Under current law, the Administrator has the authority to set the maximum interest rate which may be charged by a lender to a veteran homebuyer. Lenders are free to offer loans below this maximum rate. Loans below the maximum rate are rarely seen, except in cases where the rate is being subsidized by a Government agency, or where a developer in a new housing project has bought down the rate. There is little doubt that veterans will pay higher rates than they do now with an administered rate. This will erode veterans' purchasing power, meaning that fewer veterans will be able to afford housing, thereby lessening the benefit of VA-guaranteed loan financing. It will also cost those veterans who choose to participate in the program millions of additional dollars since negotiated rates at a higher level will translate into higher mortgage payments for veterans throughout the term of the loan.

The use of "negotiated" interest rates could increase VA claim costs and adversely affect the Loan Guaranty Revolving Fund. When a VA-guaranteed loan goes to foreclosure, the lender's claim is paid with interest based on the mortgage rate. Since it is expected that "negotiated" interest rates would be higher than current VA established maximum rates, the VA's claim costs would increase, resulting in increased outlays from the Loan Guaranty Revolving Fund. Because the Government assumes most of the risk on the guaranteed mortgage, it has an obligation to the taxpayer to moderate interest rates to the maximum extent possible to minimize its financial exposure.

For the above reasons, the Committee rejects this proposal.

Revenues and receipts from direct loan operations make funds available for the extension of credit to severely disabled veterans for specially adapted housing and for current expenses, excluding administrative costs. The fund also provided a source of financing to the loan guaranty program through transfers of unobligated funds. Transfer authority is not requested in the 1986 loan guaranty revolving fund appropriation language so as to reflect the true cost of the guaranty program in accordance with current Federal credit policy.

The Committee accepts this proposal.

During the 98th Congress, the Administration submitted a legislative request to provide the surviving spouse of a Commandant of the Coast Guard dependency and indemnity compensation (DIC) at the same rate as is now provided for surviving spouses of other uniformed service chiefs. No legislative action was taken on the request.

DIC rates are based primarily on the active service military pay of the veteran. The Committee did not act on the administration request during the 98th Congress because the Commandant of the Coast Guard, at that time, received the same pay as other flag officers of the Coast Guard whereas other service chiefs received additional pay while serving in that capacity. Legislation was enacted late in the 98th Congress to adjust the military pay of the Coast Guard Commandant on the same basis as the other uniformed service chiefs. The Committee expects to adjust the DIC rates for the surviving spouse of a Coast Guard Commandant. The cost of this provision will be insignificant.

Current law provides a maximum amount of Servicemen's Group Life Insurance (SGLI) coverage of $35,000 for members of the All-Volunteer Armed Forces. The last increase in this ceiling was effective December 1, 1981. The concept of Government life insurance at its inception in 1917 was to make life insurance protection available to the uniformed services at a reasonable cost in view of the fact that commercial insurance companies either refused to insure the lives of men subject to wartime risk through a war clause, or were charged prohibitive premiums for waiving the clause. SGLI meets this need through a self-sustaining program at no cost to the Government.

The Committee expects to enact legislation to extend SGLI coverage to members of the Individual Ready Reserve and Inactive National Guard. This will serve to enhance the retention of these individuals in the reserve forces of our military establishment.

Under this proposal, the program, including the additional coverage provided herein, would continue to be self-supporting and would have no budgetary impact.

The Department of Defense Authorization Act of 1984 (Public Law 98-525) established a new GI bill for individuals who enter the military on or after July 1, 1985. Individuals who enroll in the program will have $100 deducted from their monthly pay for 12 months. Basic benefits under this program, up to a maximum of $300 per month for 36 months for full-time training, will be funded by the VA. The Department of Defense may fund additional education assistance benefits for retention or recruitment purposes.

It has been brought to the attention of the Committee that the military services are experiencing difficulty in recruitment and retention as the result of the July 1, 1985 beginning date for the program. Consequently, the Committee proposes legislation which will ensure an orderly transition to the new educational assistance program by amending the effective date of the program to the date of enactment of this legislation. Additionally, this legislation would provide that those individuals with prior service who return to active duty during the eligibility period will be eligible for benefits under this program. Under current law, only those individuals who first enter military service during this time are eligible for the educational benefits. This prohibition makes it difficult for the Armed Forces to attract those experienced individuals needed by our military.