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.