VA urged to revise elements of proposed partial claim rules

"Under the proposal, eligible borrowers at least three months delinquent could access the program once their servicer submits a partial claim trial payment for VA review. Borrowers must also have made at least 12 payments since loan origination and at least six since any modification. Eligibility would be retroactive to May 1, 2025, when the VA Servicing Purchase (VASP) program ended."

"MBA said the VA's proposed framework could result in veterans having substantially worse loss-mitigation options than borrowers with loans backed by Fannie Mae, Freddie Mac or the Federal Housing Administration (FHA). The group recommended restructuring the waterfall so that loan modifications that increase a borrower's monthly payment are used only as a last resort."

"The association recommended limiting borrowers to one permanent home retention option within 24 months, warning that repeated use of loss-mitigation programs can erode home equity and increase VA guaranty fund losses."

The VA proposed draft policies implementing a partial claim option for VA-guaranteed loan borrowers facing distress. Eligible borrowers must be at least three months delinquent, have made minimum 12 payments since origination and six since any modification. The partial claim would appear seventh in the loss-mitigation waterfall, with 40-year modifications as the final option. Servicers cannot charge interest on partial claim balances. The MBA raised concerns that this framework disadvantages veterans compared to Fannie Mae, Freddie Mac, and FHA borrowers. Recommendations included restructuring the waterfall to use payment-increasing modifications as last resort, implementing standard forbearance instead of special forbearance, limiting permanent options to one per 24 months, clarifying servicer responsibilities, and extending implementation timelines.

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