As previously reported, last year the U.S. Department of Veterans Affairs (VA) launched a Veterans Affairs Servicing Purchase (VASP) program, which VA characterized as a “last-resort tool” for VA home loan borrowers facing severe financial hardships. Pursuant to the program, VA purchases defaulted VA loans, modifies the loans, and then places them in the VA-owned portfolio as direct loans.
In Circular 26-25-2, VA announced that as of as of May 1, 2025, it is rescinding the VA Home Retention Waterfall that includes VASP as the final option and will stop accepting VASP submissions, including new VASP Trial Payment Plans (TPPs). VA advises that it will allow active TPPs to continue through August 31, 2025, and will purchase successful loans, subject to VA’s determination that funds remain available for VASP.
The Circular sets forth the following key dates wind down procedures:
- As soon as practicable but no later than April 30, 2025, at 11:59 p.m. EDT, servicers are to discontinue use of the VA Home Retention Waterfall outlined in VA Servicer Handbook, M26-4, Appendix F.
- On May 1, 2025, VA will no longer accept submissions for new VASPs in the VALERI application. Submissions for new VASPs reported through April 30, 2025, at 11:59 p.m. EDT will be evaluated against the VASP qualifying criteria, and if accepted, VA will review for a VASP Payment, subject to VA’s determination that funds remain available for VASP.
- Veterans can continue making payments and complete VASP TPPs for any loans with an accepted VASP TPP event reported through April 30, 2025, at 11:59 p.m. EDT. After April 30, 2025, at 11:59 p.m. EDT, VA will not accept resubmissions of failed VASP TPPs.
- Servicers are to report the VASP TPP Complete event in the VALERI application for all completed VASP TPPs. The VASP TPP Complete event should be reported when the TPP fails or the final payment is received; however, any active TPP where the VASP TPP Complete event is not received by August 31, 2025, at 11:59 p.m. EDT will be canceled.
- Servicers are to upload VASP required documents into the VALERI application not later than 6 business days after the VASP Payment Process is launched. Beginning May 1, 2025, VASP submissions will be denied when the servicer does not meet the deadline, and there will be no opportunity to resubmit. Servicers are responsible for monitoring pending submissions to ensure the appropriate documents are uploaded timely prior to the deadline.
- For VASPs that were timely submitted by April 30, 2025, at 11:59 p.m. EDT, and have ongoing active TPPs, VA will review pending VASP Payment processes for all successful submissions received through August 31, 2025, at 11:59 p.m. EDT, subject to VA’s determination that funds remain available for VASP. No VASP payments will be issued after September 30, 2025, 11:59 p.m. EDT.
With regard to the discontinuance of the VA Home Retention Waterfall, referencing 38 CFR §36.4319, VA advises that servicers are “to offer the best loss mitigation option available for the borrower’s individual circumstances,” and “are to keep VA’s preferred order of consideration in mind.”
The Circular also sets forth the following changes:
- With regard to 30-year loan modifications, the requirement that there be at least a minimum 10% reduction in the monthly principal and interest payment is removed.
- With regard to 40-year loan modifications, the requirement that there be at least a minimum 10% reduction in the monthly principal and interest payment is removed, and if a 10% reduction cannot be achieved, the servicer must review the borrower for VASP (although as addressed above VASP is being discontinued).
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