Veterans Affairs Department Revises Loan Modification Guidelines

The U.S. Department of Veterans Affairs (VA) has ""issued new guidelines"":http://homeloans.va.gov/circulars/26_10_6.pdf for modifying VA-guaranteed home loans. The new procedures are effective immediately, and[IMAGE]

give servicers the authority to restructure distressed loans in accordance with the administration's Home Affordable Modification Program (HAMP) if other loss mitigation options have been exhausted.

""The intent of these instructions is to ensure that veteran borrowers receive the opportunity to be considered for affordable loan modifications when other home retention loss mitigation options are not feasible,"" the VA's notice to servicers reads.

VA says it expects servicers to exert all reasonable efforts to assist veteran borrowers in retaining ownership of their homes or mitigating losses by pursuing alternatives to foreclosure.

The department's new guidelines lay out a ""priority of review"" for servicers going forward. Before considering HAMP-style modifications, servicers must first evaluate

[COLUMN_BREAK]

defaulted mortgages for traditional loss mitigation actions, such as repayment plans, special forbearances, and proprietary loan modifications. If the payments are affordable, then the traditional loss mitigation option will be used. If none of the traditional home retention options provide an affordable payment, the servicer must then evaluate the loan for a HAMP-style modification prior to deciding that the default is insoluble.

The VA HAMP-style modification authority can be utilized only if the following three requirements are met: 1) borrower does not qualify for traditional home retention loss mitigation, 2) the property is the borrower's primary residence, and 3) the VA HAMP modification is agreed upon prior to the HAMP expiration date of December 31, 2012.

While the U.S. Treasury restricts HAMP modifications to loans originated on or before January 1, 2009, VA says it will allow servicers to use HAMP-style modifications on any VA-guaranteed loan, subject to the requirement that prior VA approval is obtained if less than 12 payments have been made since the loan closed.

VA says it expects servicers to complete all loss mitigation activities, including review for HAMP-style modifications, expeditiously, since interest on any claim under guaranty on an unsuccessful case is limited.

Standard VA servicer incentives apply for any completed modifications. VA-guaranteed home loans are not eligible for the HAMP incentives issued by the Treasury at this time. VA will not pay servicer incentives for any modification completed on a current loan, and will not pay the borrower incentives for remaining current on the modified loan.