VA guarantees home loans for veterans facing foreclosure

The Department of Veterans Affairs will offer a program starting next month to help more than 40,000 veterans who face severe financial struggles to avoid foreclosure and keep their homes. 

The Veterans Affairs Servicing Purchase program, which launches May 31, was announced by VA officials during a press call on April 9. The program is a last-resort tool among VA’s home retention options for eligible veterans, active-duty service members and surviving spouses with VA-guaranteed home loans who are experiencing severe financial hardship.  

Through the program, VA will purchase defaulted VA loans from mortgage servicers, modify the loans and place them in the VA-owned portfolio as direct loans. 

“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 so they can keep their homes,” VA Undersecretary for Benefits Josh Jacobs said. 

With VASP, borrowers will have “a consistent, affordable payment” for the rest of their loan at a fixed 2½% interest rate, according to Jacobs. “The purpose of this program is to assist the more than 40,000 veterans who are at the highest risk of foreclosure and cannot resolve their delinquency through traditional VA home retention options.” 

He explained that the program is intended as “a safety net not an incentive for default. If other home retention options like a loan remodification or repayment plan will resolve the home loan delinquency, VASP will not be an option.” 

VA asked mortgage services in November to pause foreclosures of VA-guaranteed loans through May 31 after an NPR investigation showed that thousands of veterans were facing foreclosure or financial hardship through no fault of their own. VA had created a temporary program to help veterans return to making normal loan payments on a VA-guaranteed loan after exiting a forbearance for financial hardship due, directly or indirectly, to the pandemic, but the program ended in October 2022.

Asked where those veterans fit into VASP’s eligibility requirements, Jacobs said: “The bottom line is we want to make sure we’re doing everything in our power to keep veterans in their homes. 

“The VASP program really is the last resort home-retention option and so we’re working through a process by which we’re going to consider every other available option to keep veterans in their homes whether it is a repayment plan, loan modification or a number of other options. 

“Each case is different, and we want every veteran who may be experiencing financial hardships to reach out directly to their servicer or reach out to us so we can work through that.”    

Last year, VA helped more than 145,000 veterans and their families avoid foreclosures, according to Jacobs. 

“We’re taking on the debt at the VA, so we have more of an ability to charge a lower interest rate than having to charge what the market is charging,” John Bell III, the executive director of the VA’s Loan Guaranty Service, said.

Jacobs called VASP “a fiscally prudent option, which means it is good for government and taxpayers. 

“It will result in a government subsidy spending reduction of approximately $1.5 billion over 10 years. This is because the savings associated with avoiding foreclosures outweighs the cost of purchasing these homes.”