Help for Veterans Struggling With Mortgage Payments

Legal update: The VA halted foreclosures for six months, through May 31, 2024, for veterans with VA loans so it could work on developing a program to help borrowers avoid foreclosure after a COVID forbearance. Under a new low-cost refinancing program, effective May 31, 2024, the VA will buy defaulted VA loans from other companies, modify them to a fixed 2.5% interest rate, and add them to a VA loan portfolio. The VA will also extend the availability of the COVID-19 Refund Modification program.

If you're an active servicemember, a veteran, or a surviving spouse with a VA-guaranteed or direct mortgage loan and struggling to make your mortgage payments, you might have access to special programs, including loan modification and refinancing options.

Also, you can get free counseling if you're facing foreclosure.

Types of VA Assistance for Veterans With Mortgages

Veterans struggling to make mortgage payments on a VA loan might be able to avoid foreclosure by:

• refinancing with a VA streamline refinance loan
• working out a loss mitigation option, like a repayment plan, special forbearance, or loan modification
• getting extra time to arrange a private sale or
• "refunding" the loan.

Mortgage assistance programs for veterans also include completing a compromise sale (a short sale) or a deed in lieu of foreclosure.

Refinancing Your VA Loan With a Streamline Refinance

A VA streamline refinance is officially known as an "Interest Rate Reduction Refinance Loan" (IRRRL). An IRRRL is a VA-guaranteed loan that lowers your interest rate, decreasing the monthly principal and interest payments.

Who's Eligible for an IRRRL?

If you have an existing VA-guaranteed loan, you can apply for an IRRRL. The IRRRL must be in a first-lien position, so if you have a second mortgage, that lien holder must agree to subordinate its loan.

Your Loan Entitlement

An IRRRL will reuse the entitlement you originally used. (VA loan entitlement is the amount for which the VA will guarantee a loan. Most lenders will lend up to four times the amount of the total entitlement. The basic entitlement available to an eligible veteran is $36,000.)

Example. Say your existing VA loan was initially made for $110,000 with a guaranty of $27,500, or 25%. The new IRRRL is for $112,000. The guaranty on the new loan is $28,000 or 25%, but your entitlement use is still $27,500.

In other words, an IRRRL is a VA-to-VA refinance that reuses the veteran-applicant's entitlement.

Refinancing Property That's "Underwater"

Generally, an IRRRL doesn't require an appraisal, credit information, or underwriting. So, you can refinance an underwater home. The basis for the loan is the existing VA loan, not the property's current market value.

You Don't Have to Live in the Home

Additionally, you don't have to currently occupy the property to qualify for an IRRRL. But it might be easier to get approved if you live there. You do need to certify that you previously occupied the home, though.

Cost of an IRRRL

Veterans using the VA Home Loan Guaranty benefit generally must pay a funding fee. The funding fee is a percentage of the loan amount, which varies based on the type of loan and your military category, as well as if you're a first-time or subsequent loan user and whether you make a down payment.

You don't have to pay the fee if you are:

• receiving VA compensation for a service-connected disability
• entitled to receive compensation for a service-connected disability if you didn't receive retirement or active duty pay or
• you are the surviving spouse of a veteran who died in service or from a service-connected disability.

The IRRRL can be completed with no money out of pocket by including all costs in the new loan or by making the new loan at an interest rate high enough to enable the lender to pay the costs. The funding fee can be paid in cash at closing or added to the new loan.

Loan proceeds may only be applied to paying off the existing VA loan and the costs of obtaining or closing the IRRRL. You can't get any cash out from the loan proceeds. To learn more about an IRRRL, visit the U.S. Department of Veterans Affairs website.

Loss Mitigation Options for VA Loans

Loss mitigation options are also available to help veterans avoid foreclosure on delinquent loans. The main options for VA loans are:

• Repayment plans. You pay the regular monthly payment and an agreed-upon portion of the arrearage to get caught up on the loan, usually over three months or more.
• Special forbearance. The servicer agrees to suspend all payments or accept reduced payments for a specific period, typically three or four months.
• Modifications. The servicer adds the unpaid payments, interest, taxes, insurance, certain assessments (like water and sewer charges), and sometimes legal fees and foreclosure costs to the new principal balance. The new principal balance is then amortized over a longer term with a different interest rate, which lowers the mortgage payments.

If the servicer fails to exhaust the alternatives discussed here, contact one of the VA Regional Loan Centers.

Extra Time to Arrange a Private Sale

If you'd like to sell your home, this option lets you delay a foreclosure sale so you have time to complete a sale.

What Is the VA "Refund" Program?

If you're having trouble paying your mortgage and facing foreclosure, the VA has the discretionary authority to purchase the loan from a private lender and take over the servicing of that loan. This process is called "refunding," which in this sense means "to fund again." The VA will then work with you to avoid foreclosure.

Refunding is rare. But if you're in default on your mortgage payments and you can't get a forbearance, repayment plan, or loan modification even though you can make the mortgage payments (or will have the ability to make them soon), you might qualify.

To find out about a potential refund, call your servicer. You can also contact a VA regional center to learn more.

In a "compromise sale," the homeowner sells the property to a third party for an amount insufficient to pay off the loan. The servicer releases the lien and waives the deficiency in exchange for the sale proceeds. (A "compromise sale" is what the VA calls a short sale.)

With a deed in lieu of foreclosure, the homeowner voluntarily transfers the property to the holder of the VA-guaranteed loan.

However, you should be aware that completing a compromise sale or a deed in lieu of foreclosure could result in a loss or reduction in your future home loan benefit.

An Assumption Might Be a Possibility

Instead of selling your home for less than you owe or deeding it to the holder, you might be able to sell the property and have the buyer take over your mortgage loan.

How to Apply for VA Assistance for Mortgage Payments

Contact your loan servicer directly to learn what options are available in your particular situation. It's also a good idea to talk to a (free) HUD-approved housing counselor.

More Help for Veterans

VA personnel also assist veterans who are having problems making their mortgage payments.

Veterans With VA Loans

If you're a veteran with a VA loan, the VA can provide a technician who can intervene with the servicer on your behalf and help you work with your servicer to explore all options to avoid foreclosure, as well as conduct financial counseling.

To find the nearest VA Regional Loan Center near you, go to the VA's Regional Loan Center Contact Information website.

Veterans With Loans That Aren't VA-Guaranteed

If you're a veteran, but the VA doesn't guarantee or service your loan, the VA doesn't have the legal authority to intervene with the servicer on your behalf.

However, you can call your nearest Regional Loan Center to speak to a technician who can advise you on approaches to take with your servicer. Go to the Department of Veterans Affairs website for more information about what to do if you're struggling with your mortgage payments.

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