Two influential trade groups in the mortgage industry want the Department of Veterans Affairs to open up a commentary period for a soon-to-be implemented foreclosure prevention solution dubbed the Veterans Assistance Servicing Purchase (VASP) program.
In a letter sent in late July, the Housing Policy Council and the Mortgage Bankers Association called on John Bell, executive director of VA’s Home Loan Guaranty program, to give a 30 day window for stakeholders to view the outline of the loss mitigation solution and to provide their two cents on the program.
The loss mitigation option was described earlier this year as a “last-ditch effort” in VA’s loss mitigation waterfall to keep veterans in homes. The VA is pushing this program out following the expiration of COVID-19 loss mitigation flexibilities.
Close to 147,000 veteran borrowers could benefit from such a solution because they are behind on their mortgage payments, according to the letter from the MBA and HPC, though the groups claim they cannot support the “proposal without additional information to assess borrower impact and the ability of servicers to deliver it without undue costs or risks.”
The VA did not immediately respond to a request for comment. In late May, Bell noted that the program would allow for the VA to take a loan back, make the servicer whole and put the borrower on an interest rate that’s not available in the marketplace.
“We’ll have our regular refund, we’ll have our regular loss mitigation waterfall efforts,” said Bell during MBA’s Secondary and Capital Markets Expo in New York City. “But we know with rates where they are, versus borrowers where their interest rates are, that the waterfall isn’t as helpful as it should be. So we need to relook at what we can do from that waterfall perspective as well.”
The MBA and HPC wrote that from their understanding of the proposed program, the respective roles of the servicers, the VA, and the VA contractors are in conflict.
“As we understand VASP, the decision to modify a borrower’s loan rests with the VA,” they wrote. “Yet, servicers continue to evaluate their borrowers for all available options. In other words, servicers continue to communicate and engage with their delinquent borrowers until the VA approves the purchase of the loan and accepts transfer of the loan from the servicer.”This dynamic “dislocates the traditional regulatory relationship between the servicer and the borrower, setting up a conflict with the established Consumer Financial Protection Bureau regulatory framework,” the HPC and MBA claim.
As such, the trade groups want the department to clarify how VASP will address the following issues: maximize eligible borrowers, streamline the processing of borrowers, explain how the program is in compliance with CFPB’s Regulation X, and how it will facilitate successful servicing transfers.
Both the HPC and MBA said they support the creation of a loss mitigation solution “that provides payment relief to seriously delinquent veteran borrowers whose note rates are lower than the prevailing market rate.”The trade groups estimate that thousands of veteran borrowers could benefit from such a solution, including those with note rates below the current market rate. Their letter specifically mentions that this issue is “particularly acute for VA borrowers as the average interest rate in a Ginnie Mae security is 3.25%.””MBA and HPC remain committed to preserving affordable homeownership for veteran borrowers facing financial hardship,” the organizations added. “A public comment process will reduce the risk of unintended consequences, ensure industry consensus, and identify the appropriate implementation timeframes.”
