limit (or as high as $625,500).

Since the enactment of P.L. 110-289, the Freddie Mac statute itself has not been amended, although Congress temporarily raised the loan limits for high-cost areas through September 30, 2011, via several laws. This limit was the lower of 125% of the area median home price or 175% of the Freddie Mac limit (or $729,750).61 These temporary limits expired at the end of FY2011. Most recently, for 2017, the Freddie Mac limit was administratively raised to $424,100.62

While there is technically no limit to the amount that a veteran can borrow and still receive a loan guaranty through the VA, the VA limits the guaranty that it will provide based on the amount of the loan as well as the type of loan (purchase money, refinance, or energy efficiency mortgage). In most cases, the VA guaranty covers at least 25% of the principal balance of a loan. While the VA guaranty does not insure 100% of the loan (as Federal Housing Administration loan insurance does, for example), the guaranty covers what would typically be required as a down payment in a conventional mortgage transaction to avoid the requirement for private mortgage insurance. In cases where the loan guaranty does not cover 25% of the loan amount, a veteran may have to make a down payment.

The statute governing the loan guaranty for home purchase sets out four categories of coverage depending on the principal balance of the loan.63 (For all guaranty amounts, including manufactured housing, refinance loans, and energy efficiency mortgages, see Table 3.) In general, the amount of the loan guaranty is based on the amount borrowed by a veteran.

The Maximum Guaranty Amount

The VA loan "maximum guaranty amount" is defined in 38 U.S.C. Section 3703 as 25% of "the Freddie Mac conforming loan limit limitation determined under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act."64 The Freddie Mac conforming loan limit has most recently been set at $424,100 for single-family homes (for more information about the Freddie Mac conforming loan limit, see the text box).65 In addition, for certain high-cost areas, the loan limit may be as high as 115% of the area median home price, though it may not exceed 150% of the conforming loan limit (or $636,150).66

If the amount of a mortgage exceeds the maximum amount at which the VA will guarantee 25% of the loan (for example, the amount of a mortgage is $500,000 in a county where the loan limit is $424,100), then a veteran may have to make a down payment equal to 25% of the amount over the loan limit to qualify for the loan due to secondary market considerations (see the next section of this report entitled "Maximum Loan Amount" for more information about the secondary market). However, the majority of VA-guaranteed loans are made with no down payment (82% of purchase loans in FY2016 had no down payment),67 so the limits described here will apply to most veteran borrowers.

Maximum Guaranty for Alaska, Hawaii, U.S. Virgin Islands, and Guam

The maximum single-family guaranty limit for Alaska, Hawaii, the U.S. Virgin Islands, and Guam is higher than in the other states and the District of Columbia due to costs of construction.68 The statutory Freddie Mac conforming loan limit for these areas is 50% higher than the $424,100 limit for the rest of the country, resulting in a statutory conforming loan limit of $636,150.69 Further, with the Freddie Mac statutory provision allowing the area limit to be increased up to 150% of the conforming loan limit for high-cost areas, it is possible for the loan limit in Alaska, Hawaii, the U.S. Virgin Islands, and Guam to be as high as $954,225 (150% of $636,150). In 2017, four communities in Hawaii saw their limits exceed $636,150.70

Table 3. Limits on the Level of Loan Guaranty

Amount of Loan

Limits on Guaranty

Home Loan Guaranty

  • $45,000 or less
  • 50% of the loan amount
  • from $45,000 up to and including $56,250
  • $22,500
  • from $56,250 up to and including $144,000
  • Lesser of $36,000 or 40% of the loan amounta
  • more than $144,000
  • Lesser of
    (1) 25% of the loan amount or
    (2) 25% of the Freddie Mac conforming loan limit of $424,100, or $636,150 for high-cost areas.

Refinance: Same as for purchase, but in the case of an interest rate reduction refinancing loan (IRRRL), the guaranty may not exceed the greater of the original loan's guaranty or 25% of the loan.

Energy Efficiency Improvements: The sum of (1) the guaranty amount without the energy efficiency improvements and (2) the guaranty percentage (from step (1)) multiplied by the portion borrowed for energy efficiency improvements.b

Manufactured Housing Purchase: The lesser of $20,000 or 40% of the loan.

Manufactured Housing Refinance: If refinancing a VA loan, the guaranty may not exceed the greater of the original loan guaranty or 25% of the refinancing amount.

Source: 38 U.S.C. §3703(a), §3710(d)-(e), §3712(a),(c).

a. This effectively means that for loans between $90,000 and $144,000, the maximum guaranty is $36,000.

b. While the Energy Efficiency Improvement guaranty is effectively the same as the guaranty for home purchase, the separate calculations are meant to ensure that the portion of the guaranty related to the improvements are not counted against the veteran's entitlement. 38 U.S.C. §3710(d)(4). See also, VA Lenders Handbook, p. 7-20,

Maximum Loan Amount

Although there is no limit to the amount a veteran may borrow and still participate in the VA loan guaranty program, lenders may be unwilling to extend a loan that exceeds the limit where the VA will guaranty 25% of the loan. VA loans are securitized through the Government National Mortgage Association (Ginnie Mae). Ginnie Mae may secure certain "high balance loans" originated after October 1, 2008—loans where the balance exceeds the conforming loan limit of $424,100 for single-family properties.71 However, according to the VA, the "rule of thumb" for Ginnie Mae to purchase a VA loan is that at least 25% of the principal balance either be guaranteed and/or covered by a down payment.72 As a result, the effective maximum loan limit with no down payment corresponds to the "maximum guaranty amount" described in the previous section.

Subsequent Loans: The Veteran's Entitlement

The term "entitlement" is used to refer to the amount of guaranty to which a veteran is entitled under the loan guaranty statute. It is different from the guaranty amount described in the previous section in that it is technically a lifetime limit on the amount of loan insurance coverage for which a veteran may qualify. However, given the broad circumstances under which entitlement may be restored (described below), veterans may use the guaranty for the purchase of more than one home during a lifetime, though not necessarily more than one home at a time.

The statute governing the VA loan guaranty limits a veteran's entitlement to $36,000 or, for loans that exceed $144,000, the "maximum guaranty amount" described in the previous section.73 The term "basic entitlement" is sometimes used to refer to entitlement up to $36,000, and the term "bonus entitlement" is used to refer to entitlement that exceeds $36,000. In general, due to the requirement that VA-guaranteed loans be used to purchase properties that a veteran will occupy as his or her home,74 unused entitlement cannot be used to purchase more than one home at a time.

In addition to being able to put unused entitlement toward a future guaranteed loan, there are instances in which already-used entitlement may be restored so that a veteran may use the maximum available loan guaranty to purchase another home.75 These circumstances cover most situations where a veteran has ended the previous loan transaction in some way.

If available entitlement is less than 25% of the loan, then a lender may require a veteran to make a down payment to make up the difference between the loan guaranty and 25% of the loan to meet secondary market requirements.78

How the VA Loan Guaranty Differs from FHA Insurance

Both the Federal Housing Administration (FHA) loan insurance program and the VA loan guaranty program provide borrowers with the federal government's promise to reimburse lenders in the event of borrower default on private mortgages. Due to the insurance features of each program, borrowers who might not otherwise have the resources for a conventional mortgage may still be able to purchase a home. Despite similar purposes, however, the programs differ in their specifics. Aside from the requirement that a borrower through the VA meet service requirements, other features such as the amount of coverage, borrower fees, loan processing and underwriting, terms of the loan, etc., vary between the two.

In addition, for a number of years, veterans were given special terms when entering into FHA loans. The Housing and Urban Development Act of 1965 (P.L. 89-117) first allowed veterans to enter into FHA loans with slightly higher maximum mortgages compared to nonveteran borrowers, and it also exempted them from what was then a 3% cash down payment requirement on the first $15,000 of the loan. Over time, some of the specifics of the maximum mortgage and down payment requirements changed, but veterans still retained favorable levels compared to nonveterans. In 2002, the FHA Downpayment Simplification Act (P.L. 107-326) removed statutory language that allowed for higher maximum mortgages for veteran borrowers.88 And when the Housing and Economic Recovery Act of 2008 (P.L. 110-289) was enacted, it eliminated the provision exempting veterans from the requirement of what had previously been a 3% down payment in cash or its equivalent.89

Direct VA Loans

In addition to the VA loan guaranty program, through which the VA insures loans made to veterans by private lenders, there are several circumstances under which the VA makes loans directly to veterans, as well as occasionally to nonveterans. The direct loans through the VA can be put into two broad categories. The first category involves loans that are targeted to specific veteran populations: one program was created to address the needs of rural veterans, but has evolved to serve veterans with certain disabilities, and the other program is designed for Native American veterans. The second category involves loans made as the result of borrower default on guaranteed loans—these are referred to as "acquired loans" and "vendee loans."

