Military veterans on the verge of foreclosure will be offered a financial lifeline next month to help them keep their homes and restructure their debts at favorable terms.
The Department of Veterans Affairs announced last week it will launch an assistance program on May 31 to help veterans, service members and surviving spouses who are struggling to pay their mortgage bills.
Under the Veterans Affairs Servicing Purchase Program, or VASP, the agency will purchase defaulted VA loans from loan processors and work with the delinquent borrowers to create revised and achievable payment plans with interest rates as low as 2.5 percent.
“This program will help ensure that when a veteran goes into default, there is an additional, affordable payment option that will work in this higher-interest-rate environment,” David Lapan, a senior adviser with the VA, said April 9.
An estimated 16.2 million veterans are living in the United States — including 345,000 in South Carolina — according to the 2022 census. The mortgage-relief initiative has the capacity to help nearly 40,000 eligible borrowers.
Through the program, the VA will modify the purchased loans and place them in the VA-owned portfolio. The mortgages and monthly payments will be adjusted with a fixed 2.5 percent interest rate to give borrowers a more consistent and predictable payment plan for the life of the debt.
A new federal assistance program aims to help veterans avoid foreclosure.
“We’re taking it into our direct loan profile, and we’re able to make choices and decisions that other entities were not able to at 2.5 percent when the market rates are 7 percent,” Lapan said.
Borrowers can't apply directly for the program. Instead, mortgage servicers will identify eligible candidates, such as those already in default for a certain period of time, and submit requests on their behalf.
Lapan noted that the VA has other tools designed to help homeowners avoid foreclosure, but the pandemic-related job losses hit some borrowers hard. Others have struggled with the abrupt jump in interest rates, fast-rising home prices and skyrocketing home insurance premiums.
Jason Sharon is a veteran and owner of Home Loans Inc. in Charleston, whose clients are mostly current or former service members. He said he fields calls regularly from buyers who need help with their mortgages.
Sharon pointed to one borrower who amassed $40,000 in debt after losing her job during the pandemic.
He noted that other short-term financial-aid programs can help borrowers catch up on their loans and repay debt, but they don’t cut the monthly payments moving forward.
“I don’t think there’s any government program within the city that will bail you out of a bad financial decision," Sharon said.
He added that the VA has been trying for some time to get servicers to come up with a program similar to VASP, especially after pandemic-era loan extensions and concessions expired. But no one stepped up.
“There’s just no money in it, so nobody picked up the ball,” he said. “But the VA has picked up that dropped ball and run with it now."
The agency didn't disclose the projected cost of the program. Lapan, the senior adviser, said he anticipates it will generate $1.5 billion in reduced government-subsidy spending over 10 years for an agency that guaranteed more than 400,600 home loans in 2023.
Savings associated with avoiding foreclosures outweigh the alternative, which would require the VA to invest time and incur legal fees and other administrative expenses, he said.
"That's to say nothing of the human cost associated with those veterans and their families going out on the streets," Lapan said.
As of September, Charleston's Ralph H. Johnson VA Health Care System was trying to assist at least 60 veterans in finding housing, according to Karen Medbury, coordinator of its homeless program.
