In an effort to keep more veterans and servicemembers in their homes, the VA has paused foreclosures for the next six months.
The move was made following an investigation and a series of new stories alleging that tens of thousands of VA loan holders were at risk of foreclosure.
It all stems from the end of COVID-19 related forbearance, which expired in October and left homeowners with large bills for missed payments.
While there is a plan in place to help these borrowers transition back to making normal payments, it will apparently take 4-5 months to implement.
As a result, the VA has called on loans servicers to enact a foreclosure moratorium until the changes can be made.
No Foreclosures for VA Loan Borrowers Through May 31st, 2024
While the VA works to implement new loss mitigation procedures, they are asking loan servicers to pause foreclosures for military servicemembers and veterans.
There are an estimated 147,000 veteran homeowners behind on their mortgage payments at this time.
This means no foreclosures should be processed between now and May 31st, 2024.
The move comes after an NPR investigation found that the Department of Veterans Affairs ended its Partial Claim Payment program and loan servicers began asking for lump sum payments.
But this isn’t how it was supposed to work. Borrowers were told that missed mortgage payments would simply be tacked on to the back of their mortgages.
The Veterans Assistance Partial Claim Payment (VAPCP) program would allow them to simply resume payments and worry about the missed ones later.
And when it came time to sell their home or refinance the mortgage, these arrearages would be
cured via the payoff.
Instead, loan servicers have apparently been requiring borrowers to make up the shortfall, which clearly many at-risk homeowners just don’t have.
One couple was told they’d need to come up with $22,000, or be forced to sell the home or face foreclosure.
This prompted a call from several senators asking the VA to enact a foreclosure moratorium until a new loss mitigation solution could be rolled out.
Veterans Assistance Servicing Purchase (VASP) Program Coming Soon
The VAPCP program expired in October 2022, putting many VA loan holders at risk of foreclosure.
This came just months after the COVID-19 Refund Modification wound down in July.
This meant borrowers unable to resolve their delinquency and resume regular payments were between a rock and a hard place.
Compounding the issue is a loan modification typically results in the mortgage being brought to current market interest rates.
However, most of these borrowers hold record low mortgage rates, with the average interest rate in a Ginnie Mae security reportedly a low 3.25%
This means it would make little sense to modify the loan to say a 7% mortgage rate, as this would put even more strain on at-risk borrowers.
That’s why the VA is working on a new loss mitigation tool called the Veterans Assistance Servicing Purchase (VASP) program.
The details are still evolving, but my understanding is it would allow borrowers to keep their low-rate mortgages and receive payment assistance.
Crucially, it wouldn’t require homeowners to make lump sum payments on the arrearages to qualify for assistance.
The FHA is working on a similar loan modification program known as the Payment Supplement Partial Claim.
It would cure arrearages and temporarily reduce the principal amount of the borrower’s monthly mortgage payments for three to five years.
Ultimately, it would be silly to take away these borrowers 2-3% mortgage rates. And requiring a large lump sum payment also makes no sense.
The hope is these changes can come fast enough to avoid unnecessary foreclosures as borrowers continue to get back on their feet post-pandemic.