The Original Direct Loan for Veterans in Rural Areas, Now Limited to Veterans with Disabilities

The VA first made direct housing loans available to veterans who were unable to obtain mortgages through private lenders and were therefore unable to participate in the loan guaranty program. The direct loan portion of the program was enacted as part of the Housing Act of 1950 (P.L. 81-475), and was meant to be a "last resort" where private financing was not available to veterans.90 The enacting legislation did not specify that the program was directed to veterans in rural areas, but about eight years later, in 1958, Congress changed the law to apply specifically to veterans living in rural areas and small towns as part of P.L. 85-857.91 The law provided that the VA Secretary would designate an area without private loan options for veterans as a "housing credit shortage area" and make loans to veterans at a rate not exceeding the rate set for guaranteed loans at a maximum principal balance (at the time the law was enacted) of $13,500. In the Veterans' Housing Act of 1970 (P.L. 91-506), Congress made direct loans available to veterans who qualified for Specially Adapted Housing grants for veterans with certain disabilities, who it recognized might also have difficulty obtaining credit for home purchases.92

The VA direct loan program continues to exist today, but in limited form.93 A 1980 review of the direct loan program found that 98% of veterans in rural areas received loans from private lenders, and only 2% received VA direct loans.94 As a result of the increased availability of private loan funds in rural areas, beginning in the FY1981 Department of Housing and Urban Development-Independent Agencies Appropriation Act (P.L. 96-526), Congress specified that VA direct loans be made only for veterans with disabilities through the Specially Adapted Housing Program (described in a later section of this report entitled "The Specially Adapted Housing Program"). Congress has continued to include similar language in subsequent appropriations acts.95 Currently, direct loans are limited to $500,000 in obligations for Specially Adapted Housing loans of not more than $33,000 apiece.96 Interest rates on the loans are to be determined by the VA Secretary, and veterans are eligible as long as they qualify for the loan guaranty program.

Direct Loans for Native American Veterans (Including Guam, American Samoa, and CNMI)

While the VA loan guaranty program is available to Native American veterans,97 due in part to certain tribal land ownership issues, Congress enacted a direct loan program specifically to provide mortgage assistance for Native American veterans. The direct loan program may also be used by veteran borrowers who are Native Hawaiians, Alaska Natives, and those who are native to American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands (CNMI). Eligibility is based on definitions in statute. The statute defines "Native American" as an Indian (as defined by the Indian Self-Determination and Education Assistance Act),98 a Native Hawaiian (as defined by the Hawaiian Homes Commission Act of 1920),99 a Native Alaskan (within the meaning of the Alaska Native Claims Settlement Act),100 and a Pacific Islander (within the meaning of the Native American Programs Act of 1974).101102

Prior to enactment of the direct loan program for Native American veterans, VA housing assistance to Native American veterans was minimal. In fact, the Advisory Committee on Native American Veterans had been unable to find a single instance of a Native American veteran benefitting from the loan guaranty program.103 While factors such as poverty and unemployment among Native American veterans may have contributed to their lack of participation, the unique nature of tribal land also presents obstacles to private lenders entering into mortgages. Much of tribal land is held in trust by the federal government, either for a tribe or for individual Native Americans (the latter situation is sometimes referred to as an allotment). Of the approximately 56 million acres of trust land, 45 million are held in trust for tribes and 11 million for individuals.104 In the case of tribal trust land, the land may be assigned or leased to individual tribal members. However, in neither case (tribal or individual trust) may the land be encumbered or transferred without federal government approval.105 Lenders could be reluctant to enter into mortgage arrangements where they would be unable to have the land transferred to them in the event of a veteran's default.106

Similar issues apply to residents of American Samoa and CNMI, where land ownership is restricted. In American Samoa, approximately 90% of land is communally held,107 it may not be transferred without government approval, and it may not be transferred to anyone who is "less than one half Samoan."108 The CNMI Constitution restricts land ownership and long-term interests (such as leases) to those of Northern Marianan descent.109 As with tribal land, a private lender may not be willing to extend a loan where transfer of the land in the event of default would violate territorial law. Guam does not have these restricted land ownership issues.

After finding that only 15 of 24,000 veterans living on trust land had participated in any sort of housing benefit—all of whom received the Specially Adapted Housing benefit and none the loan guaranty—Congress initially enacted a demonstration program to make loans to Native American veterans that was included in the Veterans Home Loan Program Amendments of 1992 (P.L. 102-547).110 The program was made permanent as part of the Veterans' Housing Opportunity and Benefits Improvement Act of 2006 (P.L. 109-233). In order to participate in the VA direct loan program, and circumvent the issues of land ownership, a tribe must enter into a memorandum of understanding (MOU) with the VA to provide avenues for addressing default and foreclosure. Typically individuals enter into long-term leases for use of trust land. The MOU requires that a participating tribe set up a process through which a veteran borrower's leasehold interest in a property can be transferred to a lender, whether private or government, or their assignee in the event of default.111 The tribe must also establish a procedure for evicting and foreclosing on the veteran's interest in the land and property.

As of FY2016, the VA had entered into MOUs with 94 tribes or Pacific Island territories.112 Through FY2016, the VA had entered into approximately 1,000 loans through the direct loan program, 18 of which were made in that year.113 The Direct Loan program for Native American veterans has had much of its participation in Hawaii and the territories. Prior to the program being made permanent in 2006, the VA noted in hearing testimony that the program was most successful in American Samoa, Guam, CNMI, and Hawaii, with 90% of loans at the time made in American Samoa and Hawaii.114 Reasons behind the lack of lending to Native American veterans were thought to include low income, lack of infrastructure, and poor credit.115 As of calendar year 2011, 90% of loans were still made in American Samoa and Hawaii.116

Table 4. Direct Loans for Native American Veterans, FY2000-FY2016

Fiscal Year

Number of Loans

Amount of Loans Made
During the Year
($ in millions)




















































Source: U.S. Department of Veterans Affairs, Annual Benefits Reports, FY2000 to FY2016.

Direct Loans Resulting from Borrower Delinquency or Default (Acquired and Vendee Loans)

The VA may also enter into a direct loan arrangement in two situations involving a veteran's delinquency and/or default on a guaranteed loan.

Generally, the VA has had the authority to bundle and sell pools of vendee loans.120 The loans are sold to a trust, which in turn issues certificates that are backed by the mortgages and sold to investors. The VA guarantees that investors in the certificates will receive "full and timely" payments of principal and interest from the loans as well as against losses at foreclosure.121 The bundled loans appear in the VA budget as "Guaranteed Loan Sales Securities." The authority to bundle and sell the loans had expired on December 31, 2011, but was reinstated through December 31, 2017, as part of P.L. 114-228.

The number of loans acquired by the VA, vendee loans entered into, and sales of vendee loans in a given year depend on borrower defaults, purchaser interest in foreclosed VA homes, and investor interest in VA securities. Table 5 shows the number of acquired loans, vendee loans entered into, and vendee loans sold from FY1998 through FY2016. As a result of the vendee loan program suspension in 2003 and again in 2013, the number of vendee loans sold decreased during the following years. This has also resulted in the sale of fewer vendee loans. In addition, the number of VA acquired loans has fallen in recent years. According to the VA, there have been fewer acquired loans since the 1990s and early 2000s because both the VA and loan servicers focused efforts on loan modification and other options to help borrowers keep their homes, reducing the need for the VA to acquire loans.122 Efforts particularly increased in 2008 and thereafter, when the VA offered new incentives for servicers to work with borrowers (see the section of this report "Options to Prevent Foreclosure").

Table 5. Guaranteed Loans Acquired by VA, Vendee Loans Extended,
and Direct Loans Sold

Fiscal Year

Loans Acquired and Serviced by VA

Vendee Loans Entered Into by VA as Part of Property Sale

Vendee Loans Sold by VA













































































Source: VA Budget Justifications for Veterans Benefits Programs, FY2000-FY2018.

a. The number of vendee loans for FY1998 was not available.

b. According to VA budget justifications, the VA stopped vendee loan sales after 2012 so that regulations could be updated.

Funding for the VA Direct and Guaranteed Loan Programs

Federal Credit Reform Act of 1990

The FCRA (P.L. 101-508)123 changed the way in which the federal government budgets for loan and loan guaranty programs like those administered by the VA. Prior to the FCRA, if a federal agency extended direct loans to borrowers in a given fiscal year, the disbursement of the principal balance of the loans was recorded as an outlay in that year, and the budget did not account for the fact that the government would recoup principal and interest payments in future years. Loan guarantees, by contrast, could appear costless in the early years, or even income-generating if fees were collected, but did not reflect potential costs due to defaulted loans in the future.

Beginning in 1992, the FCRA required agency budgets to reflect the net present value of outflows and inflows of a loan over its lifetime. The estimated cash inflows and outflows of a program are discounted to the present fiscal year using a discount rate. A credit subsidy in the form of an appropriation from the federal government may be required to support loan programs when the net present value is positive. Due to the uncertainty involved in making the net present value estimates, OMB and federal agencies re-estimate the credit subsidy each year to determine the actual subsidy required. Additional funding in subsequent years that may be required due to underestimates of the subsidy comes from "permanent indefinite authority" provided through the FCRA rather than annual discretionary appropriations.

Within their budgets, federal agencies account for loans entered into prior to 1992 separately, in a liquidating account.

