The coronavirus (COVID-19) outbreak has upended life all across the United States and the world. With this pandemic limiting many people’s ability to work and earn a paycheck, you might be among the thousands finding it difficult or impossible to keep up with your mortgage payments. The good news is that most people won’t face the prospect of losing their home right away, thanks to foreclosure suspensions across the country. Plus, federal law usually protects homeowners from the initiation of foreclosure until they’re at least 120 days overdue on the loan. In addition, most borrowers have access to a number of loss mitigation alternatives.
If you have a mortgage loan that's guaranteed or insured by the Department of Veterans Affairs (VA), you’re most likely eligible for a 12-month payment suspension or reduction (a forbearance). When the forbearance period ends, you might be able to reduce or adjust your mortgage payments permanently through a special loan modification program.
Forbearances for VA Loans
Under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, which President Trump signed into law on March 27, 2020, homeowners with federally backed mortgage loans, including those with loans that are guaranteed or insured by the VA, are eligible for a forbearance.
The forbearance period will last up to 180 days and can be extended up to 180 more days, provided that you request an extension during the "covered period" (see below). Some servicers, however, are initially offering a shorter 90-day forbearance. Keep in mind that federal law provides extended relief—up to 360 days. If you need help enforcing your rights, consider hiring a foreclosure lawyer to help you.
What Kinds of Loans and Properties Are Eligible For Forbearance?
The right to get an extended forbearance under the CARES Act applies to mortgage loans secured by a first or subordinate lien on residential real property, including individual units of condominiums and cooperatives, designed principally for the occupancy of from one to four families.
How to Get a Forbearance
To get a forbearance, you need to make a request to your loan servicer within the covered period and affirm that you've suffered a financial hardship due to the COVID-19 emergency; the servicer can't require any additional documentation beyond your attestation.
During the forbearance period, the servicer can't add fees or penalties to your account, or charge interest beyond the amounts scheduled or calculated as if you made all contractual payments on time and in full under the terms of the mortgage contract.
What Is the "Covered Period"?
While the relevant section of the CARES Act doesn't define the term "covered period" during which you can ask for a forbearance, you should make your request before December 31, 2020, or the termination date of the COVID-19 national emergency declaration, whichever is sooner. (This definition of "covered period" is set forth in a different section of the Act, which addresses forbearances in connection with federally backed loans on multifamily properties. To learn more, see Mortgage Payment Relief During the Coronavirus Outbreak.)
Also, if you want to get an extension on an initial forbearance, you should probably make your request before the original forbearance period ends.
Loss Mitigation Options for VA Loans After a CARES Act Forbearance
Keep in mind that a forbearance isn't the same as loan forgiveness; you'll still owe the skipped amounts after the forbearance period ends. Usually, the servicer will take a lump-sum payment, offer a payment plan, or provide a modification in which the unpaid amounts get added to the loan balance. If you apply for a modification, you'll probably have to provide supporting documentation, including copies of your bank statements and tax returns, at that time.
In Circular 26-20-12, dated April 8, 2020, the VA directed servicers to consider all the loss mitigation options, including those related to disasters, in determining how to account for payments that were subject to a CARES Act forbearance. Such loss mitigation options include, but aren't limited to, repayment plans and modifications. Or you might be able to refinance with a VA streamline refinance loan or “refund” the loan. Servicers must review loan files for all possible loss mitigation options no later than 30 days before the forbearance period is scheduled to end.
The Circular also states that servicers are not to require a borrower who receives a CARES Act forbearance to make a lump-sum payment, equating to what would have been due if a forbearance was not in effect, after the forbearance period ends. But a lump sum is acceptable if it is to be paid back at the end of the loan or if a borrower opts to make a lump-sum payment instead of pursuing other loss mitigation options. (If your servicer insists that you'll have to make a lump-sum payment when the forbearance ends, consider hiring a lawyer who can help you enforce your rights.)
Streamline Refinance Option for VA Loans
A VA streamline refinance, officially called an “Interest Rate Reduction Refinance Loan” (IRRRL), is a VA-guaranteed loan that lowers the interest rate. As a result, the monthly principal and interest payments go down.
Loan Modification Options for VA-Guaranteed Loans
Several different types of modifications are typically available for VA loans. Under federal law, the terms of any VA-guaranteed loan can be modified without the prior approval of VA, if specific regulatory conditions are satisfied. (38 C.F.R. § 36.4315) .
With a VA Disaster Modification, for example, the servicer may offer you a permanent modification of the loan terms, like by lowering the interest rate, to provide payment relief. To get this kind of modification, you have to meet certain eligibility criteria, like the mortgage loan can’t have been more than 30 days past due at the time of the disaster.
Other types of modifications, like traditional modifications, streamline modifications, and other special disaster modifications, might also be available.
“Refunding” the Loan
In a refunding, the VA buys the loan and takes over the servicing. So, in this context, “refunding” means “to fund again.” The VA will then work with you on finding a way to avoid foreclosure.
Refundings don’t happen very often, but if you’re having trouble making the payments, you might qualify. After a CARES Act forbearance, if no other loss mitigation options are possible, in cases where the home has equity, the servicer must refer the file to the relevant Regional Loan Center for VA’s consideration of a loan refunding. To find out about a potential refunding, call your servicer. You can also contact a VA regional center to learn more.
Other Options
If you can’t refinance, get a loan modification, or refund the loan, you might consider looking into whether you qualify for a:
- loan assumption (you sell or transfer the property to someone else, and that person takes over the mortgage payments)
- compromise sale (short sale), or
- deed in lieu of foreclosure.
Additional Help for Veterans
If you have a VA-guaranteed loan, the VA can provide a technician to work with your loan servicer on your behalf, as well as provide you with financial counseling. To locate the nearest VA Regional Loan Center near you, go to the VA’s Regional Loan Center Contact Information website.
But if your loan isn’t guaranteed by the VA, the VA can’t intervene with your loan servicer. You can, however, still call your nearest Regional Loan Center to speak to a technician who can give you advice on different tactics to take with the servicer.
For more information on what to do if you’re having difficulty keeping up with your mortgage payments, go to the Department of Veterans Affairs website.
