any effort or thought on the part of legal services, or on the part of the legal division of your organization, to maybe do a paper on this entire problem as it concerned this disaster?

Mr. CARLUCCI. We have discussed this. I think we could certainly do a paper on the insurance problem.

Senator GRAVEL. I wonder if you might submit for the record an analysis of the claims, the issue of wind and water damage which invalidated a good number of policies, which came first, and how many people were affected.

Mr. CARLUCCI. I would be glad to, Mr. Chairman.

Senator GRAVEL. I am sure the insurance companies would be glad to assist you in this regard.

(The following information was later supplied :)

Thus far we have been unable to develop the information which was requested by Senator Gravel regarding insurance claims, however, we are endeavoring to obtain this information from the grantee The Mississippi Bar Association.

Senator GRAVEL. With respect to one proposal made in the administration's legislation, there is a difference between the period of time, which is 2 years in the administration's bill, and the Bayh bill, which would be indefinite, for unemployment compensation.

I wonder why there is a difference and why the administration feels we should extend unemployment compensation for only 2 years and not make it a permanent extension, since it does provide so much benefit to the communities in question.

Mr. CARLUCCI. Mr. Chairman, we are presently in the process of preparing a written response to the Bayh bill. We would be pleased to include our comments on that score in this written response, if that is satisfactory to you.

Senator GRAVEL. Thank you very much.

I don't want my questions to appear unduly harsh toward OEO with respect to legal services. Sometimes, we expect so much of the most beleaguered organizations.

Let me state for the record that apparently this is the first time you have been involved in a disaster of this nature. All disasters, of course, are educational experiences, by and large.

I think compliments should be extended to the efforts made by your organization in this regard.

Thank you for coming forward.

Mr. CARLUCCI. Thank you.

Senator GRAVEL. Our next witness will be Mr. John Dervan, Director, Loan Guaranty Service, Veterans Administration.

STATEMENT OF JOHN M. DERVAN, DIRECTOR, LOAN GUARANTY SERVICE, VETERANS ADMINISTRATION, ACCOMPANIED BY HARRY D. DODSON, ASSISTANT DIRECTOR FOR LIQUIDATION, AND JOHN H. KERBY, ASSISTANT GENERAL COUNSEL

Mr. DERVAN. Thank you, Mr. Chairman.

We appreciate the opportunity to report the VA's efforts in meeting the problem created by Hurricane Camille with respect to our

guaranteed and portfolio loans and to comment on those parts of S. 3619, The Omnibus Disaster Assistance Act, relating to our guaranteed and portfolio loan programs.

As you know, the VA guarantees home loans made by private lenders to eligible veterans to purchase, construct, repair, alter or improve a dwelling occupied or to be occupied by the veteran as his home.

Since the beginning of the program, VA has guaranteed over 7 million home loans and approximately 3,500,000 of these loans are still outstanding. We refer to these as guaranteed loans.

Parenthetically, Mr. Chairman, I might add that as of December 31, we had guaranteed some 7,240,000 loans to veterans, and the initial aggregate amount of funds represented by those loans totaled $76 billion.

The outstanding balances on the 32 million loans today is about $35 billion with a guaranty liability of approximately $18 billion. The VA also makes direct home loans for the same purposes to eligible veterans in rural areas, small cities and towns where private capital has not been generally available for guaranteed loans.

There have been 300,000 such loans made, of which approximately 175,000 are outstanding. That is a total of about $2.8 billion. Those outstanding have an estimated balance of $1.3 billion.

Of the 175,000 direct loans outstanding, 145,000 are set aside or pledged to support participation certificates sold pursuant to the Housing Act of 1964 and the Participation Sales Act of 1966.

Incident to the termination of the defaulted guaranteed or direct loan and the liquidation of the security, the VA usually acquires the property securing the loan.

We resell these properties to qualified purchasers, veterans or nonveterans, and take back either a purchase-money mortgage or an installment contract for the sale of real estate to secure the balance of the purchase price.