Both the VA direct loan and loan guaranty programs are funded through several sources. These sources include congressional appropriations, fees paid by borrowers, proceeds from the rental or sale of foreclosed properties, collection of principal and interest payments made by borrowers, and any penalties paid by lenders.124 An important aspect of understanding how VA loans are funded, apart from the sources of funding, is how loans are accounted for in the federal budget.

In most federally funded grant programs, the cost to the federal budget is the amount appropriated, and federal involvement in funding generally ends after the outlay of funds. By contrast, the cost of loan programs may involve both an up-front outlay of funds as well as the recoupment of costs through payments of principal and interest, and/or collection of fees and penalties, over the lifetime of the loans. Loan programs may also suffer losses in subsequent years through defaults or lower-than-expected collection of fees. As a result, it is not always possible to capture the budgetary effects of loans in one particular year. Current government practice, instituted in 1992, is to determine the net present value of loans over their lifetime and to record this amount in the budget in the year the loans are extended. (See the text box for an explanation of the law implementing this budget process.)

The concept of net present value is helpful both in understanding how funds are appropriated for VA loans and in reading VA budget documents. The federal funding process is described briefly in the following subsection of this report, "The VA Budget and Congressional Appropriations for VA Loan Programs." The two subsequent subsections describe loan fees paid by borrowers, and funds obtained through loan payments and property sales.

Sources of Funding for Loan Programs

The VA Budget and Congressional Appropriations for VA Loan Programs

The VA direct and guaranteed loan programs receive both discretionary and mandatory appropriations from Congress. The discretionary funds pay for the administrative expenses of the VA loan programs. The mandatory funding supports the loans themselves, and typically appears in appropriations laws as "such sums as necessary."

Mandatory funding for the loan guaranty and direct loan programs is expressed as a percentage of the total loan volume. This is sometimes referred to as the "subsidy rate"; each year the estimated subsidy rate appears in the President's Budget Appendix for the Department of Veterans Affairs. The estimated subsidy rate of loans guaranteed or made in a given fiscal year is based on the net present value of expected expenses in the event of borrower defaults as well as expected income through fees and other sources. If the estimated present value of payments by the VA for a cohort of loans guaranteed or extended in a given fiscal year exceeds the estimated present value of fees paid by borrowers, recoveries, and other collections, then the subsidy rate is positive (i.e., the government subsidizes the loan program), and the program receives mandatory funding. If the net present value of cash flows for a cohort of loans is expected to result in a surplus of funds (more taken in than paid out), then the subsidy rate is negative (i.e., the program has excess revenue that is returned to the Treasury).

As part of the annual budget process, the VA estimates individual subsidy rates for each of the four types of loans either made directly by the VA or guaranteed by the VA. The four programs for which the VA estimates subsidy rates are guaranteed loans, guaranteed loan sale securities, acquired loans, and vendee loans. The initial estimated subsidy rate for each of these programs for a given fiscal year represents the net present value for that year's cohort of loans. However, the initial estimated subsidy rate may differ from the actual subsidy rate for the cohort of loans over their lifetime. Projecting the net present value of cash flows is uncertain, so subsidy reestimates are made by the VA each year, and additional mandatory funding is permanently available by the FCRA to cover any shortfalls.125 Factors that can affect the subsidy rate (and resulting mandatory appropriation) include changes in the interest rate used to determine the present value of future funding streams, revisions in estimates of borrower default or prepayment rates, the outcomes of property management decisions, and changes in the amount of fees actually paid by borrowers (compared to what was expected). Due to reestimates, a negative subsidy rate calculated in one year may be recalculated as positive in a subsequent year, resulting in an increased amount of mandatory funding needed for a loan program. Or, if the subsidy rate is recalculated as negative, funds are returned to the Treasury.

Appropriations for VA direct and guaranteed loans are captured in one "on-budget" account, called the Veterans Housing Benefit Program Fund, sometimes referred to as the program account.126 (Note that direct loans for Native American veterans are funded separately.) In addition, several separate, off-budget accounts reflect inflows and outflows for direct and guaranteed loan cohorts, depending on when the loans were extended. Funds for direct and guaranteed loans made prior to 1992 are shown in a housing liquidating account, and funds for loans extended after 1992 are shown in direct and guaranteed loan financing accounts. The multiple accounts may be cause for confusion, so it is useful to keep in mind that appropriations appear in the Veterans Housing Benefit Program Fund, while the financing and liquidating accounts reflect the specific income and expenses associated with particular loan cohorts.

Fees from Borrowers

The costs of the VA direct and loan guaranty programs are supported, in part, by fees paid by the borrowers. The amount of a borrower's fee is based on the amount of down payment, if any; whether the loan is extended through the loan guaranty or direct loan program; whether the borrower had active duty service or was a reservist; when the loan closed; whether the loan is purchase money or a refinance; whether the borrower is accessing the guaranty for the first time or entering into a subsequent loan; and whether the property is purchased under the manufactured housing portion of the loan guaranty statute.127 (See Table 6.) Fees may be waived for veterans receiving compensation for a service-connected disability, for the surviving spouse of a servicemember who died of a service-connected disability, or for the surviving spouse of a veteran who died while receiving (or was entitled to receive) compensation for certain service-connected disabilities.128 Veterans may finance the fees as part of the loan, and the guaranty is based on the loan amount, including the fees.129

Veterans were not always charged fees as part of the loan guaranty transaction and, in general, fees were not required prior to 1982.130 When the loan guaranty program was created, it was considered a benefit or entitlement for veterans. However, in 1982, the VA administrator wrote a letter to the Speaker of the House, together with draft legislation, suggesting that the VA require veterans to pay a 0.5% fee on the principal balance of each loan.131 The letter expressed concern regarding the "costs to the taxpayers of operating the program," and noted that "paying claims on the approximately 3.7 percent of the loans resulting in foreclosure are significant."132 Despite objections from veterans groups,133 Congress instituted the fee as part of the Omnibus Budget Reconciliation Act of 1982 (P.L. 97-253). The fee was to be in effect for transactions entered into from FY1983 through FY1985, with an exemption for veterans with service-connected disabilities. Congress continued the fee beyond FY1985, and after the fee was raised to 1% as part of the Deficit Reduction Act of 1984 (P.L. 98-369), Congress began to institute the more complicated fee schedule that exists today, with fees varying based on amount of down payment and whether the veteran received a loan guaranty or direct loan (Veterans' Benefits Amendments of 1989, P.L. 101-237).

Loan fees were scheduled to be reduced starting on October 1, 2011 pursuant to P.L. 108-183, the Veterans Benefits Act of 2003, but Congress instead has continued to maintain the higher loan fees that have been in place since 2004. First, the Veterans Health Care Facilities Capital Improvement Act of 2011 (P.L. 112-37), enacted on October 5, 2011, extended the existing, higher fees through November 18, 2011.134 Next, P.L. 112-56, enacted on November 21, 2011, further extended existing fees until October 1, 2016.135 Since then, the existing fees have been extended until September 30, 2024.136

Table 6. Current Loan Guaranty Fees

Effective Until September 30, 2024




Fee as % of Loan Amount

Loan Type

Down Payment

First Loan or Subsequent

Active Duty


Loan to Purchase or Construct Dwelling (38 U.S.C. §3710(a))

Less than 5%





Less than 5%






First or Subsequent




10% or more

First or Subsequent



Cash-Out Refinancing Loan (38 U.S.C. §3710)










Manufactured Housing Loan to Purchase or Construct or for Cash-Out Refinancing (38 U.S.C. §3712)





Interest Rate Reduction Refinancing Loan (38 U.S.C. §3710, §3712, and §3762)





Direct Loan for Specially Adapted Housing (38 U.S.C. §3711)





Direct Loans for Native American Veterans to Purchase or Construct (38 U.S.C. §3762)





Assumption of Guaranteed Loan (38 U.S.C. §3714)





Vendee Loan (38 U.S.C. §3733(a))





Source: 38 U.S.C. §3729 and the VA Lenders Handbook, p. 8-21.

Collection of Loan Payments and Property Sales

In its direct loan portfolio, the VA owns some loans on which it collects principal and interest payments (acquired loans), and it also sells properties that it has acquired through foreclosure and enters into direct loans with the borrowers (vendee loans). In addition, the VA has the authority to pool and sell loans to investors. (This authority had expired at the end of 2011, but was reinstated in August 2012 as part of P.L. 112-154.) Each of these transactions results in income to the VA, although the income may not be sufficient to counteract losses. For example, because the VA guarantees payment of principal and interest on the loans that it sells, borrower default may result in greater outflows than inflows.

The Specially Adapted Housing Program

The Specially Adapted Housing Program provides grants to veterans and servicemembers with certain service-connected disabilities to assist them in constructing, purchasing, or remodeling homes to fit their needs.137 While Specially Adapted Housing loans are available (see discussion in the "The Original Direct Loan for Veterans in Rural Areas, Now Limited to Veterans with Disabilities" section of this report), the majority of funds are distributed as grants that veterans and servicemembers need not pay back.

The Specially Adapted Housing Program, which was introduced in 1948 in P.L. 80-702, initially targeted veterans with a total service-connected disability causing paralysis in the legs or lower body. Over the years, Congress amended the law to expand the range of disabilities eligible for assistance, to make family members' homes eligible for adaptation (P.L. 109-233), to include active duty servicemembers with service-connected disabilities (P.L. 110-289), to expand benefits to individuals residing outside the United States (P.L. 110-289), and to include loans as well as grants (P.L. 96-526).

