The Department of Veterans Affairs is giving borrowers impacted by the pandemic an additional fifteen months to get loan payment relief.
The new deadline for home retention options is now July 1, 2023, according to a circular published by the department on Monday. The options were initially set to expire April 1, 2022.
The reason for the extension was not explained in the one-page circular. A VA spokesperson said in a statement that the department remains committed to assisting veterans who experience financial hardship.
“VA’s Loan Guaranty Service has taken multiple steps to assist veteran borrowers in retaining their homes and overcoming their individual financial situations due to the pandemic,” the spokesperson said.
VA’s servicers handbook outlines numerous home retention options available to borrowers including repayment plans, special forbearances, and loan modifications. There are also alternatives to foreclosure such as compromise sales and deeds in lieu of foreclosure.
During the onset of the pandemic, the department moved to make changes in its handbook, relaxing some of its requirements to qualify for numerous home retention options.
As economic factors continue to affect borrowers and the risk of delinquency rises, mortgage servicers need to be proactive in helping borrowers navigate their situation and loss mitigation options.
Presented by: ACES
Some of the changes outlined in a June 2021 circular, which will be in effect until at least July 2023, include allowing servicers to enter a VA disaster modification with a borrower. The modification must be made no later than 18 months after the date in which the COVID-19 national emergency ends, without VA pre-approval.
The VA also allows servicers to offer Disaster Extend Modifications, to prolong the loan’s original maturity date for up to 18 months. The loan must be modified no later than after the date on which the COVID-19 national emergency ends.
The department said at the time that they do not normally allow for the modifications to lengthen the loan maturity date by more than a year past the original maturity date without VA preapproval.
Borrowers now also have more time to defer their loan payments.
To offer loan deferment, a servicer must defer payment of the total amount of missed payments, including principal, interest, taxes and insurance to the loan maturity date or until a borrower refinances the loan, transfers the property, or otherwise pays off the loan, the VA said. Servicers cannot charge any added costs, fees or interest to the borrower.
In July 2021, the department also implemented a partial claim payment program. The option allows the VA to purchase a borrower’s forbearance indebtedness amount, up to 30% of the unpaid principal balance of the VA-guaranteed loan.
The borrower, in exchange for the VA’s partial claim payment, must enter into a second lien and interest-free promissory note to repay VA the partial claim amount. The program is available through Oct. 28, 2022.
According to the Mortgage Bankers Association, in the fourth quarter of 2021 the VA delinquency rate declined 57 basis points to 5.24 percent. During 2021 overall, the share of VA loans that were delinquent decreased by 205 basis points, the MBA said.
Meanwhile, as of Jan. 31, 2022, the share of Ginnie Mae loans in forbearance, which includes VA loans, inched downward. The share of forborne loans decreased to 1.60% from 1.63% the previous month, the trade group’s report found.
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