Edmund Garcia, an Iraq War veteran, stands in front of his home in Rosharon, Texas. Like many veterinarians, he was told that if he took a mortgage forbearance, his monthly payments would not subsequently increase.
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Edmund Garcia, an Iraq War veteran, stands in front of his home in Rosharon, Texas. Like many veterinarians, he was told that if he took a mortgage forbearance, his monthly payments would not subsequently increase.
Joseph Bui for NPR
The Department of Veterans Affairs announced a much-anticipated new program Wednesday to help thousands of veterans who were on the verge of losing their homes after a pandemic relief effort failed.
But it appears many of those who have suffered financial hardship will not qualify for this new aid.
“The goal of this program is to help the more than 40,000 veterans who are at greatest risk of foreclosure,” said Josh Jacobs, VA undersecretary for benefits, during a media roundtable. , introducing the Veterans Services Purchasing Program or “VASP.” “
What top VA officials didn’t say during their call with reporters was that the VA put veterans in this predicament in the first place. In 2022, the VA abruptly ended part of its COVID mortgage forbearance program while tens of thousands of veterans were still in the middle of it, trapping them without an affordable way to get back up to date on their loans .
VASP is supposed to solve this problem by allowing the VA to offer these homeowners loan modifications with interest rates well below market rates on regular mortgages. The VA will own the mortgages itself and will offer eligible veterans a modified home loan with an interest rate of 2.5 percent.
But not everyone who was injured will qualify. Most veterans who were already stuck with much more expensive modified loans won’t get help.
The VA Forbearance Fiasco
In November, the VA ended foreclosures for all homeowners with VA-guaranteed loans after an NPR investigation found the agency left thousands of vets at risk of foreclosure through no fault of their own .
The COVID Mortgage Forbearance Programs were established by Congress during the pandemic to help people with federally backed loans by providing an affordable way to avoid mortgage payments and then get back up to speed. their loans.
But in late 2022, the VA abruptly ended its Partial Claims Payment (PCP) program that allowed a homeowner at the end of a forbearance to move missed payments toward the end of the loan term and keep the interest rate on its original mortgage loan.
This effectively turned a well-intentioned program into a bait trap. Vets say they were told before entering forbearance that their regular monthly mortgage payments would not increase and that their missed payments could be deferred until the end of their loan term. But after the VA abandoned the PCP program, vets were told they had to make up all missed payments at once.
“Almost $23,000? How am I going to get there?” asked Edmund Garcia earlier this year in an interview with NPR. Garcia is a veteran who served in Iraq. He bought a house in Rosharon, Texas, with a VA home loan. After his wife lost her job during the pandemic, his mortgage company offered him forbearance.
Edmund holds a photo of himself in 2000 as an ammunition and supplies handling specialist while in the Army.
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Edmund holds a photo of himself in 2000 as an ammunition and supplies handling specialist while in the Army.
Joseph Bui for NPR
The VA had other loan modification options, but those essentially required a new mortgage with a new interest rate, and the rates were increasing sharply — from about 3% to about 7%.
Garcia was told that if he couldn’t repay all the missed payments at once, he would have to agree to a loan modification that would result in much higher monthly bills. Its old mortgage rate was 2.4 percent; and the offer would increase that to 7.1 percent with payments of $700 more per month. Alternatively, it could be seized.
“I suffer from PTSD, I suffer from anxiety, and, you know, my heart pounds in my chest when I have this conversation,” he told NPR. “My daughter… she asks, ‘Daddy, are you okay?’ “
It now appears that not all veterans who succumbed to this pressure and agreed to these more expensive loan modifications will be able to get help from the VA’s new bailout package.
Veterans forced into very expensive loans will not get help.
“If you’re not in default, this program is not for you,” John Bell, director of the VA home loan program, told NPR in a press call this week. “And you must be in default for a while.”
In other words, veterans who have made payments on these more expensive loans are not eligible. And it looks like that will exclude a lot of people.
Data obtained by NPR suggests that thousands of veterans found themselves in modified loans with significantly higher interest rates following mortgage forbearance.
The fine print of the new VA program also states that if a loan has been modified, the borrower must have made payments for at least 6 months, and then be in default for at least 3 months, to be eligible.
This doesn’t seem like the right approach to some policy experts.
“We absolutely don’t think borrowers should have to pay six months for a bad, unaffordable modification,” said Steve Sharpe of the National Consumer Law Center, a nonprofit.
Additionally, the rules mean that if a veteran tried to pay for a more expensive loan modification for a few months, then defaulted and couldn’t afford it, they wouldn’t qualify.
“If they fail with an unaffordable modification, they should be able to access the VASP,” Sharpe said.
He thinks the VA should extend the foreclosure moratorium on VA loans, which is set to expire at the end of May, both to give the VA time to consider resolving these issues and to give mortgage companies time to prepare and contact the owners.
Still, Sharpe said, for those who qualify, the VASP bailout should be a big help.
“It’s great news that VASP has been released,” he said. “It’s absolutely necessary because people haven’t had a reasonable foreclosure alternative in a long time…it’s exciting.”
VA Undersecretary Jacobs told reporters that a key difference with the new program is that the VA will hold the loans itself, rather than simply guaranteeing loans held by investors. This is what will allow the VA to set the mortgage rate it wants.
“These borrowers will benefit from a consistent, affordable payment on the remainder of their loan at a fixed interest rate of 2.5 percent,” Jacobs said.
Back in Rosharon, Texas, Edmund Garcia wonders what will happen next.
Edmund stands with his wife, Iris Garcia, in their home where they live with their four daughters. Iris lost her job during the pandemic and their mortgage company offered them forbearance.
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Edmund stands with his wife, Iris Garcia, in their home where they live with their four daughters. Iris lost her job during the pandemic and their mortgage company offered them forbearance.
Joseph Bui for NPR
“I was a little shocked to find out that I would have to qualify for this program,” Garcia told NPR this week.
The VA says borrowers should work with their mortgage company and contact a VA loan technician if they need assistance.
In Garcia’s case, he actually never agreed to this more expensive loan modification. And it appears from a review of the rules that it should be eligible for VASP. But there is a catch. Under the rules, it will likely be subject to a 40-year mortgage. This could happen to many other veterans as well.
“At the end of it, I’ll be 82,” Garcia says. But he would still be very happy to get help.
“It would be a huge relief for my family,” Garcia says. “And I feel like it’s within reach.”
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