January 15, 2021

Brown, Reed, Tester Object to the VA’s Covid-19 Veterans Assistance Partial Claim Payment Program Proposal

Senators To VA: Offer Military Borrowers The Same Options As Other Federal Agencies

Washington D.C.- Today, U.S. Sen. Sherrod Brown (D-OH), presumed incoming chair of U.S. Senate Committee on Banking, Housing, and Urban Affairs, Jack Reed (D-RI), presumed incoming chair of the U.S. Senate Committee on Armed Services, and Jon Tester (D-MT), presumed incoming chair of the U.S. Senate Committee on Veterans’ Affairs, sent a letter to the Department of Veterans Affairs (VA) expressing concern about the proposed COVID-19 Veterans Assistance Partial Claim Payment (COVID-VAPCP) program. The lawmakers said that, as proposed, the program could add additional debt for military borrowers exiting forbearance, raise monthly costs, and cause military borrowers to pay hundreds or thousands of dollars more than other borrowers. The Senators argued that VA should ensure our nation’s veterans have access to cost-free loan deferral or a loan modification during the pandemic.

“Instead of guaranteeing borrowers an interest-free deferral of forborne payments, as other federally-backed loan programs do, the VA’s COVID-VAPCP program offers military borrowers the more costly option of taking on a second, 10-year, negatively amortizing 1 percent interest loan to repay their forborne payments,” wrote the Senators. “Borrowers in the COVID-VAPCP must begin repaying these loans within five years, raising their payments beyond their pre-forbearance payments. For borrowers whose mortgage servicers cannot or will not offer a cost-free deferral, this may be their only choice, and a needlessly costly one at that, to stay in their home.”

A copy of the letter appears here and below:

 

Mr. Jeffrey M. Martin

Assistant Director, Office of Regulation Policy & Management

Office of the Secretary

Department of Veterans Affairs

Dear Mr. Martin:

We write to express our concern about the Department of Veterans Affairs’ (VA) proposed COVID-19 Veterans Assistance Partial Claim Payment (COVID-VAPCP) program. As proposed, this program could harm the very veterans and servicemembers (military borrowers) it purports to help by providing them with inferior loss mitigation options. The COVID-VAPCP program could raise monthly costs by adding additional debt for military borrowers, which could cause payment shocks that could threaten borrowers’ ability to stay in their homes. Instead, VA should follow the lead of other federal agencies and ensure that each military borrower in forbearance also has access to the cost-free loan deferral or loan modification option that meets the military borrower’s financial needs.

VA reports that as of September 2020, more than 183,000 homeowners in forbearance had VA-guaranteed loans.[1] These 183,000 homeowners, and any who have or will enter forbearance in the months ahead, deserve a feasible path to get back on track with payments and remain in their homes. Inexplicably, unlike the Federal Housing Administration (FHA)[2], U.S. Department of Agriculture (USDA)[3], 184 and 184A programs[4], Fannie Mae[5], and Freddie Mac[6], the VA is proposing an inferior option for borrowers after forbearance. Rather than focusing a loan solution on the military borrower’s financial needs alone, as other programs do, the VA also makes access to their modification[7] and deferral[8] programs contingent upon the mortgage servicer’s finances.[9] And, unlike other federally-guaranteed programs, the VA has not offered servicers options to offset the cost of a deferral, making it more difficult for VA mortgage servicers to offer a no-cost deferral of forborne payments for military borrowers.

Instead of guaranteeing borrowers an interest-free deferral of forborne payments, as other federally-backed loan programs do, the VA’s COVID-VAPCP program offers military borrowers the more costly option of taking on a second, 10-year, negatively amortizing 1 percent interest loan to repay their forborne payments. Borrowers in the COVID-VAPCP must begin repaying these loans within five years, raising their payments beyond their pre-forbearance payments. For borrowers whose mortgage servicers cannot or will not offer a cost-free deferral, this may be their only choice, and a needlessly costly one at that, to stay in their home.

As we learned following the 2008 crisis, modifications that raise a borrower’s monthly payments make it more likely they will ultimately default on their loan and face the prospect of being homeless.[10] As a result, military borrowers who were already struggling financially as a result of the pandemic and who then participate in the program could once again fall behind when their payments increase, harming both the family and the VA program. Even if borrowers can make the payments, military borrowers participating in COVID-VAPCP will pay hundreds or thousands of dollars more than another, similarly-situated borrower with a different federally-backed loan or with another servicer.[11]

If VA establishes a partial claim process, it should financially benefit the veteran or servicemember, not create a new loan that they have to pay back. If VA does not believe that it has the authority to establish such a program that other federal agencies have established, it should bring that issue to Congress’s attention. Military borrowers who have struggled during the pandemic should not be left with worse options than all other homeowners with federally-backed loans. Indeed, the least we can do is honor their service by making every effort to help military borrowers stay in their homes.

We look forward to working with you on a better solution for VA borrowers. 

Sincerely,

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