VA Loan Forbearance: Everything You Need To Know

Have you found yourself in a compromising situation with your home loan? If you served in the military, you might benefit from looking into a Department of Veterans Affairs (VA) home loan forbearance.

Forbearance occurs when your mortgage servicer or lender allows you to pause or reduce your payments for a limited period of time. Let’s take a look at what you should know about the VA forbearance guidelines and the options available to you.

VA loans have been covered since the earliest days of the pandemic under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act, a $2.2 trillion economic stimulus bill passed by the 116th U.S. Congress and signed into law on March 27, 2020, responded to the economic challenges brought on by COVID-19.

Since initial implementation, the forbearance relief provided for under the act has been extended several times as the pandemic has gone on. Communicate with your servicer about your options. New COVID-19 forbearances are no longer available due to the expiration of the national emergency in May 2023.

The VA has adopted a variety of protections for servicemembers suffering pandemic-related financial stress. Take a look at the options that might fit your needs below.

VA IRRRL

The VA IRRRL (pronounced “earl”), also called a VA Streamline loan, offers a refinance option that moves more quickly and requires a less complex process than a traditional refinance. In order to qualify for a VA IRRRL, you must have an existing VA loan.

VA Streamlines can help you:

• Change from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage
• Lower your monthly interest rate
• Change your loan term

A VA IRRRL can help you feel less of a pinch and also offers a few other perks, including reduced paperwork. Closing costs and fees can also be rolled into the mortgage.

Loss Mitigation Options

Not sure you want to pursue an IRRRL? As a service member, you can get help from a VA loan technician. This person can help you sort through various options, which could include:

• Repayment plans: Mortgage holders work with their lender or a VA loan technician to come up with a repayment plan to clear missed payments.
• Loan modifications: In a loan modification, a lender agrees to let your missed payments go into the loan balance, which also extends the term of your loan to accommodate the missed payments.
• Private sale: In a private sale, a lender holds off on foreclosure to allow you time to sell your home.
• Short sale: You may choose a short sale, where a lender approves a sale for less than the amount owed on the mortgage.
• Deed in lieu of foreclosure: A deed in lieu of foreclosure means the mortgage holder signs the deed over to the lender and walks away from the property.

Refunding

The VA can, under its discretionary authority, refund your loans. In other words, the VA may buy and take over servicing from a lender when the lender cannot extend satisfactory options to resolve your forbearance. Note: This procedure doesn't occur often – lenders generally want to work with borrowers who experience financial hardship.

In most cases, the VA will only pursue refunding if you have had problems making the payments due to circumstances beyond your control. In addition, the VA typically pursues this avenue knowing that your financial situation will improve so that payments will resume in the near future – but the lender doesn't want to wait to terminate the loan.

You can access a Refund Status Report through the Servicer Web Portal, where you can submit claims with supporting documentation. The VA must review every refunding case during its adequacy of servicing review.

The Department of Veterans Affairs (VA) has submitted a proposal to establish the COVID-19 Veterans Assistance Partial Claim Payment program (COVID-VAPCP), a temporary program to help veterans return to making normal loan payments on a VA-guaranteed loan after leaving a CARES Act forbearance period.

In other words, this means that the proposal could provide partial payments to service members unable to make their monthly mortgage payments.

The lender under this program could consider a partial claim option after the servicer has evaluated all loss-mitigation options for feasibility. If the veteran qualifies and opts to move forward, the VA will act as a mortgage investor of last resort by purchasing the amount of indebtedness necessary to bring the veteran’s guaranteed loan current. The veteran would have up to 60 months to defer repayment to VA and up to 120 months to repay the loan in full, with the interest rate fixed at 1% per annum.

As a veteran, you want to watch out for unscrupulous lenders. These lenders target VA mortgage holders by encouraging them to apply over and over for loans in a process called churning.

The VA is aware of this unethical breach and tries to prevent this practice by requiring seasoning. Seasoning means borrowers must make at least six consecutive, timely payments on the loan to refinance. If you didn't make enough payments prior to invoking forbearance, you would need to make six additional consecutive payments after forbearance in order to meet the seasoning requirement. The date of closing for the refinance loan must also be 212 or more days after the first payment due date of the loan being refinanced.

VA loans have been covered since the CARES Act debuted. Although mortgage relief provisions under the CARES Act have been sunset, you may have other avenues of assistance. Talk to your mortgage servicer about options that may be available.

The VA is available to help its service members during financial hardship. If you feel like you might soon have trouble affording your mortgage payments, talk to someone from the VA to develop a plan for VA mortgage relief right away.

Ready to apply for a VA IRRRL loan? We can help you get started today.