VA Announces New Relief Program for Mortgage Borrowers Exiting COVID-19 Forbearances

The U.S. Department of Veterans Affairs (VA) created a program to help mortgage borrowers whose COVID-19 forbearances are ending.

By , Attorney · University of Denver Sturm College of Law

Legal Update: The program discussed in the article below has expired. However, 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 the new VA Servicing Purchase (VASP) program, the VA will buy defaulted VA loans from other companies, modify them, and add them to a VA loan portfolio. The VA will also extend the availability of the COVID-19 Refund Modification program (see below).

Thousands of mortgage borrowers with VA-guaranteed loans affected by the COVID-19 pandemic have received COVID-19 forbearances. These forbearances allow borrowers to forgo making loan payments for up to a year, sometimes longer. But it's important to note that a forbearance isn't the same as loan forgiveness; borrowers still owe the amounts they skipped paying after their forbearance ends.

To help borrowers catch up on their overdue amounts, the U.S. Department of Veterans Affairs (VA) has issued a final rule creating a "partial claim" program. As of July 27, 2021, this option allows homeowners to resume making their regular monthly mortgage payments without first having to get current on the payments that were missed during a forbearance.

How the Partial Claim Option Works for VA-Guaranteed Loans

The new "partial claim" option allows loan servicers to offer 0%-interest loans to VA-guaranteed borrowers to bring their overdue loans current. The partial claim is recorded as a second mortgage lien on the home. This loan comes due only at the end of the first mortgage loan, like at the first mortgage's maturity, after a refinance, or when you sell the property. The borrower doesn't have to make any payments on the partial claim loan until then.

After the VA pays the partial claim to the loan holder, the borrower resumes making the regular monthly mortgage payments in the same amount as before getting a COVID-19 forbearance.

Eligibility Requirements for a Partial Claim

VA-guaranteed borrowers exiting their COVID-19 forbearance plans who were current or less than 30 days delinquent as of March 1, 2020, or whose loan originated on or after March 1, 2020, are eligible for a partial claim. The borrower must also currently occupy the property securing the guaranteed loan as a principal residence.

Borrowers have to indicate to their mortgage servicer that they can resume paying their previous monthly payment amount. And the partial claim loan amount can't be more than 30% of the first mortgage's unpaid principal balance.

Deadline to Get a Partial Claim

This program is available from July 27, 2021 through October 28, 2022. To find out if you qualify, call your loan servicer.

What If I Can't Resume My Regular Payments?

If you can't afford to make the regular mortgage payment that you paid before entering a COVID-19 forbearance, you might qualify for a:

Getting Help

If you have a VA-guaranteed or direct loan, the VA can get involved in your case, especially if you contact the nearest VA Regional Loan Center and ask for assistance. In some cases, the VA can provide a technician who can intervene with the servicer on your behalf, help you explore all options to avoid foreclosure, and conduct financial counseling with you. Contact a VA loan technician at 877-827-3702, Monday through Friday, from 8:00 am to 6:00 pm EST.

If the servicer fails to meet VA requirements or its obligations under state or federal law, you might have a defense to a foreclosure. If you have additional questions about how foreclosure works or want information about how to fight a foreclosure in court, consider talking to a foreclosure attorney.

Also, a HUD-approved housing counselor is another helpful resource for information, particularly regarding different loss mitigation options.