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12.2.5.4 Home Retention Options

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The Servicer Handbook states that there are two modification options for borrowers who have been impacted by a disaster: the VA Disaster Loan Modification and the Disaster Extend Modification. These modifications do not require the borrower to submit a complete loss mitigation application.215 The Servicer Handbook also advises servicers to refer to 38 C.F.R. § 36.4315, which allows the terms of any guaranteed loan to be modified without the prior approval of the VA, provided that the conditions in the regulation are satisfied.216

The VA Disaster Loan Modification is described in Chapter 5 of the Servicer Handbook.217 Servicer evaluation of the borrower’s financial information is not required for a VA Disaster Loan Modification. To be eligible for this option, borrowers must successfully complete a three-month Trial Period Plan (TPP) period and must sign the Disaster Loan Modification agreement in order to receive a permanent loan modification. The mortgage loan must not have been more than thirty days past due at the time of the disaster.

The Disaster Loan Modification allows for a loan modification at a fixed-interest rate not to exceed fifty basis points over the weekly Freddie Mac Primary Mortgage Market Survey Rate for thirty-year fixed rate. The modified rate cannot be more than one percent higher than the existing interest rate on the loan. At their discretion, servicers may offer an interest rate below the maximum allowable rate.218

An exception is granted for certain requirements contained in 38 C.F.R. § 36.4315, the regulation that governs loan modifications generally. In the non-disaster setting, a loan may be modified only if at least twelve-monthly payments have been paid since the closing date of the loan,219 and the loan has not been modified more than once in a three-year period or more than three times during the life of the loan.220 However, these requirements are waived for Disaster Loan Modifications.221

The VA Disaster Extend Modification is described in Chapter 5 of the Servicer Handbook. This option allows servicers to offer a disaster-impacted borrower permanent payment relief by extending the maturity date up to twelve months when the borrower has not submitted a complete loss mitigation application.222 The goal of the modification program is to provide the borrower with the pre-disaster payment.

Servicer evaluation of the borrower’s financial information is not required for a VA Disaster Extend Modification. To be eligible for this option, the servicer must waive the delinquent interest accrued on the loan because of the delinquency. Because the liability of the Secretary will not be increased when servicers waive the delinquent interest, the modification may be completed without a trial payment plan.

The loan’s term is extended by the equal number of months the loan is delinquent due to the disaster. The limit of the term extension is twelve months without prior approval from the VA. The rate must not exceed the borrower’s current interest rate. If necessary, the servicer may reamortize the loan to meet any investor restrictions as long as the new monthly payment is the same as, or less than, the current monthly payment.

There are further eligibility requirements for the Disaster Extend Modification. The mortgage loan must not have been more than thirty days past due at the time of the disaster, and the loan must be at least sixty days delinquent after the disaster forbearance period has ended.223

An exception is granted for certain requirements contained in 38 C.F.R. § 36.4315, the regulation that governs loan modifications generally. In the non-disaster setting, a loan may be modified only if at least twelve-monthly payments have been paid since the closing date of the loan,224 and the loan has not been modified more than once in a three-year period or more than three times during the life of the loan.225 However, these requirements are waived for Disaster Extend Modifications.226

Footnotes

  • 215 U.S. Dep’t of Veterans Affairs, VA Servicer Handbook M26-4, § 21.05, Disaster Loan Modification.

  • 216 U.S. Dep’t of Veterans Affairs, VA Servicer Handbook M26-4, § 21.02, Borrower Assistance.

  • 217 U.S. Dep’t of Veterans Affairs, VA Servicer Handbook M26-4, § 5.06, Loan Modifications.

  • 218 U.S. Dep’t of Veterans Affairs, VA Servicer Handbook M26-4, § 5.06, Loan Modifications.

  • 219 38 C.F.R. § 36.4315(a)(4).

  • 220 38 C.F.R. § 36.4315(a)(7).

  • 221 U.S. Dep’t of Veterans Affairs, VA Servicer Handbook M26-4, § 5.06, Loan Modifications.

  • 222 U.S. Dep’t of Veterans Affairs, VA Servicer Handbook M26-4, § 5.06, Loan Modifications.

  • 223 U.S. Dep’t of Veterans Affairs, VA Servicer Handbook M26-4, § 5.06, Loan Modifications.

  • 224 38 C.F.R. § 36.4315(a)(4).

  • 225 38 C.F.R. § 36.4315(a)(7).

  • 226 U.S. Dep’t of Veterans Affairs, VA Servicer Handbook M26-4, § 5.06, Loan Modifications.