The U.S. Department of Veterans Affairs discontinued a mortgage assistance program on Thursday that has helped about 20,000 veterans avoid foreclosure after falling behind on their mortgages.
The Veterans Affairs Servicing Purchase (VASP) program was started on May 31, 2024, and was a last-resort mortgage assistance option that helped veteran borrowers obtain an affordable payment program when they became delinquent on their mortgages.
The program helped eligible veterans, active-duty service members and surviving spouses with VA-guaranteed home loans who were experiencing severe financial hardship by purchasing defaulted home loans from mortgage servicers. The loans were then modified and placed in the VA-owned portfolio as direct loans.
The VA could then work with veterans to adjust their loans, and their monthly payments, so they could keep their homes. With the VASP program, borrowers received a fixed 2.5% interest rate for the remainder of their loan, which is much lower than the current 6.76% interest rate for a 30-year fixed-rate mortgage.
However, the VA announced on April 23 that as of May 1, the program would no longer accept VASP submissions. NPR reports that the program cancellation comes at a time when nearly 90,000 VA loans are seriously past due, and 33,000 of those are already in the foreclosure process, according to the data and analytics firm ICE.
Housing advocacy groups are describing the cancellation of VASP as an unfair move against veterans.
“Today’s cancellation of the VASP mortgage assistance program for veteran borrowers puts tens of thousands of veterans and their families with VA home loans at great risk of losing their homes,” said Alys Cohen, senior attorney at the National Consumer Law Center. “The VA Home Loan Program is a benefit that veterans have earned through service and sacrifice — it is meant to give them housing stability they deserve.”
But Republicans in Congress have criticized the VASP program as putting too much taxpayer money at risk. According to NPR, Republican critics are against buying the rescued loans from the mortgage industry and then holding them on the VA’s own books. They say the VA could lose too much money if the homeowners fall behind again.
Rep. Derrick Van Orden, R-Wis., has sponsored a bill that would replace the VASP program with what is known as a “partial claim” program that would help veterans struggling to keep their homes by moving their missed payments to the back of the loan term, so they would pay them back later, according to NPR.
But legislative fixes are going to take time, something many veterans with troubled loans may not have.
The National Consumer Law Center maintains that the termination of VASP with no partial claim program in place results in veteran borrowers having substantially worse options than other borrowers with federally backed mortgage loans from the Federal Housing Administration, U.S. Department of Agriculture, Fannie Mae and Freddie Mac.
Those other programs have loss mitigation options that allow homeowners to catch up on missed payments without being forced into a new modified loan at possibly higher interest rates, according to NPR. Without those safeguards, veterans with VA mortgages will face otherwise preventable foreclosures.
“When veterans face financial hardship, their options for saving their homes should be at least as good as those available to other borrowers with government-backed mortgages,” said Cohen.
