Beyond VA Loan Forbearance: Options To Help With Pandemic-Related Mortgage Repayment Problems

COVID-19 has touched almost everyone in some way or another. Many Americans face the unfortunate reality of job losses or other financial setbacks. If you served in the military, you might want to look into a VA loan forbearance if you find yourself in a compromising situation with your home loan.

What is forbearance? Forbearance occurs when your mortgage servicer or lender allows you to pause or reduce your payments for a limited period of time.

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.

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 

Why get a VA IRRRL before or after a COVID-related forbearance? It can help you feel less of a pinch and also offers a few other perks, including reduced paperwork. Closing costs and fees can also roll 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 may, 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, for which you submit claims with supporting documentation. The VA must review every refunding case during its adequacy of servicing review.

Not only has the VA worked to keep service members in their homes, the VA has also made sure veterans will not harm their credit during the Covid national emergency.

No Late Fees Or Negative Credit Reporting

Under normal circumstances, missing mortgage payments definitely hurts your credit. However, veterans who seek mortgage relief specifically under provisions of the CARES Act will not face negative credit consequences.

Fee Waivers

You should not pay additional costs during a forbearance, either. For example, a lender cannot charge you a late fee as a result of granting you a COVID-19 forbearance.

Forbearance Can’t Be Grounds For Refinance Loan Denial

The VA has stated that all mortgages must stick to general underwriting standards during VA mortgage forbearance but explicitly states that “lenders should not use a CARES Act forbearance as a reason to deny a veteran a VA-guaranteed loan" and will not consider a Veteran an unsatisfactory credit risk “based solely upon the fact that the veteran received some type of credit forbearance or experienced some type of deferred payment during the COVID-19 national emergency.”

However, as a veteran, you must still provide solid reasoning for your inability to make payments. You must also provide information to explain that a pattern of missed payments will not continue to cycle.

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 would 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 percent 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 210 or more days after the first payment due date of the loan being refinanced.

VA loans have been covered since the CARES Act debuted. The CARES Act provides veteran mortgage relief to all government-backed mortgages and this relief timeline has been extended several times. 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.