The VA just paused VA loan foreclosures — here's what that means for borrowers

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• The VA has asked mortgage servicers to stop foreclosures on VA loans through May 2024.
• The pause will stop borrowers from losing their homes while the VA readies a new loss mitigation program.
• It's also extending the COVID-19 Refund Modification program, which helps borrowers cover missed payments.

If you're a VA loan borrower who's currently facing foreclosure or struggling to keep up with your mortgage payments, the Department of Veterans Affairs is providing you with some relief: no more foreclosures on VA mortgages through May 2024. 

Here's what the update means for borrowers.

Why is the VA pausing foreclosures?

This move from the VA follows a recent NPR report that found thousands of veterans and servicemembers with VA loans were at risk of losing their homes due to the end of a COVID-era assistance program.

When the pandemic hit and a record number of workers lost their sources of income, major mortgage backers (including the VA) started offering programs to help borrowers stay in their homes even if they temporarily couldn't afford their mortgage payments.

VA loan borrowers were given the option to put their mortgages in forbearance, meaning they could temporarily pause their mortgage payments. A program was also put in place to help these borrowers come out of forbearance without having to pay large lump sums to cover the payments they missed. This program, the COVID-19 Veterans Assistance Partial Claim Payment Program, essentially allowed borrowers to either defer these payments until they sold or refinanced the home, or make regular payments to pay back the missed payments over time.

The Partial Claim Payment Program expired a year ago, meaning those who had VA loans in forbearance have been left to either pay back huge lump sums, opt for loan modifications or refinances that could substantially increase their monthly payments, or face losing their homes to foreclosure.

After NPR published its investigation, a group of senators wrote a letter to the VA urging it to help these borrowers.

The VA is currently working on a program to help borrowers avoid foreclosure, but it's not going to be ready in time to help borrowers who are currently in default on their mortgages. So on November 17, the VA announced a stopgap for distressed VA borrowers. 

"We are calling on mortgage servicers to pause foreclosures of VA-guaranteed loans through May 31, 2024," the VA said in a press release. "During this pause we will work with servicers on workable home retention solutions for Veterans."

The VA will also extend its COVID-19 Refund Modification program through the foreclosure pause. 

What does this pause mean for borrowers?

During the foreclosure pause, you won't need to worry about losing your home to foreclosure.

"This is good news for VA borrowers, especially those who may be struggling with their mortgage payments," says Christy Bunce, president of New American Funding. "This pause will give them more time to hopefully work their way back to current over the next few months."

How to take advantage of the Refund Modification program

During the pause, the VA is also offering its Refund Modification program. Through the program, borrowers can get a zero-interest loan to cover the payments they missed and defer payment of this loan until the home is sold or refinanced. Borrowers can also get a mortgage modification through this program that enables them to lower their monthly payments.

The VA says that borrowers struggling to make mortgage payments should visit the VA Housing Assistance website or call 877-827-3702 for help.

What happens when the foreclosure pause expires?

The pause is meant to keep borrowers in their homes until the VA gets its new program, the VA Servicing Purchase (VASP) program, up and running.

But Bunce says that lenders still don't have a ton of details on the pause and what happens afterward.

"We're waiting to see what the VA says about how this is all actually going to work out, specifically for the customers in question," Bunce says. According to her, New American Funding already doesn't foreclose during the holidays, so this just extends the lender's current pause for its VA loans. 

What we do know is that once the VA's foreclosure pause ends, borrowers are expected to have the option to utilize the VASP program. This program will modify participants' monthly payments to make them more affordable.

In the meantime, borrowers should keep up with their mortgage payments if they're able to and talk to the VA or their VA mortgage lender about the Refund Modification program.

Alternatively, if a borrower is ready to leave their home, Bunce says homeowners with a decent amount of equity might want to consider selling.

"With spring buying season approaching and inventory as low as it has been, buyers may end up fighting for the homes that hit the market," she says. "As a result, struggling VA borrowers may be able to get themselves out of a home they can no longer afford and put a little money in their pocket as well."

This could be a good option if you want to sell your home and you believe you'll have enough after the sale to pay off your mortgage and any outstanding monthly payments you owe. But if you want to keep your home, you should wait for the VASP program and take advantage of the current foreclosure pause and the Refund Modification program extension.

How the new VA Servicing Purchase program will work

Through the VASP program, the VA will purchase VA loans that are in default from mortgage servicers and keep them in the VA's mortgage portfolio. The VA will then work with borrowers to modify these mortgages so that they can afford their monthly payments and keep their homes.

This program will take around four or five months to implement, according to the NPR article.