Congress Reinstates VA's REO Sales Effort
Congress has reinstated the "vendee" loan program that the Department of Veterans Affairs used
to finance the sale of its foreclosed properties.
And it could be a real bonus for Ocwen Financial Corp., which recently won the contract to manage and sell all of VA's real estate-owned.
"We will have our new contractor, Ocwen, implement [the vendee program] for us," said VA Loan Guaranty Service director Keith Pedigo.
The vendee loan program allowed the agency to use VA-guaranteed loans to finance its sales of REO to non-veterans.
Under pressure from the Office of Management and Budget, VA stopped offering vendee loans on Jan. 30. OMB claimed VA should not be providing financing to non-veterans and taking on additional credit risk.
But Congress sees it differently and it has reauthorized the vendee loan program as part of a bill (H.R. 2297), which President George Bush is expected to sign.
Language in the Veterans Benefits Act of 2003 requires the VA to finance the sale of 60%-85% of its REO using vendee loans.
"Congress views the vendee program as a cost-effective measure, so they want to ensure we use it up to a certain level," Mr. Pedigo said.
In the fiscal year 2002, VA made 8,856 vendee loans and it sold 11,384 vendee loans totaling $1 billion in four securitizations.
VA is currently in the process of privatizing its REO operation and it is transferring 12,000 foreclosed properties to Ocwen, a servicing company based in West Palm Beach, Fla.
VA expected to complete the REO transfer by the end of January.
"They will be responsible for acquiring, managing and selling the properties, which includes the administration of the vendee program," Mr. Pedigo said.
VA charges a 2.25% funding fee on vendee loans and generally requires non-veterans to make a 5% downpayment.
In other servicing news, VA expects to issue a proposed rule in the next three to four months that revamps its loan servicing policies and delegates more responsibility for loss mitigation to private servicers.
The agency is also building a new automated system that should enhance the flow of information between servicers and VA. "It will be easier for us to monitor what they are doing and vice versa - so we can work more in concert to help delinquent veteran borrowers," Mr. Pedigo said.
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