We call these loans or contracts vendee accounts. There are approximately 129,000 vendee accounts outstanding. Of outstanding vendee accounts, 93,000 are set aside or pledged to support participation certificates sold.

Where it is in the interests of both the veterans and the VA, we sometimes refund or purchase a guaranteed loan from the mortgage holder.

I might add that these are instances in which the loan is delinquent due to some temporary setback which the borrower has experienced, such as loss of job, illness, and where the holder of the loan does not agree with our position that this is a temporary situation which can be worked out of if indulgence or forbearance is extended.

In those instances we purchase the loans and place them in our portfolio. These are called acquired loans and there are approximately 1,900 such loans outstanding with a balance of about $18 million.

Direct loans, vendee accounts, and acquired loans are referred to as portfolio loans. Guaranteed loans are held and serviced by private lenders while portfolio loans are held and serviced by the VĂ.

I would like to point out that there are approximately 10 times as many guaranteed loans outstanding as there are portfolio loans.

With this background, we would like to respond to your request on our efforts to assist home owners whose properties were damaged by Hurricane Camille, I would first like to give you the following information based upon the best data available at this time.

Properties in Alabama securing both VA guaranteed and portfolio loans damaged by Hurricane Camille were located primarily in Mobile and Mobile County. Approximately 250 such properties were damaged.

In about 190 of these cases, the insurance settlement less the standard deductible of $50 covered the entire loss. Damage to the remaining 60 properties was only partially covered by insurance as part of the damage was caused by wind and part caused by rising

water.

Three claims under loan guaranty have been paid and it has been necessary for the VA to terminate five portfolio loans in this section of the disaster area.

This is not to say, however, that these terminations were attributable entirely to the hurricane, for several of these loans had been delinquent for some time and were in a state of default at the time the hurricane struck.

In Virginia, 15 properties, all securing VA direct loans, were damaged by the flood waters caused by Hurricane Camille. None of these properties were insured against flood conditions. The damages ranged from $50 to $1,200 except in one case where the damage was estimated at about $4,000.

In all of these cases, the title holders were either able to get 3-percent loans from SBA or pay for the repairs from private

sources.

Our Roanoke regional office offered to make advances at the contract rate of interest on the loan which was already in existence, to repair these properties, but the borrowers declined this assistance since loans were available to them where needed at 3-percent interest through the Small Business Administration.

In Louisiana, approximately 610 properties securing VA guarantee loans were damaged. The damage to 467 of these properties was fully covered by insurance sublect to a standard $100 deductible.

Damage to the remaining 143 properties securing VA guaranteed loans was only partially covered by insurance, as here again some of this damage was only partially covered by insurance, as here again some of this damage was from wind and some from rising water.

Approximately 210 properties securing VA portfolio loans were damaged, but 160 of these were covered by insurance. Damage to the remaining 50 properties securing VA portfolio loans was only partially insured.

There have been no foreclosures resulting from the hurricane on either VA guaranteed or portfolio loans in Louisiana.

In Mississippi, 4,416 properties securing VA guaranteed loans were damaged and 3,021 of these were fully covered by insurance subject to a $50 deductible.

There were 44 guaranteed loan properties where the loss was not covered by insurance and 945 where the loss was partially covered. Settlements, negotiations or litigations are still pending with respect to the insurance company's liability on the remaining 406 properties.

Approximately 569 properties securing VA portfolio loans were damaged of which 378 were fully covered by insurance less the standard deductible of $50 and 142 of the properties were partially covered by insurance. The damage to one such property was not covered by insurance.

Insurance settlements are pending on the remaining portfolio loan cases. Our Mississippi office has paid six claims under loan guaranty contract with private lenders on loans secured by properties damaged by Camille and has found it necessary to terminate two of its portfolio

loans.

