Advocates and lenders demand rapid Congressional action to fill the assistance gap
The US Department of Veterans Affairs (VA) has abruptly ended a key mortgage assistance program, raising alarm among housing advocates, lenders, and legal experts who say tens of thousands of veteran families now face a heightened risk of foreclosure.
The VA’s Veterans Affairs Servicing Purchase (VASP) program, which helps most delinquent VA mortgage borrowers obtain affordable payment plans, was terminated on short notice. On April 23, the VA issued Circular 26-25-2 announcing that it would no longer accept VASP submissions after May 1.
Additionally, the VA rescinded the formal steps it previously required when considering veterans for hardship assistance, removing what advocates say was a critical framework for consistency and transparency.
“The men and women who wore our nation’s cloth have faced adversity and challenges while defending our freedoms around the world. The last thing we should do is turn our backs on them when they need help staying in their homes,” said Raul Vargas, head of the American Latino Veterans Association.
The abrupt end of VASP leaves VA borrowers with far fewer options than those available to homeowners with other federally backed loans from agencies like FHA, USDA, Fannie Mae, and Freddie Mac. While other government-backed loans offer partial claim options to help borrowers bring their loans current, the VA currently has no such program in place.
“Today’s cancellation of the VASP mortgage assistance program for Veteran borrowers puts tens of thousands of Veterans and their families with VA home loans at great risk of losing their homes,” added Alys Cohen, senior attorney at the National Consumer Law Center. “The VA Home Loan Program is a benefit that Veterans have earned through service and sacrifice - it is meant to give them housing stability they deserve.”
Impact on veterans
Before this termination, the VA had a hardship program allowing delinquent borrowers to move past-due balances to the end of their loan, known as a “partial claim,” similar to the system used by FHA loans.
Under a partial claim, veterans could catch up on missed payments without losing their homes, repaying the deferred balance at 0% interest when the loan was eventually paid off. Congress is currently considering legislation to restart a partial claim program for VA loans, but no solution is yet in place.
As of April 1, there were 75,000 VA borrowers who had missed three or more payments on their mortgages, with 17,000 already accepted into the VASP program, according to VA data. With VASP terminated, up to 58,000 veteran families remain highly vulnerable to foreclosure.
“Without VASP, VA would have foreclosed on tens of thousands of borrowers,” said Elizabeth Balce, speaking on behalf of the Mortgage Bankers Association (MBA) at a House Committee on Veterans Affairs hearing last month.
MBA president and CEO Bob Broeksmit added, “Halting the VASP program will increase the number of veterans facing foreclosure unless the VA and Congress implement a permanent partial claim option as soon as possible. Any characterization of VASP as a ‘lender bailout’ is patently false and entirely inappropriate.”
Read more: MBA presses for veteran protections ahead of VA Loan Reform vote
Advocates and industry leaders are calling on the administration and Congress to take immediate steps:
- Restore the VASP program temporarily until a permanent replacement, like a partial claim option, is in place.
- Use VA’s existing authority to develop additional programs to protect veterans’ homes.
- Pass legislation quickly to restart a permanent partial claim system for veterans facing hardship.
Mike Calhoun, president of the Center for Responsible Lending, emphasized the need for immediate legislative action.
“Financial hardship happens to everyone, and it’s a bedrock principle of federal housing policy that borrowers with a financial hardship should be able to bring their loans current and avoid foreclosure if they can afford the new plan,” Calhoun said. “Congress quickly enacting a partial claim program would benefit Veteran homeowners and the VA as well, since avoidable foreclosures on federally-backed loans result in unnecessary government losses.”
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