VA fixes a home loan debacle, but many vets who were affected won't get help

MICHEL MARTIN, HOST:

The Department of Veterans Affairs is rolling out a new fix for a disastrous situation that left thousands of veterans on the verge of losing their homes through no fault of their own. After an NPR investigation first revealed the problem, the VA stopped foreclosures, and now a solution looks like it might help some vets a lot and others not at all. NPRs Chris Arnold and Quil Lawrence explain.

QUIL LAWRENCE, BYLINE: The VA's new rescue plan will give vets who qualify a new mortgage with a super affordable 2.5% interest rate. VA's under secretary for benefits, Josh Jacobs, says it's going to keep a lot of veterans in their homes.

JOSH JACOBS: The purpose of this program is to assist the more than 40,000 veterans who are at the highest risk of foreclosure.

CHRIS ARNOLD, BYLINE: Jacobs didn't mention that risk is of the VA's own making, and their fix is not going to help everybody. More about that in a minute.

LAWRENCE: Here's what happened. During the pandemic, veterans who lost income were given what's called a COVID mortgage forbearance. It let them skip mortgage payments until they got back on their feet financially. Vets say they were told their mortgage payments wouldn't go up when they started paying again.

ARNOLD: But then the VA abruptly ended the program while thousands of vets were still in the middle of it, stranding them, and the homeowners were told they now owed all the missed payments at once.

(SOUNDBITE OF ARCHIVED NPR BROADCAST)

EDMUND GARCIA: I'm like, how am I going to come up with $22,000?

LAWRENCE: That's Iraq vet Edmund Garcia talking to NPR back in February. He bought a house in Rosharon, Texas, with a VA home loan. After his wife lost her job during the pandemic, Garcia took a forbearance and got stuck.

ARNOLD: His mortgage company was telling him to pay up or take a loan modification at today's much higher interest rate - so that's 7%. That's more than two times the rate on his original loan. The payments would be $700 higher every month.

GARCIA: You know, what am I supposed to do? I've got four kids. Your options say here that I can do a short sale or deed in lieu. I'm going to lose my home. I said, what am I going to do with my kids?

ARNOLD: Now it's clear that vets who gave into that pressure and agreed to a much more costly loan modification because they were scared of losing their house to foreclosure - they won't get any help from the VA's rescue plan. It's only for people who are still behind on payments.

LAWRENCE: John Bell is the director of the VA's loan program.

JOHN BELL: If you are not in default, this program is not for you. You have to be in default, and you have to be in default a certain amount of time.

LAWRENCE: That leaves out vets who already lost their homes and thousands of vets who already got pressured into a more expensive loan modification.

ARNOLD: And the rules mean that if a veteran tried to pay that more expensive loan for a few months, then defaulted, they wouldn't qualify, and they'd still be heading toward foreclosure. That doesn't make any sense, says Steve Sharpe. He's with the nonprofit National Consumer Law Center.

STEVE SHARPE: Borrowers who are put into unaffordable modifications and default should be able to immediately access VASP.

ARNOLD: VASP is the name of the program, the Veterans Affairs Servicing Purchase program. If all this sounds a bit confusing, imagine what it's been like for any veteran trying to figure it out.

LAWRENCE: Sharpe wants VA to extend a foreclosure moratorium it's had in place since NPR broke this story. He says that would give vets and mortgage companies time to understand the program and roll it out and time for the VA to consider some changes.

ARNOLD: Still, Sharpe says, despite the flaws, the program will help a lot of veterans.

SHARPE: It's great news that VASP has been released. It is sorely needed because people have lacked a reasonable foreclosure alternative for a long time.

ARNOLD: The VA says borrowers should work with their mortgage company and contact a VA loan technician if they need help.

LAWRENCE: As for Edmund Garcia back in Texas, he's waiting to hear what happens next.

GARCIA: I was a little shocked that I would have to qualify for this particular program.

ARNOLD: In Garcia's case, he actually never accepted that more costly loan modification. It appears, from a review of the rules, that he should qualify for VASP.

GARCIA: This would be a huge relief, and it feels like it's within our arm's grasp.

ARNOLD: The only downside - it looks like Garcia and a lot of veterans will be put into 40-year mortgages.

GARCIA: At the end of it, I'll be 82.

ARNOLD: He's hoping, if things go well, he'll be able to pay it off a little sooner. Chris Arnold.

LAWRENCE: And Quil Lawrence, NPR News. Transcript provided by NPR, Copyright NPR.