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VA extends foreclosure moratorium through 2024

The U.S. Department of Veteran Affairs (VA) announced on Wednesday that it has called on mortgage servicers to extend the moratorium on foreclosures for VA-guaranteed loans through Dec. 31, 2024, while these companies implement a new program to help struggling veterans. 

The current moratorium, announced in November, was set to end on Friday. It was implemented amid complaints of veterans’ struggles because there was no program available to succeed a partial claim option offered during the COVID-19 pandemic.

“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,” Josh Jacobs, the VA’s undersecretary for benefits, said in a prepared statement. 

The VA unveiled the Veterans Affairs Servicing Purchase (VASP) program in April, an option to prevent foreclosure actions against military members facing financial hardship due to the COVID-19 pandemic.

In practice, the VASP program allows the VA to purchase defaulted loans from servicers and place them in its portfolio at a fixed 2.5% interest rate.

According to official estimates, this will help more than 40,000 veterans and their families. But it received criticism from politicians, who cite a “moral hazard” issue in encouraging borrowers to become delinquent to take advantage of a much lower monthly payment.

The program officially launches on Friday, but mortgage servicers must fully implement it by Oct. 1. Trade groups representing lenders and servicers complained that it is a short timeline for servicers to comply with the program.

In early May, the Mortgage Bankers Association (MBA) and the Housing Policy Council (HPC) urged leaders at the VA to delay the mandatory compliance date.

Rather than changing the date, the VA. issued guidance to strongly encourage mortgage servicers to extend the moratorium through the end of this year.

The moratorium will not be applied in some cases — among them, when the loans are secured by vacant or abandoned properties, or the servicer has not received a monthly payment for at least 210 days. 

It also excludes situations in which the borrower desires neither to retain homeownership nor avoid foreclosure, they are not responding to the servicer’s outreach attempts, or the servicer has determined that no home retention option, including VASP, will work for the borrower.

The VASP program is only one of the resources available to help borrowers. Other options include forbearance agreements, repayment plans and loan modifications. 

According to the VA, the new program will result in a government subsidy reduction of approximately $1.5 billion from 2024 to 2033. The estimate is based on the savings from avoiding foreclosures compared to the cost of purchasing these loans. 

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