Veteran’s Guide to COVID-19 VA Mortgage Payment Relief
Protecting Veteran Homeowners
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Public Law 116-136.
The CARES Act protects borrowers with Federally-backed mortgage loans who are experiencing financial hardship due to the COVID-19 national emergency.
For Veteran homeowners, the most important section of the CARES Act allows you to request forbearance if you are experiencing financial hardship due to COVID-19.
As your first line of defense for protecting your homeownership, forbearance allows you to skip your mortgage payment for up to 180 days, which can be extended an additional 180 days if your COVID-19 related hardship has not been resolved.
Your servicer is not allowed to ask you any questions or require you to document your hardship. Forbearance will be granted on the honor system.
The CARES Act & Forbearance
Q: How does the CARES Act protect my VA loan?
A: The CARES Act provides multiple protections on your VA-guaranteed loan if you experience financial hardship directly or indirectly caused by the COVID-19 emergency, regardless of your loan’s default status.
These protections include:
- A defined forbearance period of up to 180 days, with the possibility for extending it for another 180 days
- A foreclosure and eviction moratorium for 60 days starting March 18, 2020
- Instructions on how mortgage servicers are to report to the credit agencies. For example, if you request the COVID-19 Forbearance option are not considered to be delinquent for purposes of credit reporting.
Q: What is forbearance?
A: A forbearance is a defined time period of one month or longer during which your mortgage servicer agrees to accept reduced payments or no payments. During a forbearance under the CARES Act, your mortgage will continue to accumulate interest, but not late fees or other penalties.
Q: How long is the forbearance period in the CARES Act?
A: Forbearance in the CARES Act is broken down into two pieces; an initial period and an additional period. For the initial period, you may notify your mortgage servicer that you are financially affected by the COVID-19 emergency and request up to 180 days of forbearance.
You don’t have to use the entire forbearance period if you can resume payments sooner.
For the additional period, you may notify your mortgage servicer that you are still financially affected by the COVID-19 emergency and request up to 180 additional days of forbearance. As with the initial period of forbearance, you don’t have to use the entire period of forbearance if you can resume payments sooner.
Q: How do I apply for forbearance?
A: You simply need to contact your mortgage servicer and request a forbearance because of financial difficulties due to the COVID-19 national emergency.
Forbearance is NOT Forgiveness
When you skip mortgage payments while in forbearance, your loan goes into a loss mitigation status, and those payments will need to be paid at the expiration of the forbearance plan, assuming you are back on your feet and have the ability to make your normal monthly mortgage payment again.
One fear that many homeowners have is the prospect of having to pay all of your skipped payments in one lump sum. Veterans with a VA loan will never be required to pay back all skipped payments at once.
Your servicer cannot require you to make a lump sum payment immediately after you exit a CARES Act forbearance. VA has a suite of loss mitigation options detailed in the VA Servicer Handbook designed to assist Veteran borrowers in bringing their home loan current.
In addition to the regular loss mitigation options, VA is making available all disaster loss mitigation options to further assist borrowers affected by the novel coronavirus (COVID-19) pandemic.
Common Questions About Paying Back Skipped Payments
Q: If I am in a COVID-19 forbearance plan, do I have to pay all of my skipped payments back at once?
A: No, The number one priority of anyone financially affected by the COVID-19 emergency is to ensure the health and safety of you and your family. Another priority is to secure reliable income that allows you to resume monthly mortgage payments.
Any option to resolve missed payments begins with your ability to make regular monthly mortgage payments. The servicer of your VA guaranteed loan will work with you to preserve your home, and help you get back on track with a payment you can afford.
Your servicer will NOT require you to pay back all skipped payments at once.
Q: Do my missed payments automatically move to the end of the loan?
A: No. Your mortgage servicer can’t automatically move those payments to the end of the loan because that would alter the recorded terms of your mortgage note.
However, if it benefits you, you and your mortgage servicer can explore a loan modification to extend the term beyond the original maturity (paid-in-full) date of the mortgage loan.
VA allows modified loans to be extended up to 360 months (30 years), as long as the extension is 120 months (10 years) or less from the original maturity date on your mortgage note.
Q: Does VA offer a COVID-19 Payment Deferral program like Fannie Mae?
A: Although the VA does not follow FHFA guidance, and does not specifically offer the COVID-19 Payment Deferral option, the VA allows your missed payments to be deferred or become due at the end of the loan with the last payment.
In such cases, VA requires that amount to be non-interest bearing. You can pay toward the deferred amount over the life of the loan to reduce the amount due at the end of the loan, if you refinance, or you sell the home in the future.
Q: Will those missed mortgage payments hurt my credit score?
A: It Depends. Under normal circumstances, missed or delayed payments have an impact on your credit score. Under the CARES Act, however, if you were current on your mortgage when the COVID-19 forbearance was granted your mortgage servicer is required to report your account as current during the forbearance period.
Or, if you were behind on your mortgage when the COVID-19 forbearance was requested, your mortgage servicer is required to maintain the delinquent status during the forbearance period. If you bring your mortgage current during the forbearance period, your mortgage servicer is required to report the credit obligation or account as current.
FMWH Note: ForbearanceReport.org is a consumer protection project created to arm you with your rights, options, and tools to help you successfully preserve homeownership during these challenging times.
FinLocker, as a trusted partner in our effort to protect consumers, is offering a FREE secure, digital financial locker that will not only give you access to your credit score in real-time for free, it will give you the budgeting and financial organization tools you may need on this journey.
Q: What options do I have to catch up on my payment and keep my home?
A: Contact your mortgage servicer to explore three basic options to make up missed payments and retain your home:
- Forbearance: As discussed above, forbearance is a time period that the mortgage servicer agrees to accept reduced payments or no payments.
