V.A. is still “moving forward” with servicing purchase program

The U.S. Department of Veteran Affairs is still moving forward with its servicing purchase program, despite a hearing in the U.S. House Committee on Veterans Affairs last week raising uncertainties about its future.

“We’re still moving forward; we’re still working to get our program out for veterans. We do believe that it can save up to 40,000 veterans from foreclosure at this point in time. That’s our number one priority: save as many veterans of foreclosure that we can,” John Bell, executive director of loan guaranty service at the VA, said during a regulatory session at the Mortgage Bankers Association’s (MBA) Servicing Solutions Conference & Expo in Orlando. 

During the same session on Wednesday, Federal Housing Administration Commissioner Julia Gordon announced the institution of a payment supplement partial claim, resulting from the FHA’s acknowledgment that its toolkit wasn’t enough to support struggling borrowers as mortgage rates surged. 

According to Ingrid Ripley, executive director of the single-family housing guaranteed loan program in the U.S. Department of Agriculture Rural, the USDA is expecting to “pretty much carbon copying” the FHA’s program. She told HousingWire that the expectation is to institute the option in the spring. 

In the V.A. space, the Veterans Assistance Partial Claim Payment program began in July 2021, allowing borrowers to skip six or 12 mortgage payments during the COVID-19 pandemic. Borrowers would resume making the regular payments when they were back on their feet.
Meanwhile, missed payments would be moved to the end of the loan term.

But the program ended in October 2022, forcing borrowers to resume payments quickly or refinance at higher interest rates. In November 2023, amid complaints of veterans’ struggles and no substitute to the partial claim, the V.A. paused foreclosures and extended its COVID-19 Refund Modification program through May 31, 2024. 

The Department also mentioned launching a new V.A. Servicing Purchase (VASP) program to allow the Department to purchase defaulted loans from mortgage servicers. Ultimately, federal officials would modify the loans and place them in the VA-owned portfolio as direct loans.

“Our partial claim authority ended on Oct. 28, 2022, by law, so we did not have the ability to move forward. We had to look at other alternatives that we had within our program,” Bell said. “We started on the path of what we call our V.A. servicing purchase program.”

According to Bell, the program “acts in the same manner that a partial claim does,” but for the Department to be able “to set an interest rate below market,” it has to “take the asset back.” According to him, a partial claim “belongs to the waterfall somewhere,” but the Department had some operational issues. 

The program, according to him, “certainly has fiscal responsibility.” 

However, Republicans in the House attacked the proposal during a hearing on Feb. 15. 

“Our current understanding is that VASP would allow veterans who are at least two payments delinquent to refinance their loan down to a 2.5% interest rate, and that V.A. would then take over servicing of the loan,” Rep. Derrick Van Orden (R-Wis.), chairman of the House Committee on Veterans’ Affairs Subcommittee on Economic Opportunity, said during the hearing, 

“While this program may benefit some veterans who are at risk of foreclosure, it also poses a real moral hazard of encouraging veteran borrowers to become delinquent to take advantage of a much lower monthly payment,” Van Orden added. 

During the hearing, Mark Jones, MBA’s 2024 chairman and president of Union Home Mortgage, said that the V.A. Home Loan program can improve by having a permanent partial claim option.

“A partial claim enables veterans to resume making their regular payments while deferring their missed payments to the back end of the loan. It is a crucial loss mitigation tool that exists within every other government loan program but is missing from the V.A. arsenal,” Jones said. 

“To be clear, the best and most durable loss mitigation framework for V.A. loans would include both a partial claim option and the implementation of VASP,” he added.