VA Updated Guidance on Relief for Borrowers Experiencing Financial Hardship Due to COVID-19
In Circular 26-20-12, dated April 8, 2020, the U.S. Department of Veterans Affairs (VA) updated its prior guidance on the relief available to VA loan borrowers based on the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Eligibility for Forbearance. VA advises that the relief is available to a borrower with a VA-guaranteed loan or a VA-held loan who is experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency. VA confirms the ability of such a borrower to obtain a loan forbearance, regardless of whether or not they are delinquent, by submitting a request to the servicer and attesting that the borrower is experiencing a financial hardship due to the COVID-19 emergency.
The CARES Act provides that the forbearance period is up to 180 days, and during the covered period the borrower can request an extension for an additional period of 180 days. VA states that “[t]he borrower, not the servicer, is entitled to determine the period of the forbearance, subject to the statutory limit of up to 360 days.”
Exiting Forbearance. The VA states that “[t]he servicer must ensure the borrower has been given every opportunity to pursue all possible loss mitigation options in order to bring their loan current. Failure to do so could impact a future claim payment and could lead to other legal or administrative action(s) against the servicer.”
VA advises that no later than 30 days before the scheduled end of a forbearance period, a servicer must review the loan file for all possible loss mitigation options, and the servicer should document this review in the loan file. VA notes that among the various loss mitigation options set forth in the VA Servicer Handbook are the following:
- Repayment plans.
- Loan modifications.
- Streamline modifications.
- VA Affordable modifications.
- VA Disaster modifications.
- Disaster Extend modifications.
VA states that a servicer may not require the borrower to repay the total amount of the forborne payments in a lump sum, except if the amount would be payable at the end of the loan. The VA notes that the borrower may opt to make a lump sum payment in lieu of a loss mitigation option.
If the servicer determines that no loss mitigation options are possible and the borrower has equity in the home, the servicer must refer the file to the relevant Regional Loan Center and VA will consider a refunding of the loan. If a refunding is not possible, then the servicer should consider foreclosure alternatives.Foreclosure Moratorium. The VA also addresses the foreclosure moratorium under the CARES Act. The CARES Act provides that, except with respect to a vacant or abandoned property, a servicer of a federally backed mortgage loan may not initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for not less than the 60-day period beginning on March 18, 2020. Before the adoption of the CARES Act, the VA issued guidance strongly encouraging mortgage servicers to observe a foreclosure and eviction moratorium for the same 60-day period. The VA now conforms its guidance with the foreclosure moratorium provided for in the CARES Act.
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