As soon as the hurricane winds had subsided in the Camille disaster areas, members of our loan guaranty staff in the States affected were in the disaster areas to establish as nearly as possible the extent of the hurricane damage to properties securing both VA guaranteed and portfolio loans and to offer the owners of these properties every assistance possible under the governing law.

Announcements were made by radio, TV, newspapers, and so forth, of the assistance the VA was able to offer.

VA-owned properties in the general areas that were not damaged by the hurricane were made available to the American Red Cross and other recognized welfare organizations for occupancy by the storm victims at $1 a month. In Mississippi, seven of these properties were rented. The difficulty was that our properties available for rental were not in the areas that were damaged.

VA has the authority to advance funds for those hurricane repairs not covered by insurance and charge them to the existing VA portfolio loan balance. We also have the authority to make direct loans in eligible areas for repairs and improvements.

On guaranteed loans, the lenders have the authority to make an advance to the guaranteed indebtedness for hurricane repairs not covered by insurance and to make guaranteed loans to repair hurricane damage.

However, most of the uninsured damage was repaired either through loans made by the SBA at 3 percent, an amount less than VA could offer, or from personal funds. VA made only two advances for repairs on portfolio loans in the entire disaster area.

The field offices have extended forbearance to delinquent borrowers in the area on our portfolio loans and have encouraged holders to grant similar forbearance on VA guaranteed loans.

The fact that only nine claims under loan guaranty have been paid with respect to defaults that could be partially or totally attributed to the hurricane is an indication that holders of VA guaranteed loans in the disaster area have been extremely indulgent.

Section 310 of the proposed bill would amend section 1820 (f) of title 38. Section (1) is identical to the present subsection (1). Subsection (2) is identical to the corresponding existing subsection

except that it provides a different formula for computing the minimum interest rate that may be charged the borrower when a portfolio loan is refinanced.

Subsection 3 of section 310 introduces a new feature, that is, forgiveness by the VA, at the borrower's option, of that part of any loan in excess of $500 in respect to the interest due on the loan, the principal balance of the loan or any combination thereof except that total amount so canceled or forgiven shall not exceed 50 percent of the amount of loss or damage to the property or $5,000, whichever is less.

VA does not now under the provisions of section 1820 (f), nor does S. 3619 propose, that VA would have the authority to make a loan for the specific purpose of making repairs to a property damaged by a disaster.

Rather, the authority is limited to refinancing an existing loan, of which the VA is the holder.

In view of this limited authority, no use has been made of section 1820 (f) of title 38 since the need of most home owners is for new money to make repairs to their properties when the losses are not covered by customary hazard insurance.

We do, pursuant to section 1811(f) and section 1820 (a) (6) of title 38, U.S.C., have authority to make advances at the contract rate to borrowers on our portfolio loans for repairs necessary to preserve the security.

As you know, the President has submitted a disaster relief bill and urged passage thereof. This bill would continue the authority of SBA to make disaster relief loans but on a more liberal basis to all home owners affected, regardless of the identity of the holder of the loan or whether the loan is guaranteed or insured by a Federal agency.

Thus, the borrowers on VA-owned loans may take advantage of this program, with its low interest rate and forgiveness features.

Consequently, we see little or no need to amend section 1820 (f) of title 38 and therefore, are unable to recommend enactment of section 310 of S. 3619.

The only other portion of S. 3619 which affects VA directly is section 412(b). Title IV of the bill would establish a national major disaster insurance program, the purpose of which, pursuant to section 401, is to "enable interested persons to purchase insurance against loss resulting from physical damage to or loss of real property or personal property related thereto arising from any major disaster occurring in the United States."

Section 412(b) would require that VA, together with other Federal agencies administering a program involving guaranteed or insured mortgages on real property:

Shall by regulations, require that any such structure be insured under the major disaster insurance program.

The implication is that the agencies must require such insurance be obtained not only as to future loans but in respect to loans presently guaranteed or insured.

As indicated, there are about 3.5 million of those outstanding today.