VA Circulars 26-24-2 and 26-24-3

Mortgage insurer Veterans Affairs (VA) recently released a pair of circulars (26-24-2 and 26-24-3) updating servicers on the steps for their Covid-19 waterfall. Circular 26-24-2 details updates and clarifications regarding the waterfall process, and the Refund Modification in particular. The other, briefer, announcement (Circular 26-24-3) changes who can qualify for the Covid-19 workouts.

Circular 26-24-3

Circular 26-24-3 removes some of the requirements for receiving a disaster modification, deferral, or extend modification. The home retention waterfall guide for Covid-19 lists three requirements. (1) the borrower missed a mortgage payment covered by the Covid-19 forbearance. (2) The borrower was either current or less than 120 days as of the date of the pandemic (March 1, 2020). (3) The property is the borrower’s primary residence.

However, this Circular removes the qualification for the borrower to have received a Covid-19 forbearance or have been directly affected by the pandemic. The requirements still apply to the Refund Modification as seen in the chart VA sent out together with the Circular, Exhibit A. VA has also lengthened the number of months servicers can extend the maturity date for the extend modification, from 12 to 18 months.

Circular 26-24-2

VA further clarifies home retention processes in Circular 26-24-2. The insurer is now also allowing servicers to extend loan modifications out to 480 months to help meet the 10% principal and interest target reduction. The previous Covid-19 home retention guide stated that services could either provide a 360-month loan extension, or a “repayment schedule that extends for up to 120 months, as measured from the guaranteed loan’s original maturity date.”

They further elaborate on what happens if the Refund Modification cannot meet the 10% principal and interest reduction target, or if the borrower rejects the terms. VA emphasizes that servicers cannot begin the foreclosure process until the insurer has a chance to look at the loan. They will explore additional avenues to exhaust all retention options. This includes possibly altering the target thresholds, insinuating, for example, that a borrower could still qualify even if they don’t meet the 10% reduction.

The Covid-19 home retention options must be completed by May 31, 2024. Servicers wait to see what new programs Veterans Affairs will implement afterwards.