The Department of Veterans Affairs (VA) is pausing foreclosures on homes financed with VA loans for six months to help military borrowers in danger of losing their homes, a department spokesperson said in a statement to HousingWire on Monday.
The Veterans Assistance Partial Claim Payment program — which began July 2021 — allowed military borrowers to skip six or 12 mortgage payments during the COVID-19 pandemic if they had a financial hardship. VA borrowers would resume making the regular payments when they were back on their feet and the missed payments would be moved to the end of the loan term.
The VA, however, ended the program in October 2022 despite the mortgage industry urging the department to delay its expiration, forcing borrowers to pay back payments quickly or refinance at higher interest rates.
The department said it will push all mortgage servicers to pause foreclosures of VA-guaranteed loans through May 31, 2024, according to the statement.
The VA’s decision to reverse course comes on the heels of an investigative NPR article reporting that thousands of VA loan borrowers risk losing their homes after the VA ended the assistance program.
About 6,000 borrowers with VA loans who had COVID-19-related forbearances are in the foreclosure process and 34,000 more are delinquent, according to NPR’s article citing data from ICE Mortgage Technology.
The COVID-19 Refund Modification program – intended for borrowers who have not been able to financially recover from the pandemic back to their previous income level – was set to expire at the end of 2023, but is now extended through May 31.
The modification program allows military borrowers to obtain a zero-interest, deferred-payment loan from the VA to cover missed payments and modify their existing VA loan to achieve affordable monthly payments for the duration of the extension, the statement said.
The department plans to launch a new VA Servicing Purchase (VASP) program to allow the VA to purchase defaulted VA loans from mortgage servicers. This will allow federal officials to modify the loans and place them in the VA-owned portfolio as direct loans.
The National Consumer Law Center applauded the VA’s decision saying the foreclosure pause will give VA borrowers a much-needed opportunity to access the VASP program.
“The foreclosure pause is badly needed as veteran borrowers have had no meaningful alternatives to foreclosure for over a year,” said Steve Sharpe, senior attorney at the National Consumer Law Center.
Last week, a group of Democrat U.S. Senators – Sherrod Brown of Ohio, Jon Tester of Montana, Jack Reed of Rhode Island and Tim Kaine of Virginia – wrote a letter urging VA Secretary Denis McDonough to protect military borrowers from foreclosure.
“VA previously offered solutions to help borrowers exit forbearance and get back on track with their payments. But for more than a year, veterans have not had a viable option to bring their mortgages current, leaving them vulnerable to losing their homes,” the letter read.
“In the meantime, tens of thousands of veterans and service members are left with no viable options to get back on track with payments and save their homes. Stories from across the country show that this is already having severe consequences for veterans and their families.”
Over the past year, the department said it helped more than 145,000 military borrowers and their families keep their homes and avoid foreclosure.
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