Budget Targets Vendee Loans and Flood Insurance.(Brief Article)(Statistical Data Included)

The Bush administration is recommending that the Department of Veterans Affairs eliminate its "vendee" program that allows the agency to makes loans directly to buyers of its foreclosed properties.

The new administration also is proposing to achieve budget savings by changing the National Flood Insurance program.

The vendee program is "unrelated to VA's mission because it allows the general public to obtain a direct loan from VA to purchase a home that VA has acquired when a veteran defaults on a loan," according to budget documents President George W. Bush sent to Congress on Feb. 28.

VA officials intend to appeal the decision to the Office of Management and Budget, claiming it will not produce the expected budget savings.

The director of the VA loan guarantee service, Keith Pedigo, told Mortgage Servicing News the vendee loan program reduces losses on defaults and "it is cost effective."

VA originated 19,000 vendee loans totaling $1.6 billion in fiscal year 2000 and 95% of those loans were securitized on Wall Street.

The Clinton administration also tried to eliminate the vendee program but twice Congress restored funding for the program.