VA Asks Lenders to Extend Foreclosure Moratorium

WASHINGTON —The Department of Veterans Affairs asked mortgage servicers to continue a moratorium on foreclosures for veterans with VA-guaranteed loans through December 31, saying it will help veterans and their families as they navigate a new loan modification program.

The VA said its new targeted foreclosure moratorium will help ensure that veterans and their families are able to stay in their homes while mortgage servicers implement the VA Servicing Purchase (VASP) program – a new last-resort tool for qualified veterans experiencing severe financial hardship. Through VASP, the VA will purchase qualified veterans’ modified loans from their loan servicers and then place them in the VA-owned portfolio as direct loans – making the loans more affordable for veterans.

A VASP loan provides a fixed 2.5% interest rate. Veterans do not apply directly for VASP. Instead, VA loan mortgage servicers consider VASP if all other home retention efforts have been exhausted. VASP officially launches on May 31 and mortgage servicers must have it fully implemented by October 1.

“When a veteran falls on hard times, we work with them and their loan servicers every step of the way to help prevent foreclosure, including offering repayment plans, loan modifications and more,” said Under Secretary for Benefits Josh Jacobs. “We’re calling on mortgage servicers to follow a targeted foreclosure moratorium so we can make sure that veterans get the support they need to stay in their homes.”

The VA said the targeted foreclosure moratorium will apply to all VA-guaranteed loans unless the following:

• The loan is secured by property that is vacant or abandoned
• The servicer has documented that the borrower desires neither to retain homeownership nor avoid foreclosure
• The servicer has not received a monthly payment for at least 210 days, and the borrower is not responding to the servicer’s outreach attempts
• The servicer has evaluated the borrower for all home retention options but has determined that no home retention option, including VASP, or alternative to foreclosure will work for the borrower

Mortgage Bankers Association President and CEO Bob Broeksmit previously expressed concerns about the foreclosure moratorium. Specifically, he said servicers needed more information about reimbursements. 

“Servicers provided relief to struggling borrowers during the pandemic by advancing the payments owed on their mortgages and are willing to do so again. However, the VA needs to provide a detailed plan on how servicers will be reimbursed for advancing payments on behalf of borrowers,” he said in December.

He also called for an extension to the partial claim payment program.

“We also believe that restoring the VA’s standalone partial claim program – which worked successfully for veterans and servicers until it was sunset in October 2022 – needs to be part of the VA’s long-term plans to assist borrowers facing hardships,” he said.

The VA’s announcement comes after thousands of veteran homeowners were told to pay a lump sum to rectify Covid-era forbearances or refinance at higher interest rates. An NPR investigation found upwards of 6,000 borrowers with VA loans in the program are in foreclosure and 34,000 others are delinquent.

The VA said it has a range of options to help veterans stay in their homes, including:

• Forbearance agreements: Temporarily reducing or pausing payments for those facing short-term financial difficulties. Loan payments will still be owed at the end of the special forbearance and will not be automatically put on the end of the loan.    
• Repayment plans: Arranging plans to catch up on missed payments gradually.
• Loan modifications: Adjusting loan terms to make monthly payments more manageable.
• VASP: Qualified borrowers will have a fixed 2.5% interest rate, which provides consistent, affordable payments for the remainder of the loan.

Veterans facing financial hardship should contact their mortgage servicer and work with them to explore all available home retention options. For additional assistance, Veterans should contact the VA directly by calling 877-827-3702, option 4, or by visiting the VA Home Loans website for additional information.

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