Within the Specially Adapted Housing Program are two grant programs for veterans and active duty servicemembers, which are discussed in separate subsections, below.138 The first, sometimes referred to as the Specially Adapted Housing (SAH) Grant (or Section 2101(a) grant, after the section of Title 38 of the U.S. Code), is targeted to veterans with mobility impairments, while the second, sometimes referred to as the Special Housing Adaptation (SHA) Grant (or Section 2101(b) grant) assists veterans who are blind or who have lost the use of their hands. The grant limits for the first category of adapted housing are higher than for the second, and both types of adapted housing are available to veterans with severe burn injuries. A veteran or servicemember may use the SAH and SHA grants up to three times, as long as total funding does not exceed grant limits.139

Specially Adapted Housing Grants, 38 U.S.C. Section 2101(a)

The original law authorizing the Specially Adapted Housing Program was enacted to assist veterans who had lost use of their legs due to either spinal cord disease or injury. The law originally provided for grants of up to $10,000 for veterans to build homes with features adapted to their disabilities, to purchase homes that were already adapted, or to purchase homes without adaptations and then modify them. Since the program was introduced, the grant limit has increased (see "Grant Limits") and the original disability requirement was modified and expanded to include veterans and servicemembers with a broader range of mobility impairments resulting from permanent and total service-connected disabilities. Veterans with qualifying disabilities include the following:

In addition, since 2012 veterans and servicemembers with limitations in their lower extremities incurred on or after September 11, 2011, may receive the SAH grant. Veterans and servicemembers qualify if they have the following permanent disability:

Finally, in 2013 the VA issued regulations specifying that the disability requirements for the Specially Adapted Housing Program are satisfied for veterans with service-connected amyotrophic lateral sclerosis (ALS).143 Since 2008, there is a presumption of service connection for ALS.144

Special Housing Adaptation Grants, 38 U.S.C. Section 2101(b)

In the Veterans' Disability Compensation and Housing Benefits Amendments of 1980 (P.L. 96-385), Congress expanded the Specially Adapted Housing Program to include veterans who may need to modify their homes, but not to the degree required for veterans eligible for the Section 2101(a) grant. This portion of the program is sometimes referred to as the "Special Housing Adaptation Grant."

The impetus to expand the Specially Adapted Housing Program grew out of the concern that the needs of totally blind veterans were not being met.145 Unless blind veterans were also without use of a lower extremity, they did not qualify for the Specially Adapted Housing Program, and while they could receive home modifications through VA's home health program, the modifications were limited to $2,500. Congress was concerned that the health program's home modifications were not sufficient to serve veterans who were blind, so it requested a study of the needs of blind veterans as part of P.L. 96-22, the Veterans' Health Care Amendments of 1979.146

While the report did not contain definitive data about the modification needs of blind veterans, the same year that the report was released, Congress enacted the Veterans' Disability Compensation and Housing Benefits Amendments of 1980 (P.L. 96-385), which created a new category in the Specially Adapted Housing Program for veterans who had blindness in both eyes with 5/200 visual acuity or less, as well as those who had lost or lost use of both hands. The Senate Veterans' Affairs Committee noted that home adaptation needs for these veterans might not be as extensive as those with mobility issues, and they did not warrant grant amounts at the same level.147 At the time the law was enacted, Specially Adapted Housing Grants were limited to $30,000; the portion of the program to assist blind veterans and those without use of their hands was limited to $5,000 in 1980.

Since enactment, the Special Housing Adaptation Grant has been expanded to include veterans with severe burn injuries (P.L. 110-289). Eligibility is as follows:

Use of Grants to Modify the Home of a Family Member

The law provides that veterans may use the Special Housing Adaptation grant (§2101(b)) to modify homes of family members in cases where a veteran or servicemember plans to continue living there. In addition, a separate provision in the law, enacted in 2006, specifically provides the authority to give these grants to veterans or servicemembers living temporarily in the homes of family members, whether the individuals meet disability requirements for Section 2101(a) or Section 2101(b).149 This is sometimes referred to as the Temporary Residence Adaptation (TRA) grant.

The TRA grant was set up as a five-year pilot program and enacted as part of the Veterans' Housing Opportunity and Benefits Improvement Act of 2006 (P.L. 109-233). There was concern that many injured veterans returning from Operation Iraqi Freedom and Operation Enduring Freedom did not have homes of their own and were instead returning to family members' homes.150 The grants for veterans and servicemembers living temporarily in the homes of family members allow individuals to access a portion of the full grant to which they are entitled. The program is authorized through December 31, 2022 (P.L. 112-154).

Grant Limits

When the Specially Adapted Housing and Special Housing Adaptation grant programs were created, the Section 2101(a) grant had a limit of $10,000, while the Section 2101(b) limit was set at $5,000. Over the years, Congress increased the statutory limits, most recently to $63,780 and $12,756, respectively (P.L. 112-154); the new limits took effect one year after enactment of P.L. 112-154, in August 2013. In addition, the Housing and Economic Recovery Act of 2008 (P.L. 110-289) provided that the VA Secretary shall annually adjust the levels based on a residential home cost-of-construction index, to be established by the Secretary.151 In FY2017, as a result of the index adjustment, the levels were set at $77,307 for Section 2101(a) grants and $15,462 for Section 2101(b).152 The Section 2101(a) grant further provides that the grant not exceed a total percentage of the cost, generally 50% of the cost to acquire property or construct housing.153

The limits for the TRA grants were initially set at $14,000 for Section 2101(a)-eligible recipients and $2,000 for Section 2101(b)-eligible recipients. In August 2012, as part of P.L. 112-154, the limits were increased to $28,000 and $5,000, respectively. The law also provided that the maximum TRA grants be increased using the same cost of construction index that is used to increase the maximum grants for a veteran's or servicemember's own home. Prior to enactment of P.L. 112-154, the TRA grants were not subject to annual adjustment. Pursuant to the cost of construction index adjustment, the limits in FY2017 are $33,937 and $6,059.154

A veteran may qualify for more than one housing grant under the Specially Adapted Housing Program. For example, a veteran or servicemember could make some improvements to his or her home using a Section 2101(a) grant, and receive an additional grant later, as long as the total of all grants did not exceed the cap. However, grants used in one component of the program count against the maximum grant for another component. For example, if a veteran received a TRA grant to improve the home of a parent with whom he or she was residing temporarily, the amount of that grant would reduce the total Section 2101(a) grant he or she would be eligible to receive if later purchasing their own home. Similarly, a veteran or servicemember who receives a Section 2101(b) grant, and who later qualifies for a Section 2101(a) grant, would have the maximum grant reduced by the amount already used.

As part of the Honoring America's Veterans and Caring for Camp Lejeune Families Act of 2012 (P.L. 112-154), a provision was added to the law to protect veterans where a previously adapted home is "destroyed or substantially damaged in a natural or other disaster." The law provides that, where a damaged home was being used and occupied by a veteran or servicemember, he or she may receive funds to acquire another suitable home. It makes assistance available as if a veteran or servicemember had not already received assistance, and the assistance does not count toward a veteran's maximum benefit. The law sets the maximum benefit at the lesser of (1) the cost (as determined by VA) to repair or replace the property that is in excess of any insurance coverage; or (2) the statutory grant maximums for Section 2101(a), Section 2101(b), or the TRA grants, whichever is applicable.

Table 7. Specially Adapted Housing Grant Limits

Effective October 1, 2016


Specially Adapted Housing Grant

Special Housing Adaptation Grant

Veteran's or Servicemember's Own Home



Family Member's Home (indefinite)



Family Member's Home (temporary)



Source: 38 U.S.C. §2102, 38 U.S.C. §2102A, P.L. 112-154, and Department of Veterans Affairs, "Annual Increase in Construction Cost Index and Specially Adapted Housing (SAH), Special Housing Adaptations (SHA), and Temporary Residence Adaptations (TRA) Grants."

The number and amount of Section 2101(a) and Section 2101(b) grants made in recent years are in Table 8, below. Funding for the Specially Adapted Housing Program is mandatory funding provided through the Readjustment Benefits portion of the Veterans Benefits Administration budget. Grants are available to veterans and servicemembers based on eligibility rather than amounts appropriated. The appropriation does not contain a specific allocation for Specially Adapted Housing grants. Instead, the VA estimates the amount that will be obligated as part of its Congressional Budget Justifications, which is subsumed in the total for Readjustment Benefits.

The number and dollar amount of Specially Adapted Housing (§2101(a)) grants nearly doubled from FY2007 to FY2008, and have remained higher than in previous years since that time. In addition to an increase in need due to veterans returning from the wars in Iraq and Afghanistan, VA cited broadened eligibility as a factor contributing to the increases in grants distributed.155 The Housing and Economic Recovery Act of 2008 (P.L. 110-289) made a number of changes to the grants, among them making active duty servicemembers eligible for the grants, including severe burn injuries as an eligible disability, and increasing maximum grants from $50,000 to $60,000 for Section 2101(a) grants, and from $10,000 to $12,000 for Section 2101(b) grants. The increases applied to veterans who had previously received grant assistance.

