Real property acquisitions

Private lenders who have acquired property as a result of foreclosure on defaulted guaranteed or insured loans may elect to convey that property to the Veterans Administration. The following table reflects this activity:

These payments are made to lenders in accordance with the Veterans Administration guaranty contract and represent the difference between the amount owed by the veteran on a defaulted loan and the value of the foreclosed property (as established by Veterans Administration). These payments are in addition to property acquisition costs.

Ratio of claims paid to loans outstanding

The following table shows claims and property acquisition experience from 1963 through 1970 with estimated activity for 1971 and 1972. Projections of claims and acquisitions for 1971 and 1972 are estimated at slightly higher levels than 1970 because of the projected increases for 1971 and 1972 in the number of outstanding loans and some increase in ratio of claims to outstanding loans.

Pursuant to Veterans Administration Regulation 4600, dated March 22, 1962, the mortgage loans, which have been created incident to the sale of Veterans Administration acquired properties, are sold with full recourse.

Capital improvements to acquired properties

After conveyance of the property to the Veterans Administration, repairs are often necessary to place the property in salable condition. To the extent that such repairs increase the book value of the property, i.e., improvements of a permanent nature, additions, alterations, etc., the cost is capitalized.

Guaranteed or insured loans in a default status may be purchased by the Administrator to avoid foreclosure when it is felt that forebearance will allow obligors to cure the defaults:

Cash expenditures are not involved in the establishment of vendee loans. However, small cash advances are occasionally made to borrowers to cover taxes, hazard insurance and necessary repairs. The amounts are added to the current vendee loan balance.

Total cost.

1970 actual 1971 estimate 1972 estimate

$1,501, 661 $2,200,000

$2,500,000

Property management expense

The cost of ownership of Veterans Administration acquired properties is financed from this fund. These costs include local real estate taxes, services performed by management brokers and maintenance of the property.

Includes brokers fees and advertising costs incident to the sale of properties owned by the Veterans Administration.

This item represents the discount absorbed by the Veterans Administration incident to the sale of vendee loans. Discounts occur when the contract rate of interest does not afford a yield commensurate with the market.

Total costs..

1970 actual 1971 estimate 1972 estimate

$1,705, 033 $10,540,000

$9,043,000

Interest expense on participation certificates

This item represents the amount of interest the trustee is required to pay holders of participation certificates in respect to which vendee accounts have been set aside pursuant to 38 U.S.C. 1820 (e). To the extent this expense exceeds the amount of interest collections on an equal amount of loans pledged to the trustee, participation sales insufficiencies result.

Total cost.

PROGRAM FINANCING

1970 actual 1971 estimate 1972 estimate

$56, 382, 180 $54, 535,000

$54,047, 000

The following table indicates the amounts available for obligation at the beginning of each year and the source of funds becoming available during the year:

PROGRAM CONDITION

The program expenditures and financing transactions outlined in the preceding pages will result in the following program condition at the close of fiscal years 1970, 1971 and 1972.

REVENUE EXPENSES AND RETAINED EARNINGS

Revenue will be reduced in 1971 and 1972 by the statutory elimination of the one half of one percent funding fee, (PL 91-506) and an increase in the amount of loans sold at a discount will increase expenses. These two items are primarily responsible for the estimated loss in net income.

The following table reflects the major items of revenue and expense:

Net lending in any year equals the change between the asset value of portfolio loans outstanding at the beginning and the end of the year. Portfolio loans in this fund include vendee loans, and acquired loans. Vendee loans are mortgage loans or installment contracts that are established when the Veterans Administration sells acquired property for less than all cash. These loans are sold with the provision that in case of default they will be repurchased by the Veterans Administration. From the inception of the program through FY 1970, $986.2 million has been received from the sale of vendee loans. $175.7 million of 17.8 percent of the vendee loans sold have been repurchased through FY 1970. Acquired loans are guaranteed or insured loans in default which are purchased by the Administrator to avoid foreclosure when it is felt that forebearance will allow the obligor to cure the default.

The following table summarizes the changes in the asset value of portfolio loans, of the loan guaranty revolving fund, including loans pooled as collateral for outstanding participation certificates: