The Department of Veterans Affairs today released draft policy documents to implement a new partial claim option for borrowers with VA-guaranteed loans who are experiencing financial hardship. The draft policies would revise Chapter 5 of the VA Servicer Handbook and create a new Chapter 22 establishing the guidelines for the new VA Partial Claim Program.
The draft policies implement amendments enacted by the VA Home Loan Program Reform Act, which was signed into law last July and supported by the ABA. The law authorizes VA to offer a partial claim option that allows VA to advance funds to cure a borrower’s delinquency by purchasing a portion of the loan indebtedness — up to 25 percent of the unpaid principal balance — and placing that amount in a subordinate, deferred loan. The subordinate loan accrues no interest, requires no monthly payments and becomes due when the mortgage is paid in full, the loan matures, the property is sold or the loan is refinanced or otherwise terminated. The statute authorizes the partial claim program for five years following enactment.
Under the draft policy in new Chapter 22, borrowers generally would be limited to one partial claim per loan, including any prior VA partial claim or COVID-era refund modification. A second partial claim may be permitted if the borrower experiences a hardship related to a presidentially declared disaster. The draft policy also requires borrowers to successfully complete a three-month trial payment plan before receiving partial claim assistance. Comments on the draft policies are due March 11. For more information, contact ABA’s Teshale Smith.
