Revised VA Loan Modification Guidelines

The U.S. Department of Veterans Affairs (VA) has issued new guidelines for modifying VA-guaranteed home loans. The new procedures are effective immediately, and give servicers the authority to restructure distressed loans in accordance with the administration s Home Affordable Modification Program (HAMP) if other loss mitigation options have been exhausted.   The intent of these instructions is to ensure that veteran borrowers receive the opportunity to be considered for affordable loan modifications when other home retention loss mitigation options are not feasible,  the VA s notice to servicers reads.

According to the new guidelines, before considering HAMP-style modifications, servicers must first evaluate defaulted mortgages for traditional loss mitigation actions, such as repayment plans, special forbearances, and proprietary loan modifications. If the payments are affordable, then the traditional loss mitigation option will be used. If none of the traditional home retention options provide an affordable payment, the servicer must then evaluate the loan for a HAMP-style modification prior to deciding that the default is insoluble. The VA HAMP-style modification authority can be utilized only if the following three requirements are met: 1) borrower does not qualify for traditional home retention loss mitigation, 2) the property is the borrower s primary residence, and 3) the VA HAMP modification is agreed upon prior to the HAMP expiration date of December 31, 2012.

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