After the Veterans Affairs Servicing Purchase (VASP) program was abruptly wound down earlier this year, scores of veteran homeowners were left at risk of foreclosure.
The Biden-Harris era program allowed the VA to purchase defaulted VA loans from mortgage loan servicers, modify them, and then place them in the VA-owned portfolio as direct loans.
A key feature of VASP was monthly payment relief, with borrowers receiving 2.5% fixed mortgage rates for the remainder of the loan term.
While seemingly an effective tool to prevent foreclosure, there were concerns that the program would put undue stress on taxpayers, and lead to strategic default (by those with higher rates) to obtain a lower interest rate.
That led to the end of VASP without a replacement, putting thousands of veterans at risk of losing their homes. Now they’ve got some relief in the form of a partial claim.
VA Home Loan Program Reform Act Restores the Partial Claim
While VASP is gone, VA loan borrowers will now have a new loss mitigation solution to potentially stave off foreclosure.
The VA Home Loan Program Reform Act makes the partial claim a permanent solution for veteran and active duty mortgage holders going forward.
The partial claim is a fairly straightforward tool. It allows delinquent borrowers to put any missed payments on the back of their loan in order to bring the loan current.
These arrearages are then held as a second lien set at 0% interest and only repaid once the first mortgage is paid off via home sale or refinance.
This allows the borrower to get back on track, resume their old monthly payment, and ideally avoid foreclosure in the process.
Of course, they still need to make future monthly payments, so the solution isn’t foolproof. But it’s a start.
The partial claim was a COVID-era option for VA loan borrowers from 2021-2022, but once the program was closed, a viable replacement wasn’t put in place.
Around that same time, mortgage rates surged higher, making it difficult to modify VA loans that were already set at or near record low rates.
The temporary solution was a foreclosure moratorium while VASP was put in place.
The foreclosure freeze was initially set to go until June 2024, but later extended to December 31st, 2024.
Shortly after, the VA stopped accepting VASP submissions on May 1st, leaving even more veterans facing economic hardship with no place to turn.
This newly-signed bill at least restores the partial claim, but might not go far enough to keep veterans in their homes.
Payment Relief Still a Big Question Mark for VA Loan Borrowers
While a partial claim allows homeowners to set aside missed payments, it doesn’t address future payments.
Any quality loss mitigation program has to address how a homeowner can continue making payments as well.
If VA loan holders are unable to make payments moving forward, the partial claim merely acts as a band-aid.
Before long, they’ll be back in arrears on the loan and facing foreclosure yet again. For this reason, the VA must also develop a loan modification program that provides actual payment relief.
This is tricky because chances are a lot of these borrowers already have rock-bottom mortgage rates obtained in the 2020-2021 era when interest rates hit record lows.
Perhaps they already have a 30-year fixed set at 2-3%. So what then?
Fortunately a solution already exists. The FHA has a payment supplement solution that temporarily reduces the principal portion of the borrower’s monthly mortgage payment for a period of three years.
And it does this without modifying the mortgage, so the low mortgage rate stays in place.
Similar to the partial claim, the Payment Supplement is only repaid when the homeowner sells the property or refinances the mortgage, or the loan is otherwise extinguished.
This could provide a viable solution to help those who serve(d) this country remain in their homes.
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HR 1815 does not have any provisions to help veterans who had no choice but to do a high interest loan modification. Monthly payments nearly doubled, the deferred payments were summed into the refinanced amount, thousands in equity lost, and still in financial hardship.
Amanda,
That’s terrible. Giving up low mortgage rates for a worse outcome is inexcusable. They also need a long-term solution to make future payments affordable.
Thank you Colin. Chris Arnold with NPR has been following and reporting on this group of Veterans who were “left behind,” but I’m not sure if any other attention is being given the veterans who risked their financial livelihood to keep their homes with the hope that the VA and Congress would launch a new program to help. We were not eligible for VASP either. Only loans in default/foreclosure are getting benefits.
Yeah I think one of the issues was they worried VA loan holders would strategically default to qualify for VASP. Hopefully they introduce a payment relief option to complement the partial claim, similar to the FHA. Shame this isn’t getting more press. Good luck to you!
I’m certain that those who were “concern(ed) that the (VASP) program would put undue stress on taxpayers, and lead to strategic default”, where the mortgage companies who had zero concerned about taxpayers during the mortgage bailout (for primarily the investors) in 2008. Or for that matter the $4T given to the wealthiest in the Big Beautiful Bill. Of course the new VA solution would still give these companies their interest for the ‘3 year relief’, essentially making VET renters for these 3 years as it does very little for the principle. Why do we always insulate the wealthiest? Why not truly help the vets? They were willing to put their lives on the line for us. Can anyone think of a single CEO who was willing to put their company at risk for us? I can’t. Also with the massive cuts in the VA Dept, who remains to process the Vets request for this program? Will the requests be ignored? Or is it really a poor fix in writing only that the administration can brag about, but in reality offers no relief for the Vet. I’m tired of our tax dollars going to the Richest instead of those who actually pay taxes, as Vets do, and deserve the relief, as again our Vets do. I’m not a Vet but believe they deserve long term, actual relief.
“I think one of the issues was they worried VA loan holders would strategically default to qualify for VASP.” Again the “they” in this statement is likely the mortgage companies. I’d be interested to know if the VASP program would actually allow a Vet who could easily afford their mortgage, purposely default to qualify for the program with lower rates? I couldn’t imagine that this would be true.
I hear you Carolyn. It seemed like a flimsy excuse. Ultimately, VA loan borrowers should have a loss mitigation program that is at minimum as robust as the one offered to FHA borrowers, who may have not served our country.
The VA Home Loan Reform Act fails to recognize or benefit responsible borrowers who kept their commitments despite system failures. I believe this law encourages financial irresponsibility by providing aid only to those who defaulted. I mean no disrespect to my fellow veterans, but it is neither fair nor fiscally sound to penalize veterans who honorably stayed current on their mortgages at great personal sacrifice. It’s simply an ineffective policy putting veterans like me at risk of financial collapse and undermines the stability of the program it was supposed to protect.
Carolyn, your statement about making veterans “renters” hits hard. The “loan modification” was really a refinance; the sum of monthly payments at the end of the forbearance period was added to the remaining due on the loan. I ended up back where I started on the principal amount and paying interest a second time at a higher rate. Also, my financials were not reviewed even though I informed my lender and the VA that my financial situation had changed (obviously). Isn’t it an industry standard to review financials? Also, how is it legal to pay interest twice on the deferred/forbearance amount?
John Bell, former ED of VA Loan Guarantee Program as of 8/12/25), tried to distance the VA from the direct cause of higher interest rates with the statement, “VA understands that many Veterans accepted loan modifications or COVID-19 Refund Modifications Program at a higher interest rate than they were paying before. VA shares in their discouragement, but the reason for the increase in interest rates was outside VA’s control.” He doesn’t address the broader context of the VA’s role in creating the circumstances that forced veterans into these unfavorable modifications. Congress didn’t consider the VA’s role in the new Reform Act, so what’s the solution? An amendment? New policy?