Most of us are familiar with the VA loan, which offers great terms and benefits for past and present members of the military. The loan doesn’t require a down payment, doesn’t tack on mortgage insurance and keeps closing costs low. There are many other benefits too, and it’s a great resource for members of the military who want to purchase a home. What’s discussed less frequently are the steps that homeowners should take when they have difficulty repaying their VA loans. That’s what we’re talking about today, in collaboration with episode 4 of the Hope Now military podcast series.
The Most Important Step
Our podcast host, Ray Pennie, spoke with Rita Falcioni, a loan administration officer with the Department of Veterans Affairs, about consumers’ options for these loans. Perhaps the most important question and answer exchange during their conversation came when Ray asked her for the best advice to give someone who is going into default on the loan.
Her response was something that we’ve heard (and preached!) before, but it’s often overlooked and underemphasized. Simply stated, she urged homeowners to seek help at the earliest sign of not being able to make a payment. You can read our article about asking for help, but with VA loans specifically, Rita recommends calling your local Veterans Affairs office and asking for the “loan guarantee” division.
Talking to a VA Loan Technician
According to Rita, that conversation will then go something like this: the loan technician will ask where you (and the property) are located, and then will request your VA loan number. Your technician is assigned to you from start to finish, so you won’t have to worry about being transferred repeatedly and talking to numerous people who might give you conflicting information.
Instead, your technician will be able to answer your questions and point you to additional resources. If you aren’t yet 60 days late on your payments, there won’t be much “formal” action they can take, but they will be able to make suggestions, answer hypothetical questions that you may have and discuss other organizations that might be able to help you, specifically.
If you are more than 60 days late on your payments, then this conversation will go differently. You will have options that weren’t previously available, as your situation becomes a little more serious at this point. Again, the loan technician will be able to explain these and walk you through exactly how they will apply to your individual situation. The most common options presented include:
Repayment plan: This is the simplest and easiest option for those who can begin making payments again comfortably and are just one or two months behind. The borrower will set up an installment plan with the mortgage company to make up for the missed payments and repay what is owed. The VA loan technician can facilitate this, by setting up three-way calls and mediating the conversations.
Foreclosure delay: Under this sort of arrangement, the mortgage company agrees not to initiate foreclosure proceedings in order to give the borrower time to sell the home.
Forbearance plan: This is similar to the option above, except the borrower still plans to keep the home, but is waiting on the funds needed to make the payments. Perhaps the borrower is waiting on a lump sum, such as a tax refund. This option might help them to make it to the point that cash is available, allowing them to retain home ownership.
Loan modification: In this case, the missed payments are added to the end of the loan and a new payment schedule is created.
Short Sale: The servicer agrees to allow the borrower to sell the home for a lesser amount than what is currently required to pay off the loan. (Based on how this is reported to the credit bureaus, the borrower may experience a significant credit impact.)
Deed-in-Lieu of Foreclosure: The borrower voluntarily agrees to deed the property to the servicer rather than going into foreclosure. (Again, based on how this is reported to the credit bureaus, the borrower may experience a significant credit impact.)
Be sure to check out the podcast so you can hear Rita’s explanation of these options:
Podcast 4: Exploring ways the VA can provide assistance with your mortgage challenges.
Another resource available is the Hardest Hit Fund (HHF) which helps residents of Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee and Washington DC. Generally speaking, the program serves unemployed homeowners and those who are underwater (owe more than the home is worth). Using this option might require working with a counseling agency and also the state housing agency. In fact, the Veterans Affairs website recommends that consumers interested in exploring this option start by first contacting their state’s housing agency.
Other resources that consumers should consider are HUD-approved housing counseling agencies and local nonprofit groups that have a military focus. We covered a few of these resources for struggling homeowners recently, and that article might be a good starting point before searching in your local area.
The Reconnect Program
The VA loan is a valuable resource to those who serve, but like with any loan it is important to make timely payments and be willing to admit when there is a problem. Quick action on your part to seek out help could be the difference between keeping your home and going into foreclosure. We know these issues can be complicated and intimidating. If you’d like more help from Clearpoint, a HUD-certified counseling agency, take some time to learn more about our Reconnect program and how our military-focused team can help you.