KEITH PEDIGO, ASSOCIATE DEPUTY UNDER SECRETARY FOR POLICY AND PROGRAM MANAGEMENT
DEPARTMENT OF VETERANS AFFAIRS
SUBCOMMITTEE ON ECONOMIC OPPORTUNITY
HOUSE COMMITTEE ON VETERANS' AFFAIRS
February 13, 2008
Madam Chairwoman and members of the Subcommittee, I appreciate the opportunity to appear before you today to discuss expiring VA programs.
Traditional and Hybrid ARMs
Under the provisions of 38 U.S.C. §3707, VA was authorized to conduct a demonstration project to guarantee traditional adjustable rate mortgages ( ARMs) during fiscal years 1993 through 1995. Congress did not extend this authority when it expired.
The Veterans Benefits Improvement Act of 2004 (Public Law 108-454) reinstated VA's authority to guarantee traditional adjustable rate mortgages through fiscal year 2008 and also authorized VA to conduct a demonstration project to guarantee hybrid adjustable rate mortgages during fiscal years 2004 through 2008 under the provisions of 38 U.S.C. § 3707 and 38 U.S.C. § 3707A, respectively.
Traditional ARMs are mortgages in which interest rate adjustments may occur on an annual basis. VA-guaranteed ARMs limit the annual interest rate adjustments to a maximum increase or decrease of 1 percentage point. Additionally, interest rate increases for VA ARMs are limited to a maximum of 5 percentage points over the life of the loan.
Hybrid ARMs are mortgages having an interest rate that is fixed for an initial period of more than one year and adjusts, usually annually, thereafter. The most popular non- VA hybrid ARMs are those with the initial interest rate set for 3 years, 5 years, 7 years, or 10 years, and the potential for annual adjustments thereafter. These loan products are referred to in the mortgage industry as 3/1, 5/1, 7/1, and 10/1 ARMs, respectively. After a hybrid ARM's initial fixed rate period ends, the mortgage is subject to interest rate adjustments, typically on an annual basis. Adjustments are indexed to various indices and, generally speaking, there are no 'life-of-loan' limits on interest rate increases.
In contrast, for VA-guaranteed hybrid ARMs, for which the initial contract interest rate remains fixed for less than five years, adjustments are limited to a maximum increase or decrease of one percentage point annually, and the 'life-of-loan' interest rate increase is limited to five percentage points. For VA hybrid ARMs for which the initial contract interest rate remains fixed for five years or more, annual adjustments are limited to two percentage points and the 'life-of-loan' interest rate increase is limited to six percentage points. All VA adjustable rate mortgage products are underwritten with the same stringency as VA fixed-rate loans, and therefore, are not subprime products.
VA's authority to offer veterans the options of acquiring VA-guaranteed ARMs and hybrid ARMs expires on September 30, 2008. If extended, we estimate that this authority would cost $3 million in FY 2009 and $14 million over ten years. At this time, we do not object to making the provisions of 38 U.S.C. §§ 3707 and 3707A permanent provided the Congress identifies offsets for the increased direct spending.
On-the-Job Training and Apprenticeship
Individuals eligible for educational assistance programs administered by VA may use their benefits in approved on-the-job ( OJT) or apprenticeship training programs. Under the Montgomery GI Bill-Active Duty ( MGIB-AD), Montgomery GI Bill-Selected Reserve ( MGIB-SR), Reserve Educational Assistance Program ( REAP ) and Post-Vietnam Era Veterans' Educational Assistance Program (VA EP), the monthly educational assistance allowance for such training is calculated as a percentage of the full-time monthly institutional benefit rate and paid monthly in arrears based on the training completed. Education assistance allowances under those programs are paid at the rate of 75 percent of the full-time rate for the first six months of training, 55 percent during the next six months, and 35 percent for the remaining months of the program. A training assistance allowance under the Survivors and Dependents' Educational Assistance ( DEA) program is payable for full-time pursuit of OJT/Apprenticeship training as provided in 38 U.S.C. § 3687. That section sets forth declining rates of such allowance for the first, second, and third 6 months, and for the fourth and any following 6 months of the training program, rather than as a percentage of the full-time institutional rate.
Public Law 108-454 provided for a temporary ten percent increase in the amount of benefits payable for pursuit of OJT and apprenticeship programs. This increase in benefits was payable for the period October 1, 2005, to December 31, 2007. As of January 1, 2008, payments for OJT and apprenticeship programs reverted to their previous levels. Between October 1, 2005, and December 31, 2007, an individual receiving OJT/Apprenticeship benefits through the MIGB-AD in his or her first six months of training received $935.85 per month. After December 31, 2007, that individual receives $825.75 per month.
For fiscal year 2007, VA paid benefits for OJT/apprenticeship training to approximately 17,700 individuals through their respective education benefit program. A higher monthly training assistance allowance supplement can provide an incentive for individuals to accept trainee positions they might not otherwise consider. The Department of Labor ( DOL) states that jobs generally requiring OJT training will account for half of all jobs by 2016 ( DOL Report, Employment Outlook 2006-2016, November 2007). Prior to the sunset date of the provisions in PL 108-454, VA proposed legislation that would extend the temporary increase in the rates of payment to individuals pursuing apprenticeship and on-the-job training programs. We recommend reinstatement of the benefit rate increase and support making the increase permanent.
We defer to the Department of Defense regarding OJT and apprenticeship rates under the MGIB-SR, as it is a program administered by that Department under title 10, United States Code. While REAP is also administered under title 10, its rates are tied to the MGIB-AD rate. Therefore, a rate increase or decrease to the MGIB-AD rate will have the same corresponding effect on rates payable under REAP.
Incarcerated Veterans Transition Program (IVTP)
The 'Homeless Veterans Comprehensive Assistance Act of 2001" (Public Law 107-95) required VA and DOL to provide a demonstration project of referral and counseling services to veterans who were institutionalized. This demonstration program was pilot in seven areas and was funded by DOL's Homeless Veterans' Reintegration Program. Both VA and DOL required grantees to demonstrate effective counseling and referral to employment, including follow-up for incarcerated veterans. The Incarcerated Veterans Transition Program ( IVTP) is a demonstration program focused on pre-release and community-based employment services delivered by non-profit community agencies to veterans being released from Federal or State prisons and jails. IVTP employment specialists also referred veterans to other needed services, including VA medical, psychiatric and social services, and veterans financial benefits. A pilot observational evaluation of IVTP used community agency, VA services use, and U.S. Department of Justice rap sheet data collected on a convenience sample of 783 incarcerated veterans.
As a result of the IVTP, veterans who had been incarcerated were more likely to be employed after release and were less likely to be re-arrested in the year following release. Regression analyses adjusting for criminal justice factors indicated that both employment and health services were negatively related to re-arrest, supporting an important objective of IVTP. These encouraging preliminary results should be tested in any expansion of the pilot initiative, incorporating lessons learned from the pilot evaluation process and other outcome research on employment and criminal recidivism.
Madam Chairwoman, this concludes my testimony. I greatly appreciate being here today and look forward to answering your questions.