Department of Veterans Affairs Expands Limited Time COVID-19 Mortgage Relief Options
On July 23, 2021, the Department of Veterans Affairs (VA) issued Circular 26-21-13, which announced a new temporary modification called the COVID-19 Refund Modification. The COVID-19 Repayment Change and the Partial Payment Option of the COVID-19 Veterans Assistance Request are now both designed to help borrowers facing COVID-19-related financial difficulties to discount their mortgages and avoid foreclosure.
COVID-19 reimbursement modification
As part of the new COVID-19 reimbursement amendment, veterans may receive a payment reduction of 20% or more, depending on their circumstances. Under this new modification option, the VA will purchase overdue payments and the principal outstanding (up to 30% of the principal outstanding balance), which will then be secured by a junior lien on the property. This junior privilege will not accrue interest and will not require payment until maturity or early redemption.
The remaining loan balance will also be modified and the manager will be able to capitalize any arrears exceeding the outstanding principal balance by 30% in the modified loan if necessary. The term of the loan can also be extended 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 reimbursement modification will be available from July 27, 2021 to October 28, 2022.
The VA Claims Partial Payment Program
The VA Claims Partial Payment Program (VAPCP) was announced in late May and has several similarities to the new COVID-19 reimbursement amendment. Both programs are available from July 27, 2021 to October 28, 2022. Through this stand-alone temporary program, the VA will pay off the forbearance debt and create a second interest-free mortgage on the property up to 30% of the UPB. No payment on the second mortgage will be due until the home is paid off, refinanced or sold. This program allows the borrower to settle delinquencies impacting his credit and to no longer have interest or penalties accumulating on missed payments.
The VA requires the borrower to complete all required documents within 120 days of ending their COVID-19 forbearance to be eligible.
Abstention remains available
Veterans can also apply for COVID-19-related forbearance until September 30, 2021.