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Volume XI, Number 268

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Department of Veterans Affairs Expands Its Limited-Time COVID-19 Mortgage Relief Options

On July 23, 2021, the Department of Veterans Affairs (VA) released Circular 26-21-13, which announced a new temporary modification called the COVID-19 Refund Modification. The COVID-19 Refund Modification and the COVID-19 Veterans Assistance Partial Claim Payment option are now both designed to help borrowers experiencing financial hardship related to COVID-19 bring their mortgages current and avoid foreclosure.

The COVID-19 Refund Modification

Under the new COVID-19 Refund Modification, veterans can receive a 20% or more payment reduction, depending on their circumstances. As part of this new modification option, the VA will purchase the past-due payments and unpaid principal (up to 30% of the unpaid principal balance), which will then be secured by a junior lien on the property. That junior lien will not accrue interest or require any payments until maturity or early payoff.

The remaining loan balance will also be modified, and the servicer may capitalize any arrearages exceeding the 30% unpaid principal balance into the modified loan if necessary. The loan term also can be extended by up to 10 years, and it must have a fixed interest rate. A trial payment plan is not required for the modification. The COVID-19 Refund Modification will be available from July 27, 2021, to October 28, 2022.

The VA Partial Claim Payment Program

The VA Partial Claim Payment Program (VAPCP) was announced in late May and has several similarities with the newer COVID-19 Refund Modification. Both programs are available July 27, 2021, to October 28, 2022. Through this stand-alone temporary program, the VA will pay off the forbearance indebtedness and create a second, interest-free mortgage on the property for up to 30% of the UPB. No payments on the second mortgage will be due until the home is either paid off, refinanced, or sold. This program allows the borrower to resolve overdue payments impacting their credit and have no more interest or penalties accumulating on the missed payments.

The VA requires that the borrower execute all required documents within 120 days after their COVID-19 forbearance ends to be eligible.

Forbearance Remains Available

Veterans may also request a COVID-19-related forbearance through September 30, 2021.

© 2021 Bradley Arant Boult Cummings LLPNational Law Review, Volume XI, Number 215
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About this Author

Christy Hancock Financial Services Lawyer Bradley
Partner

Christy Hancock’s practice is dedicated to financial services regulatory compliance and litigation. Her work with mortgage servicing and financial institution clients has given her a broad base of knowledge regarding laws affecting the mortgage servicing business, including bankruptcy and foreclosure best practices, payment application, correspondence requirements, allowable fees, loan modifications, escrow requirements, and property preservation. In recent years, the majority of her practice has focused on advising large financial institutions on bankruptcy-related...

704.338.6005
Lissette C. Payne Finance Lawyer Bradley Law Firm
Attorney

Lissette Payne is an attorney in Bradley’s Banking and Financial Services Practice Group. She is designated as a Certified Information Privacy Professional by the International Association of Privacy Professionals, with U.S. Private Sector (CIPP/US) and European (CIPP/E) concentrations.

Lissette received a J.D. from the University of North Carolina School of Law, where she was president of the Hispanic/Latino Law Student Association, co-chair of the Student Bar Association’s Multicultural and Diversity Committee and a member of the Hispanic/Latino Law Student Association Moot Court...

704.338.6039
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