VA Addresses Options for Borrowers Facing Hardship Due to COVID-19

The U.S. Department of Veterans Affairs (VA) on June 3 updated guidance regarding home retention options and alternatives to foreclosure for borrowers experiencing financial hardships due to COVID-19. The VA previously provided guidance in Loan Guaranty Circular 26-21-07. In the update, the VA advises servicers that they should consider all home retention options and alternatives to foreclosure for such borrowers, and reminds servicers that Chapter 5 of the VA Servicer Handbook addresses available options and alternatives. The VA notes two types of loan modifications expressly allow for a servicer to expedite processing for a borrower affected by a disaster—the VA Disaster Modification and the Disaster Extend Modification.

The VA clarifies that without VA preapproval a servicer can enter into a VA Disaster Modification if the modification is made no later than 18 months after the date on which the COVID-19 national emergency ends. The VA also advises that a servicer can offer a VA Disaster Modification regardless of whether the borrower has entered into a COVID-19 forbearance plan and regardless of whether the COVID-19 national emergency caused the borrower’s default.

With regard to Disaster Extend Modifications, the VA advises that it is allowing such modifications to extend the loan’s original maturity date for 18 months, instead of the standard 12 months, in cases in which the loan is modified no later than 18 months after the date on which the COVID-19 national emergency ends. The VA also advises that a servicer can offer a Disaster Extend Modification regardless of whether the borrower has entered into a COVID-19 forbearance plan and regardless of whether the COVID-19 national emergency caused the borrower’s default.

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