VA Faces More Criticism Of 'Vendee' Loan Program.(Veterans Affairs criticized for mortgage lending to buyers of its foreclosed properties)

The Department of Veterans Affairs' practice of making mortgage loans directly to buyers of its foreclosed properties continues to rankle the Bush administration, which has been trying to shut down the "vendee" loan program for the past two years.

Recently, the VA tried to solicit public comments on the benefits of the vendee program, but the Office of Management and Budget blocked its publication in the Federal Register. The VA wanted to "know whether or not eliminating the vendee loans would be a cost-effective measure," said Keith Pedigo, director of the VA's loan guaranty service. "More specifically, we wanted to know what the impact would be on the public."

But OMB contends a public comment period is not needed to shut down the vendee loan program.

"Regulatory action is not needed to discontinue offering vendee loans," OMB spokeswoman Amy Call said. "Both VA and OMB have agreed that this program should end. The recommendation is included in the president's fiscal year 2003 budget as well as VA's congressional justification."

Nevertheless, the director of the VA's loan guaranty service maintains it is a business decision and he is standing his ground. "Our analysis shows that it is cost effective to make vendee loans. So we will continue to do so," Mr. Pedigo said in an interview.

Two years ago, Booz-Allen & Hamilton conducted a study that shows the vendee loan program saves the VA $1,000 on each foreclosure by financing the sale and securitizing the guaranteed loans on Wall Street.

In the fiscal year 2002 (which just ended Sept. 30), the VA made 8,856 vendee loans to veterans and non-veterans and sold 11,384 vendee loans totaling $1 billion in four securitizations.