Table 8. Specially Adapted Housing and Special Housing Adaptation Grants


Specially Adapted Housing Grants

Special Housing Adaptation Grants

Fiscal Year

Number of Grants

Amount of Grants in Year
($ in millions)

Number of Grants

Amount of Grants in Year
($ in millions)






















































































Source: U.S. Department of Veterans Affairs, Annual Benefits Reports, FY1999-FY2016, available at

Special Considerations on Trust Lands

In order to qualify for the maximum available assistance through the Section 2101(a) grant, a veteran or servicemember must have an ownership interest in the property being purchased or modified.156 Until recently, the allowable forms of ownership were somewhat limited. An ownership interest, defined in regulation, included a fee simple interest, a lease or interest in a cooperative of at least 50 years, or a life estate through a revocable trust. As mentioned in the section about the VA direct loan program, individuals living on Native American trust land may not have a traditional interest in property, and individuals living in American Samoa and the Commonwealth of the Northern Mariana Islands may not own property unless they meet nativity requirements.

In 2010, the VA, recognizing the limitations facing veterans or servicemembers living on trust land or in the territories, issued a final rule that updated the regulations defining an ownership interest (among other changes).157 Individuals may now qualify for the Section 2101(a) grant if they have a life estate (without the limitation of a revocable trust), the functional equivalent of a life estate (such as a long-term lease or land installment contract), a lease pursuant to a memorandum of understanding between a tribe and the VA, or a beneficial interest in property located outside of the United States, defined as "an interest deemed by the Secretary as one that provides (or will provide) an eligible individual a meaningful right to occupy a housing unit as a residence."158

Veterans or servicemembers using the Section 2101(b) grants may qualify for the full grant if they live in the home of a family member, so ownership interests may not be as important. For example, a veteran who does not meet the nativity requirements for property ownership in the territories may have a spouse who does.

VA Actions in Event of Delinquency, Default, and Foreclosure

Delinquencies and foreclosures for all categories of loans increased about the same time that the country entered recession (December 2007).159 The housing market began to experience difficulties, with the percentage of all loans past due and the percentage of loans in foreclosure both beginning to grow. In the first quarter of 2007, the overall foreclosure rate was 1.28%; at its peak, in the fourth quarter of 2010, it reached 4.64%.160 While foreclosures for all categories of loans increased after the beginning of the recession, the foreclosure and delinquency rates for VA-guaranteed loans were lower than the rates for FHA loans, as well as lower than the overall rates.161 For example, during the period from the first quarter of 2007 through the fourth quarter of 2010, the foreclosure rate for VA-guaranteed loans increased from 1.05% to 2.35%, and for FHA loans from 2.19% to 3.30%.162

Foreclosure and delinquency rates for VA loans have not always been lower than FHA loans or loans in general.163 The VA has suggested a number of factors that could contribute to the lower default rates experienced in the aftermath of the recession, including underwriting practices, oversight of lenders, and a robust default servicing program where the VA gets directly involved with borrowers and servicers, if necessary.164 The increased popularity of subprime loans leading up to the recession may also have contributed to comparably lower rates for VA loans by moving veterans away from VA loans.

Options to Prevent Foreclosure

A number of options may exist for veterans who entered into mortgages through the VA Loan Guaranty Program and find themselves facing delinquency or foreclosure.

Servicer Workouts: One way in which the VA Loan Guaranty Program attempts to prevent properties from going to foreclosure is to encourage servicers to work out agreements with borrowers. In cases where veterans are delinquent on VA-guaranteed loans, the VA may make incentive payments to servicers that are able to work out arrangements with borrowers to prevent foreclosure.165 These arrangements, or loss mitigation efforts, include repayment plans, forbearance agreements, loan modifications, sales for less than the amount owed ("compromise sales"), or deeds in lieu of foreclosure. Most of these efforts were introduced when VA revised its regulations in 2008.166

Under VA regulations, a lender may enter into a loan modification with a borrower without prior VA approval in circumstances where the borrower is in default, the reasons for loan default have been resolved and are not expected to recur, the borrower is a "reasonable" credit risk, at least 12 payments have been made since the loan closed, and a loan modification would reinstate the loan.167 On December 20, 2011, the VA published a final rule in the Federal Register modifying these regulations to further help encourage modifications.168 In cases where the conditions listed above have not been met, lenders can request approval from the VA to modify loans nonetheless. In addition, maximum interest rates for modified loans will be tied to the Freddie Mac weekly maximum interest rate (to make it easier to re-pool and securitize modified loans with loans having similar interest rates), and legal fees and foreclosure costs can be added to the principal balance of a modified loan.

VA Servicing: The VA may intervene to assist with loss mitigation efforts if the servicer has been unwilling or unable to work with the borrower, or if the VA has determined that the loan servicing is inadequate.169 If loss mitigation is unsuccessful, the VA may purchase the loan and take over servicing; however, this occurs rarely, and only if the circumstances causing delinquency were temporary and the veteran is able to resume payments.170

"HAMP-Style" Modifications: In 2009, the Obama Administration introduced the Home Affordable Modification Program (HAMP), an initiative to help borrowers who are behind on their mortgage payments.171 Through HAMP, homeowners whose mortgage payments exceed 31% of their incomes (in general),172 and who face additional hardships that make it difficult to remain current on their mortgages, may work with their loan servicers to modify their loans so that they are affordable. Technically, VA loans are not included as part of the HAMP program, but the VA has issued guidance requiring loan servicers to determine whether borrowers are eligible for "HAMP-style" modifications before proceeding with foreclosure or similar alternatives.173

Where a borrower has missed payments and loss mitigation efforts have been unsuccessful, loan servicers are to evaluate the borrower to see if the loan could be modified through methods such as reduced interest rates or forebearance on principal payments to a point where the payments are at or below 31% of borrower income. If necessary, the VA will adjust its guaranty for larger loan amounts. Unlike HAMP (where loans must have originated on or before January 1, 2009), any VA-guaranteed loan is potentially eligible. If a lender and borrower enter into a modified loan, unlike HAMP, there is no trial period, and any reduced interest rate lasts for the life of the loan.

Mortgages That Are Underwater, But Current: In addition to increased foreclosures, the downturn in the economy resulted in situations where some borrowers may have mortgages that exceed the value of their homes, sometimes referred to as being "underwater." This makes it difficult to refinance mortgages to take advantage of lower interest rates because lenders generally do not want to lend more than a home's appraised value. In cases where borrowers are current on their mortgage payments, but owe more than their homes are worth, they may qualify for an interest rate reduction refinancing loan (IRRRL) through the VA, despite the fact that their debt exceeds their homes' values.174 Because an IRRRL does not require an appraisal, it is possible that some lenders may be willing to enter into a refinancing loan even where the loan exceeds the current property value.

Agreement Between State Attorneys General and Large Mortgage Servicers: VA borrowers who are delinquent and/or underwater may also be eligible for assistance through an agreement reached between 49 state attorneys general,175 the attorney general for the District of Columbia, and five large mortgage servicers in March 2012. Under the agreement, $25 billion was made available to assist certain borrowers.176 In order to qualify for assistance, loans cannot have been purchased by Fannie Mae or Freddie Mac (and VA loans are not purchased by Fannie Mae or Freddie Mac), and they must be serviced by Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, or Ally Financial. Pursuant to the settlement, the servicers must commit a minimum of $17 billion for foreclosure prevention, including principal reduction, and they must commit another $3 billion to assist underwater homeowners. Another $5 billion was awarded to the states, some of which, about $1.5 billion, will consist of payments to borrowers who lost their homes to foreclosure.177 For more information, see CRS Report R42919, Oversight and Legal Enforcement of the National Mortgage Settlement, by [author name scrubbed] (available upon request to CRS).

Servicemembers Civil Relief Act: Another potential protection for borrowers may come through the Servicemembers Civil Relief Act (SCRA), which provides financial protections for active duty servicemembers, including home mortgage protections.178 The act may assist veterans who entered into mortgages (including VA loans) prior to being called to active duty, and who are having trouble making their mortgage payments. In cases where a lender brings an action against a borrower for a mortgage obligation during a period of active duty, or within nine months after, the SCRA gives courts the authority to stay the proceedings.179 In addition, the SCRA also generally declares invalid any foreclosure or home sale that takes place during this time period.

