The U.S. Department of Veterans Affairs (VA) recently issued Circular 26-23-25 in which VA “is strongly encouraging a foreclosure moratorium on all VA-guaranteed loans through May 31, 2024.” Additionally, VA “urges servicers to cease initiating, continuing, and/or completing foreclosures on all VA-guaranteed loans during this moratorium.” The voluntary moratorium does not apply to vacant or abandoned properties.

In the Circular, VA explains the reasons for urging a foreclosure moratorium. VA first states that higher interest rates have made certain home retention options less viable, especially for those borrowers who requested a COVID-19 forbearance. VA then advises that it “will soon announce a new home retention program, the VA Servicing Purchase (VASP) program, as an option for borrowers who cannot be assisted through other home retention options. However, VA anticipates the VASP program will not be available until March 2024.” Thus, VA is urging servicers to implement a foreclosure moratorium as a means to “give servicers time to work with borrowers and VA to ensure that all borrowers who are behind on their VA-guaranteed loans are given the opportunity to retain their home.” VA also encourages services “to avoid negative credit reporting on affected loans.”

With regard to the COVID-19 Refund Modification and Loan Deferment home retention options previously announced by VA, VA explains that “to help stakeholders better understand the servicing options that are applicable, VA will consolidate recent changes related to COVID-19 Refund Modification and Loan Deferment options and issue new circulars that will be effective through May 31, 2024.”

The VA announcement drew the following response from Bob Broeksmit, the President and CEO of the Mortgage Bankers Association:

“MBA and its members share the VA’s commitment to helping distressed Veteran borrowers stay in their homes through a more affordable and sustainable mortgage payment. We also believe that restoring the VA’s standalone partial claim program–which worked successfully for Veterans and servicers until it was sunset in October 2022–needs to be part of the VA’s long-term plans to assist borrowers facing hardships.

In the meantime, we have significant concerns on the implementation of the voluntary foreclosure moratorium. Servicers provided relief to struggling borrowers during the pandemic by advancing the payments owed on their mortgages and are willing to do so again. However, the VA needs to provide a detailed plan on how servicers will be reimbursed for advancing payments on behalf of borrowers.”

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