VA Rolls Out Loss Mitigation Changes
Written by: Heather Papows, Senior Loan Servicing & Secondary Market Consultant
Veterans Affairs (VA) loan servicing changes related to loss mitigation have recently rolled out, with the VA Circular noting the efforts reflect their “commitment to assist borrowers retain their homes and avoid foreclosure.”
The first of the significant changes offers an expanded loan modification option for loans in default, aimed to assist borrowers by making payments more affordable amidst current rising interest rates. Effective immediately, servicers may extend loan repayment terms for up to 480 months (40 years) from the due date of the first modified payment, re-amortizing the balance to lower the monthly payment obligation.[1]
The second significant change is the launch of the VASP (Veterans Affairs Servicing Purchase) Program. This program was announced in early April, with an anticipated rollout date of May 31, 2024 - coinciding with the expiration of the current pause on VA loan foreclosures, a “strongly encouraged” moratorium placed back in November of 2023. [2]
With this new “last-resort” home retention tool, servicers of loans to eligible Veterans, active-duty Service members, and surviving spouses with VA guaranteed home loans facing “severe financial hardship” will have the ability to submit requests to the VA to sell back the defaulted loans. If approved, the VA will purchase the defaulted loans from mortgage servicers, modify the terms, and retain them in a VA-owned portfolio. The modification will offer a fixed interest rate of 2.5%, again offering a home retention solution focused on payment affordability.[3]
For more information on the new VA servicing requirements, or to discuss how SCA can assist you with managing your own loss mitigation process, please contact our Director, Bill Dolan, at WDolan@scapartnering.com or by phone at (617) 694-2617.
[1] https://www.benefits.va.gov/HOMELOANS/documents/circulars/26-24-08.pdf
[2] https://news.va.gov/press-room/va-calls-on-mortgage-servicers-to-pause-foreclosures-of-va-guaranteed-loans-through-may-31-2024/
[3] https://news.va.gov/press-room/va-servicing-purchase-program-avoid-foreclosure/