VA Actions in the Event of Foreclosure

If arrangements cannot be worked out to avoid foreclosure and properties proceed to sale, in most instances, loan servicers acquire the property at foreclosure sale and, in turn, sell it to the VA.180 Whether a transfer to the VA occurs depends on the property value and the amount owed by the veteran borrower; each of these values is determined prior to the foreclosure sale.181 The procedures that the VA goes through in order to determine when it will acquire a property, and for how much, were set up to ensure that the VA would not spend more than the amount for which the loan was guaranteed.182 When a property goes to foreclosure, the VA will also pay the lender's claim against the guaranty. If the total indebtedness has been reduced over the life of the loan, then the guaranty is prorated,183 and the guaranty is limited to the borrower's total indebtedness minus the VA's purchase price.184

Table 9, below, shows the number of properties with VA-guaranteed loans that are at some point in the foreclosure process, as well as foreclosed properties held in the VA inventory over the past decade. Since 2008, when the housing market began to experience difficulties, the number of homes with VA loans in foreclosure has increased, growing from about 4,700 homes in foreclosure in FY2007 to more than 9,000 in FY2008, 17,000 in FY2009, and exceeding 20,000 in each year since then with the exception of FY2013. Once the VA has acquired properties through the process of foreclosure, it attempts to resell them. In doing so, purchasers need not be veterans. In FY2016, the average time between VA acquisition of a foreclosed property and sale was six months.185 For more information about disposition of property, see the earlier section of this report entitled "Direct Loans Resulting from Borrower Delinquency or Default (Acquired and Vendee Loans)."

Table 9. VA Loans in Foreclosure Process and Foreclosed Properties in VA Inventory, FY2001-FY2016

Fiscal Year

Foreclosed Properties Held in VA Inventorya

Properties in the Foreclosure Processb

















































Source: VA Performance and Accountability Reports, FY2002-FY2014. The reports are available on the VA website, From FY2015 on, figures are reported in the VA Agency Financial Report.

a. Properties as of the end of the fiscal year.

b. The Performance and Accountability Reports do not indicate exactly what the "foreclosure process" entails.

Author Contact Information

[author name scrubbed], Specialist in Housing Policy ([email address scrubbed], [phone number scrubbed])



38 C.F.R. §36.4301.


U.S. Congress, House Veterans' Affairs Committee, The Historical Development of Veterans' Benefits in the United States, A Report on Veterans' Benefits in the United States, committee print, prepared by The President's Commission on Veterans' Pensions, 84th Cong., 2nd sess., May 9, 1956, H.Prt. 84-244 (Washington: GPO, 1956), p. 161.




U.S. Congress, House Committee on World War Veterans' Legislation, Providing Federal Government Aid for the Readjustment in Civilian Life of Returning World War II Veterans, report to accompany S. 1767, 78th Cong., 2nd sess., May 5, 1944, H.Rept. 1418, p. 2.


U.S. Congress, House Conference Committee, Providing Federal Government Aid for the Readjustment to Civilian Life of Returning World War II Veterans, report to accompany S. 1767, 78th Cong., 2nd sess., June 12, 1944, H.Rept. 1624, pp. 162-163.


38 U.S.C. §101(2). For more information about who is a veteran, CRS Report R42324, Who Is a "Veteran"?—Basic Eligibility for Veterans' Benefits, by [author name scrubbed].


Reservists were made eligible as part of the Veterans Home Loan Program Amendments of 1992 (P.L. 102-547).


The disability must meet one of three duration requirements: (1) it was continuously rated totally disabling for 10 or more years immediately preceding death; (2) it was continuously rated totally disabling for at least five years from the date of discharge from active duty; or (3) it was continuously rated totally disabling for not less than one year immediately preceding death, and the veteran had been a prisoner of war who died after September 30, 1999.


38 U.S.C. §3702(a)(2).


38 U.S.C. §101(3), (31).


Letter from Eric H. Holder, Jr., U.S. Attorney General, to the Honorable John Boehner, Speaker of the U.S. House of Representatives, September 4, 2013,


38 U.S.C. §103(c).


Obergefell v. Hodges, 135 S. Ct. 2584 (2016).


See 38 U.S.C. §3710(g) and 38 C.F.R. §36.4340. Further guidance is at U.S. Department of Veterans Affairs, Lenders Handbook – VA Pamphlet 26-7, revised June 28, 2010, chapter 4, (hereinafter VA Lenders Handbook).


38 C.F.R. §36.4340(d).


38 C.F.R. §36.4340(f).


VA Lenders Handbook, p. 4-55.


38 C.F.R. §36.4340(e).


38 C.F.R. §36.4340(g).




38 U.S.C. §3710.


38 C.F.R. §36.4301.


Ibid. There is an exception for a dwelling owned by more than one veteran—in that case there may be an extra unit for each additional veteran owner. For example, if three veterans owned a property together, it could consist of six units as long as three of the six units were occupied by the veteran owners.


VA Lenders Handbook, p. 3-14.




38 U.S.C. §3704(c). P.L. 112-154 amended the law to allow dependent children to satisfy the occupancy requirement.


38 C.F.R. §36.4301.


Ibid., definition of "residential property."


38 U.S.C. §3710(a)(9)(A)(ii).


VA Lenders Handbook, Chapter 12.


See VA response to questions for the record, U.S. Congress, House Committee on Veterans' Affairs, Subcommittee on Economic Opportunity, Hearing on the Loan Guaranty Program, 111th Cong., 2nd sess., May 20, 2010, p. 66.


For a complete list of acceptable improvements, see 38 U.S.C. §3710(d).


During the 1990s, the VA insured a decreasing number of manufactured housing units per year as reported in the VA Annual Reports. From FY1971 through FY1990, the VA guaranteed 112,786 manufactured home loans. U.S. Department of Veterans Affairs, FY1990 Annual Report of the Secretary of Veterans Affairs, March 1991, p. 29. In FY1991, the VA insured 313 loans, with this number decreasing to 126 in FY1992, 67 in FY1993, 24 in FY1994, 23 in FY1995, and 9 in FY1996, the last year in which manufactured home loans were separately noted in either the VA Annual Reports or the VA Annual Benefits Reports.


This definition is from the manufactured housing portion of the regulations at 38 C.F.R. §36.4202. The definition of manufactured housing for the regular home loan guaranty at 38 C.F.R. §36.4301 is substantially the same.


VA Lenders Handbook, p. 12-20.


For state laws governing the titling of manufactured housing as well as the conversion of housing titled as a motor vehicle to real property, see the Fannie Mae website,


U.S. Census Bureau, Selected Characteristics of New Manufactured Homes Placed: By Region - 2010, p. 1,


U.S. Congress, Senate Labor and Public Welfare Committee, Extension of Veterans' Home Loan Entitlements and Inclusion of Mobile Home Purchases, report to accompany S. 3656, 91st Cong., 2nd sess., September 23, 1970, S.Rept. 91-1230, p. 13. When the Veterans' Housing Act (H.R. 16710) was considered and passed by the Senate, the bill was amended by and replaced with S. 3656, the companion bill to H.R. 16710, which contained a similar version of the loan guaranty program. See "Veterans' Housing Act of 1970," Senate debate, Congressional Record, vol. 116 (September 25, 1970), pp. 33781-33783.


Report of the President's Committee on the Vietnam Veteran, Washington, DC, 1970, p. 33.




38 U.S.C. §3712(d). The maximum loan terms are: single-wide, about 20 years for home and lot; double-wide, a maximum of 25 years for home and lot; or lot purchase, approximately 15 years.


38 U.S.C. §3712(c)(5).


Email communication from the VA, May 17, 2012. Regarding appraisals, manufactured housing dealers often sold manufactured homes with furniture included, but beginning in the 1980s, the furniture could no longer be included in appraised value.


38 U.S.C. §3710(a)(8) and (a)(9)(i).


38 U.S.C. §3710(a)(5).


38 U.S.C. §3710(e).




38 U.S.C. §3710(e)(1)(C).


U.S. Congress, House Committee on Veterans' Affairs, Veterans' Housing Rehabilitation and Program Improvement Act of 1987, report to accompany H.R. 2672, 100th Cong., 1st sess., July 30, 1987, H.Rept. 100-257, p. 15.


VA Lenders Handbook, p. 6-2.


Ibid., p. 3-3.


Ibid., p. 10-10.


Ibid., p. 6-18.


U.S. Census Bureau, American Housing Survey: 2015 Summary Tables, Additional Mortgage Characteristics—Owner-Occupied Units, For the way in which "primary mortgage" status is determined, see American Housing Survey 2015 Definitions, p. A-33,


Statement of Tim S. Embree, Iraq and Afghanistan Veterans of America, U.S. Congress, House Committee on Veterans' Affairs, Subcommittee on Economic Opportunity, Hearing on the Loan Guaranty Program, 111th Cong., 2nd sess., May 20, 2010, pp. 51-52.


For more information about Freddie Mac and the conforming loan limits, see CRS Report RS22172, The Conforming Loan Limit, by [author name scrubbed] and [author name scrubbed].


P.L. 91-351, §305. The FHA statute was amended in 1969 to raise the limit to $33,000 (P.L. 91-152).


P.L. 93-383, §805. The federal savings and loan limits on mortgage lending were codified at 12 U.S.C. §1464(c) (1976).


P.L. 96-399, §313.


Federal Housing Finance Agency, History of Conforming Loan Limits, Limits were increased in each year with the exception of 1990.


P.L. 111-5 returned the limit for high-cost areas to the level first instituted in 2008 as part of the Economic Stimulus Act of 2008 (P.L. 110-185).


Federal Housing Finance Agency, "FHFA Announces Increase in Maximum Conforming Loan Limits for Fannie Mae and Freddie Mac in 2017," press release, November 23, 2016,


38 U.S.C. §3703.


38 U.S.C. §3703(a)(1)(C).


12 U.S.C. §1454.


This is based on the provision in the Freddie Mac statute for areas where 115% of median home prices exceed the conforming loan limit. 12 U.S.C. §1454(a)(2)(C). See the text box for more information.


