Veteran homeowners facing financial hardship will soon have access to a new foreclosure-prevention tool designed to help them stay in their homes without increasing their monthly mortgage payments.
The Department of Veterans Affairs (VA) on Monday finalized updates to its loss mitigation waterfall and partial claim program, implementing provisions of the bipartisan 2025 VA Home Loan Program Reform Act. The changes establish a new loss mitigation option that allows eligible delinquent borrowers to bring their VA-backed mortgages current while avoiding the payment increases that can accompany some loan modifications.
The move gives VA borrowers access to a foreclosure-prevention tool already available through other government-backed mortgage programs and comes as the industry continues to seek long-term solutions for veterans struggling to recover from financial setbacks.
For originators, the changes could provide additional reassurance to veteran borrowers concerned about what happens if they experience temporary hardship after purchasing a home.
Under the program, mortgage servicers can advance funds to bring a delinquent VA-backed mortgage current. The VA then reimburses the servicer for the advance, while the veteran repays the amount owed when the loan matures, is paid off, or otherwise terminates. The structure enables borrowers to resolve delinquencies without immediately increasing their monthly housing payment.
One notable change from the original proposal was the removal of language that would have allowed certain loan modifications associated with a partial claim to increase a borrower's monthly mortgage payment by as much as 15%.
According to the VA, the final policy was updated based on feedback from mortgage industry participants, veterans organizations, and veterans themselves.
The Mortgage Bankers Association (MBA) welcomed the final rule and credited the VA for incorporating stakeholder feedback during the policy development process.
"MBA applauds the VA's release of its partial claim program and updated loss mitigation waterfall, following a collaborative stakeholder feedback process that helped strengthen the proposed policies," said MBA president and CEO Bob Broeksmit.
"We are pleased to see that veteran homeowners will have access to a key loss mitigation option available to other borrowers with government-backed mortgages, that can allow veterans to remain in their homes without increasing their monthly payments," Broeksmit said.
The VA said mortgage servicers will be able to begin submitting trial payment plans for loan modifications and partial claims starting June 15.
Servicers will have until Nov. 28 to update their systems and processes to accommodate the new program.
Broeksmit said the implementation period recognizes the operational work required to activate the new option.
"After actively engaging in the legislative and policy efforts behind this important change, we will continue working with the VA and our servicer members to support implementation," he said.
"Activating this new loss mitigation option will require servicers to update systems, modify processes, and train staff, and we appreciate the VA's recognition of these implementation challenges by providing a 180-day timeframe. Our members are committed to implementing these changes as quickly as possible to ensure veteran homeowners can benefit from this important new tool."
What It Means
The new partial claim program gives VA borrowers a foreclosure-prevention option that can help them recover from temporary financial hardship without taking on higher monthly payments.
For LOs who specialize in VA lending, the policy provides another example of the safeguards available within the VA home loan program and may help address concerns from prospective borrowers about what options exist if they encounter financial difficulties after closing.
The move gives VA borrowers access to a foreclosure-prevention option similar to those available through other government-backed mortgage programs.
*This article was primarily written by a human author. AI tools were used in a limited capacity for research assistance or light editing.