- Repayment plan: If you missed a few mortgage payments, you and your mortgage servicer can agree to terms where you pay a specified amount paid above the regular monthly mortgage payment to bring your loan current over time.
- Loan Modification: As mentioned above, a modification may be appropriate, if you resolved or plan to resolve the reason for default and can resume making regular monthly mortgage payments, but you can’t afford to pay the additional amount to make up the missed payments over time. Your mortgage servicer may offer an option to modify your existing mortgage note to extend the term (time to repay) of your loan. Missed payments are included in the loan amount and your new principal balance is amortized (paid off) over the new remaining term of your loan to reduce the burden of repayment. Keep in mind that a loan modification may change your interest rate.
Q: Would deferring the missed payments to the end of the loan prevent me from selling my home in the future?
A: No. A deferred amount would not prevent you from selling your home. However, the deferred amount would come due as a part of the sale. The missed payments are still a part of the overall amount owed.
Q: Am I guaranteed a payment deferral option?
A: No, a Payment Deferral option is only one option of many that your servicer may offer you.
Don’t be surprised if the lender first asks you if you have the ability to pay all of the skipped payments at once or over 3 to 12 months.
Know that under no circumstances will you be required to make all of your skipped payments at once in one lump sum if you have. a VA guaranteed home loan.
FMWH Note: FinLocker, as a trusted partner in our effort to protect consumers, is offering a FREE secure, digital financial locker that will not only give you access to your credit score in real-time for free, it allows you to upload and organize important documents in real-time.
This way you always have what the servicer is asking for if you’re required to submit a tax return, bank statement, or a pay stub.
Loss Mitigation Options for Veterans
Once your forbearance period is up, and if you can afford your normal monthly payment, you’re almost there! Loss mitigation is an option available to help Veterans avoid foreclosure on delinquent loans, and reduce possible loss to the government.
The Department of Veterans Affairs (VA) delegates the primary responsibility for negotiating your loss mitigation options to the servicer of your loan.
The loss mitigation options are divided into either home retention options or alternatives to foreclosure. In this article we are going to focus on retention options.
Home retention options include repayment plans, special forbearances, and loan modifications.
Even though VA encourages your servicer to consider loss mitigation for retention options, VA regulation does not require that you take one of these options if you are unable, or unwilling to retain their home.
Servicers must select the best option for all parties involved as early in the delinquency as possible.
Home Retention Workout Options
Home retention workout options represent your first line of defense for getting back to making your regular monthly mortgage payment getting your VA home loan back in good standing after forbearance.
Home retention workout options available to you include:
- Repayment plan
- Special forbearance
- Loan modification options
A repayment plan is a written agreement between you and your servicer to reinstate your loan by requiring you to pay the normal monthly payment, plus a portion of the delinquency each month. The repayment plan is usually for at least a 3-month period.
A special forbearance is a written agreement between you and your servicer where the servicer agrees to suspend or reduce payments for one or more months.
Under special forbearance you agree to pay the total delinquency at the end of the specified period or enter into a repayment plan. Typically, the period of forbearance is between a 3-to 4-month period.
Normally, circumstances such as unemployment, natural disasters, or cases resulting from prolonged illness may prompt the consideration of a longer duration. However, the CARES Act allows for up to 360 days forbearance if a Veteran is experiencing financial hardship due to COVID-19.
A loan modification is a written agreement you, your servicer, and all obligors on the loan, which permanently changes one, or more of the terms of a loan, and may include re-amortization of the balance due.
All loan modifications must meet, and are not limited to the following conditions:
- The loan is in default.
- The loan modification will reinstate the loan, and cure the default.
- The event or circumstances that caused the default has been, or will be resolved, and is not expected to re-occur.
- Household income must be able to support all financial obligations.
- You are obligated to repay the loan and are a party on the loan modification agreement.
- Your servicer will not charge a processing fee, and all unpaid late fees will be waived. Any other actual costs incurred, and legally chargeable, but which cannot be capitalized in the modified indebtedness, may be collected directly from you as part of the modification process, or waived, at the discretion of your servicer.
- Your servicer must ensure that the modified VA loan remains in the first lien position
- You are not allowed to receive any cashback from the loan modification.
- The home securing the mortgage loan must not have been abandoned or condemned.
VA Home Loan Modification Options
- Traditional Loan Modification – Allows your servicer to permanently modify the terms of your VA mortgage and reinstate the loan to good standing.
- Streamline Modification – Allows your servicer to extend permanent payment relief under certain circumstances when you have not submitted a complete loss mitigation application.
- VA Affordable Modification (VAAM) – Allows your servicer to help you avoid foreclosure when other traditional home retention options are not feasible. Your servicer may reduce the interest rate and extend the terms to achieve the target monthly PITIA payment.
- VA Disaster Modification – Allows your servicer to offer a permanent modification of loan terms to provide payment relief to impacted delinquent borrowers when the borrower has not submitted a complete loss mitigation application. All eligible impacted borrowers should have an opportunity to be considered for a VA Disaster Loan Modification. It is likely that this modification will be used often by Veterans coming out of COVID-19 forbearance.
- Disaster Extended Modification – This option allows your servicer to offer permanent payment relief by extending the maturity date, up to 12 months, to impacted delinquent borrowers when the borrower has not submitted a complete loss mitigation application. All eligible impacted borrowers should have an opportunity to be considered for a VA Disaster Loan Modification.
Note: If principal deferment is necessary to achieve the target monthly mortgage payment, it must be non-interest bearing, and either paid, or refinanced by the maturity date. Principal deferment is optional, and at the discretion of the servicer. VA has no requirement regarding the amount deferred.
If you have additional questions about forbearance, please see our special project – ForbearanceReport.org
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