U.S. Department of Veterans Affairs, FY2016 Annual Benefits Report, Home Loan Guaranty section, p. 8,


12 U.S.C. §1454(a)(2)(C).


The higher conforming loan limit for Alaska, Hawaii, and Guam was introduced in 1980 (P.L. 96-399). The U.S. Virgin Islands was added to the list in 1992 (P.L. 102-550). See also, U.S. Congress, Conference Report, report to accompany S. 2719, 96th Cong., 2nd sess., September 26, 1980, H.Rept. 96-1420, p. 117.


The VA website refers to the Federal Housing Finance Agency loan limits for 2017,


The Ginnie Mae Mortgage Backed Securities Guide, January 1, 2017, p. 9-1,


VA Lenders Handbook, p. 3-9.


38 U.S.C. §3703(a).


VA Lenders Handbook, pp. 3-12 and 3-14.


38 U.S.C. §3702(b).


Ibid. See also VA Lenders Handbook, p. 2-15.


VA Lenders Handbook, p. 2-15.


Ibid., p. 3-9.


See CRS Report RS20530, FHA-Insured Home Loans: An Overview, by [author name scrubbed].




38 C.F.R. §36.4313.


See VA Lenders Handbook, p. 8-7.


U.S. Department of Housing and Urban Development, Handbook 4155.2, Lender's Guide to the Single Family Mortgage Insurance Process, p. 6-A-12,


CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund), by [author name scrubbed].


38 U.S.C. §3731 requires the VA Secretary to set up a process for approving appraisers that includes a testing process and recommendations from other appraisers, and to develop and maintain a list of approved appraisers.


VA Lenders Handbook, chapter 15.


24 C.F.R. Part 200, Subpart G.


See Section 2(1)(B)(ii)(I). Just prior to the enactment of P.L. 107-326, veteran borrowers qualified for a principle balance of 100% of the first $25,000 of the appraised value, compared to 97% for non-veteran borrowers. In addition, the maximum principle balance on amounts above $125,000 was 90% for non-veteran borrowers, compared to 95% for veteran borrowers.


See Section 2113 of P.L. 110-289.


U.S. Congress, Senate Committee on Banking and Currency, Housing Act of 1950, report to accompany S. 2246, 81st Cong., 2nd sess., February 24, 1950, S.Rept. 81-1286, p. 92.


The old U.S. Code Section, 38 U.S.C. §694l (1952), was replaced by 38 U.S.C. §1811 (1958). See the table of contents for Title 38 of the U.S. Code 1958 version.


U.S. Congress, House Committee on Veterans' Affairs, Subcommittee on Housing, Bills to Provide for Purchase of Mobile Homes Under Veterans' Administration Guaranty and Other Bills Related to Veterans' Housing, 91st Cong., 2nd sess., July 14 and 16, 1970, pp. 3461-3462.


38 U.S.C. §3711.


U.S. Veterans Administration, Annual Report 1981, May 1982, p. 71.


For example, the language in the FY2012 Consolidated Appropriations Act (P.L. 112-74) was "not to exceed $500,000 in gross obligations for direct loans are authorized for specially adapted housing loans." According to the Conference Committee Report, the law "limits obligations for direct loans to not more than $500,000." See H.Rept. 111-366.


U.S. Department of Veterans Affairs, FY2018 Congressional Budget Submission, Volume III, Benefits and Burial Programs and Departmental Administration, pp. VBA-115 and VBA-121,


See U.S. Department of Veterans Affairs, M26-1 Guaranteed Loan Processing Manual, pp. 10-15,


25 U.S.C. §5304. An "Indian" means a person who is a member of an Indian tribe. An "Indian tribe" is "any Indian tribe, band, nation, or other organized group or community, including any Alaska Native village or regional or village corporation as defined in or established pursuant to the Alaska Native Claims Settlement Act ... which is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians."


P.L. 67-34. "The term 'native Hawaiian' means any descendant of not less than one-half part of the blood of the races inhabiting the Hawaiian Islands previous to 1778."


43 U.S.C. §1602. " 'Native' means a citizen of the United States who is a person of one-fourth degree or more Alaska Indian (including Tsimshian Indians not enrolled in the Metlaktla [1] Indian Community) Eskimo, or Aleut blood, or combination thereof. The term includes any Native as so defined either or both of whose adoptive parents are not Natives. It also includes, in the absence of proof of a minimum blood quantum, any citizen of the United States who is regarded as an Alaska Native by the Native village or Native group of which he claims to be a member and whose father or mother is (or, if deceased, was) regarded as Native by any village or group."


42 U.S.C. §2992c(7). "[T]he term 'Native American Pacific Islander' means an individual who is indigenous to a United States territory or possession located in the Pacific Ocean, and includes such individual while residing in the United States." The three U.S. territories in the Pacific are American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands.


38 U.S.C. §3765(3).


U.S. Congress, Senate Committee on Veterans' Affairs, Veterans Benefits and Health Care Act of 1989, report to accompany S. 13, 101st Cong., 1st sess., September 13, 1989, S.Rept. 101-126 (Washington: GPO, 1989), pp. 290-291. The Senate amended H.R. 901 (which would ultimately become P.L. 101-237) with provisions from S. 13.


U.S. Department of the Interior, DOI Trust Reform: As-Is Trust Business Model Report, March 21, 2003, p. 2-1,


U.S. Department of Agriculture, Lending on Native American Lands: A Guide for Rural Development Staff, June 2006, p. 24,


See U.S. Congress, Senate Committee on Veterans' Affairs, Native American Veterans Home Loan Equity Act of 1992, report to accompany S. 2528, 102nd Cong., August 12, 1992, S.Rept. 102-378, p. 11. Quoting from an evaluation of VA lending on tribal land, the report stated that "The inability to use tribal land as security for a mortgage loan is the most significant factor in limiting access to the VA loan guaranty benefit that can be affected by VA." S. 2528 was incorporated into P.L. 102-547. See "Veterans Home Loan Program Revitalization Act of 1992," House debate, Congressional Record, vol. 138, part 22 (October 5, 1992), p. 32374.


See the Department of the Interior website, "Insular Area Summary for American Samoa,"


Am. Samoa Code Ann. §37.0204.


N.M.I. Const., Art. XII, Sec. 1.


Congress, in response to the concerns of the Advisory Committee on Native American Veterans, directed the Departments of Veterans Affairs and Interior to look into the extent to which Native American veterans on trust land participated in the loan guaranty program and release a report (see the Veterans' Benefits Amendments of 1989 (P.L. 101-237)). The findings of the report are summarized in S.Rept. 102-378, p. 10.


The MOU is available at


U.S. Department of Veterans Affairs, Annual Benefits Report FY2016, Loan Guaranty section p. 5,




U.S. Congress, Senate Committee on Veterans' Affairs, Pending Benefits-Related Legislation, 109th Cong., 1st sess., June 23, 2005, S.Hrg. 109-243, p. 27.


Ibid., p. 28.


Email communication from the VA, April 13, 2012.


U.S. Department of Veterans Affairs, FY2011 Performance and Accountability Report, November 15, 2011, p. III-13, (hereinafter FY2011 Performance and Accountability Report).


38 U.S.C. §§3733(a)(1) and (a)(7).


U.S. Department of Veterans Affairs, FY2018 Congressional Budget Justifications, Volume III, p. VBA-117,


See FY2011 Performance and Accountability Report, pp. III-30 to III-31. Congress authorized the VA to guarantee principal and interest payments on these certificates as part of P.L. 102-291, which is codified at 38 U.S.C. §3720(h).


FY2011 Performance and Accountability Report, p. III-31.


Email communication from the VA, April 13, 2012.


The FCRA was part of the Omnibus Reconciliation Act of 1990. It is found under Title XIII, Budget Enforcement, as Title V, Credit Reform.




The reestimates are part of the Supplemental Materials on the OMB Budget website. There are tables for reestimates of direct loan subsidy rates and loan guarantee subsidy rates. See Office of Management and Budget, FY2013 Federal Credit Supplement, pp. 73-74 for guaranteed loans and pp. 49-50 for direct loans,


38 U.S.C. §3722. The fund was instituted in 1998 as part of P.L. 105-368, the Veterans Programs Enhancement Act. Prior to this, the loan guaranty and direct loan programs had been funded through three accounts, the Guaranty and Indemnity Fund, and two liquidating accounts.


38 U.S.C. §3729.


38 U.S.C. §3729(c) and P.L. 112-154.


38 U.S.C. §3729(a). See also, VA Lenders Handbook, p. 3-11.


The Veterans' Readjustment Benefits Act of 1966 (P.L. 89-358) imposed a fee of 0.5% on veterans who served during the post-Korean War era, but this fee was withdrawn four years later as part of the Veterans' Housing Act of 1970 (P.L. 91-506).


The letter and draft legislation were made part of the House Veterans' Affairs Committee report for H.R. 6782, a bill where the section regarding loan fees was eventually incorporated into the Omnibus Budget Reconciliation Act of 1982 (P.L. 97-253). See CQ Almanac 1982, 38th ed., Reconciliation Savings: $130 Billion by 1985, 1983, pp. 199-204, The VA administrator letter is at U.S. Congress, House Committee on Veterans' Affairs, Veterans' Disability Compensation and Survivors' Benefits Amendments of 1982, report to accompany H.R. 6782, 97th Cong., 2nd sess., July 23, 1982, H.Rept. 97-660, pp. 49-50.




See, for example, U.S. Congress, House Committee on Veterans' Affairs, Subcommittee on Housing and Memorial Affairs, VA Home Loan Guaranty Program, 97th Cong., 2nd sess., March 23, 1982.


Note that prior to the extension of existing fees in P.L. 108-183, in August 2011 the Restoring GI Bill Fairness Act of 2011 (P.L. 112-26) changed fees for subsequent loans with less than 5% down payment for both active duty veterans and reservists.


The fees in P.L. 112-56 took effect on the date of enactment. For loans that closed from October 1 through October 5, and from November 18 through November 21, the VA issued guidance stating that the lower fees in P.L. 108-183 applied. See U.S. Department of Veterans Affairs, VA Circular 26-11-15, Updated Funding Fee Changes, October 6, 2011, and VA Circular 26-11-19, Funding Fee Update as of November 22, 2011, November 22, 2011,


P.L. 112-154 extended fees through October 1, 2017, and P.L. 113-146 extended them until September 30, 2024.


The Specially Adapted Housing Program is codified at 38 U.S.C. §§2101-2107.


The first is addressed in 38 U.S.C. §2101(a) and the second in 38 U.S.C. §2101(b).


38 U.S.C. §2102(d).


38 C.F.R. §3.809.


38 U.S.C. §2101(a)(2)(A)(ii).


38 U.S.C. §2101(a)(4).


U.S. Department of Veterans Affairs, "Specially Adapted Housing Eligibility for Amyotrophic Lateral Sclerosis Beneficiaries," 78 Federal Register 72573-72576, December 3, 2013.


38 C.F.R. §3.318.


See U.S. Congress, Senate Committee on Veterans' Affairs, Veterans' Disability Compensation and Housing Benefits Amendments of 1980, report to accompany S. 2649, 96th Cong., 2nd sess., July 30, 1980, S.Rept. 96-876, pp. 24-26.


The resulting report was published as a committee print, U.S. Congress, House Committee on Veterans' Affairs, The Needs of Veterans Who Are Totally Blind from Service-Connected Causes for Home Modifications, committee print, prepared by Veterans' Administration, 96th Cong., 2nd sess., January 11, 1980, H.Prt. 96-56.


U.S. Congress, Senate Committee on Veterans' Affairs, Veterans' Disability Compensation and Housing Benefits Amendments of 1980, report to accompany S. 2649, 96th Cong., 2nd sess., July 30, 1980, S.Rept. 96-876, pp. 25-26.


38 C.F.R. §3.809a.


38 U.S.C. §2102A.


U.S. Congress, House Committee on Veterans' Affairs, Veterans Housing and Employment Improvement Act of 2005, report to accompany H.R. 3665, 109th Cong., 1st sess., November 1, 2005, H.Rept. 109-263, p. 13.


The cost of construction index is to reflect the average change in construction costs from year to year. The VA chose an existing index, the Turner Building Cost Index. See U.S. Department of Veterans Affairs, "Loan Guaranty: Assistance to Eligible Individuals in Acquiring Specially Adapted Housing; Cost-of-Construction Index," 74 Federal Register 48658, September 24, 2009.


VA Loan Circular 26-16-27, Annual Increase in Construction Cost Index and Specially Adapted Housing (SAH), Special Housing Adaptations (SHA), and Temporary Residence Adaptations (TRA) Grants, September 27, 2016,


38 U.S.C. §2102(a).




U.S. Department of Veterans Affairs, FY2009 Performance and Accountability Report, November 16, 2009, p. II-4,


38 C.F.R. §36.4405.


U.S. Department of Veterans Affairs, "Loan Guaranty: Assistance to Eligible Individuals in Obtaining Specially Adapted Housing," 75 Federal Register 56875-56880, September 17, 2010. In advance of the final rule, the VA had issued guidance broadening property ownership categories. See U.S. Department of Veterans Affairs, Circular 26-08-5, Expansion of the Types of Ownership Interests Permissible Under the Specially Adapted Housing (SAH) Grant Program, March 10, 2008,


38 C.F.R. §36.4401.


National Bureau of Economic Research, Determination of the December 2007 Peak in Economic Activity, December 11, 2008,


Mortgage Bankers Association, National Delinquency Survey, First Quarter 2007, data as of March 31, 2007, p. 3, and National Delinquency Survey, First Quarter 2014, data as of March 31, 2014, p. 10.


The Mortgage Bankers Association releases quarterly National Delinquency Surveys with delinquency and foreclosure data that includes subprime loans, prime loans, FHA loans, and VA loans. From 2002 through 2014, the VA foreclosure rate has been lower than the FHA foreclosure rate; from 2007 through 2013, the VA foreclosure rate has been lower than the rate for all loans; and since 2010, the VA loan foreclosure rate has been lower than prime loans.


Mortgage Bankers Association, National Delinquency Surveys. See footnote 160.


See, for example, Historical Statistics of the United States, Table Dc1255-1270, Mortgage foreclosures and delinquencies: 1926-1979,, and Mortgage Bankers Association Historical National Delinquency Survey Data.


Statement of Thomas J. Pamperin, VA Associate Deputy Under Secretary for Policy and Program Management, U.S. Congress, House Committee on Veterans' Affairs, Subcommittee on Economic Opportunity, Hearing on the Loan Guaranty Program, 111th Cong., 2nd sess., May 20, 2010, pp. 22-23.


38 C.F.R. §36.4319.


U.S. Department of Veterans Affairs, "Loan Guaranty: Loan Servicing and Claims Procedures Modifications," 73 Federal Register 6294-6368, February 1, 2008.


38 C.F.R. §36.4315.


U.S. Department of Veterans Affairs, "Loan Guaranty Revised Loan Modification Procedures," 76 Federal Register 78827-78829, December 20, 2011.


U.S. Department of Veterans Affairs, VA Loan Electronic Reporting Interface VA Servicer Guide, July 31, 2009, p. 87,


38 C.F.R. §36.4320.


For more information about HAMP and other foreclosure prevention initiatives, see CRS Report R40210, Preserving Homeownership: Foreclosure Prevention Initiatives, by [author name scrubbed].


Until June 1, 2012, in order to participate in HAMP, borrowers were required to have mortgage payments that exceeded 31% of their income. However, the Obama Administration announced "HAMP Tier II" on March 9, 2012, in order to try to assist additional borrowers. Beginning June 1, 2012, borrowers may have mortgage payments that make up less than 31% of their income and still qualify for HAMP. See Making Home Affordable Supplemental Directive 12-02, March 9, 2012,


Updated guidance was issued by the U.S. Department of Veterans Affairs via Circular 26-17-10, Department of Veterans Affairs Affordable Modification, April 7, 2017, Guidance was originally released in Circular 26-14-22, VA Making Home Affordable Program, September 2, 2014,


VA Circular 26-14-22 states that veterans who are current on their VA-guaranteed loans should be evaluated for the IRRRL.


Oklahoma was not a party to the agreement.


U.S. Department of Justice, "Federal Government and State Attorneys General Reach $25 Billion Agreement with Five Largest Mortgage Servicers to Address Mortgage Loan Servicing and Foreclosure Abuses," press release, February 9, 2012,


For more information, see the website devoted to the settlement,


For more information, see CRS Report RL34575, The Servicemembers Civil Relief Act (SCRA): An Explanation, by [author name scrubbed].


50 U.S.C. Appendix §533.


Veterans Benefits Administration Powerpoint Presentation, "Loan Guaranty Program Overview."


38 U.S.C. §3732(c) gives the VA the authority to purchase property from the loan servicer where the net value of the property exceeds the unguaranteed portion of the loan. Further, pursuant to 38 C.F.R. §36.4323(b), the VA may acquire properties even where the net value does not exceed the unguaranteed portion of the debt. However, in these cases, the servicer must waive the amount of the indebtedness that exceeds the net value (i.e., the servicer will not pursue the veteran borrower for the deficiency) for the VA to be able to accept the transfer.


See U.S. Congress, conference report to accompany H.R. 4170, 98th Cong., 2nd sess., June 23, 1984, H.Rept. 98-861, pp. 1374-1375.


See 38 U.S.C. §3703(b): "The liability of the United States under any guaranty, within the limitations of this chapter, shall decrease or increase pro rata with any decrease or increase of the amount of the unpaid portion of the obligation." But "[i]n no event may the liability of the United States under a guaranteed loan exceed the amount guaranteed with respect to that loan under section 3703 (b) of this title." 38 U.S.C. §3732(c)(9).


38 U.S.C. §3732(c)(5). The VA pays the "net value" for the property—its fair market value minus costs the VA would incur while holding the property.


U.S. Department of Veteran Affairs, FY2016 Agency Financial Report, November 15, 2016, p. 65,