A VA program helped thousands of veterans keep their homes. Trump is ending it.
A little bit of a lengthy read but this was a Biden era program that provided a lifeline and was one of the few tools VA had to help these folks stay in their homes in the event of a job loss or other catastrophe.
About a year and a half after Robert Johnson bought his four-bedroom home in Texas in 2022, he lost his job.
The 49-year-old military veteran and father of four was in a senior management role at a technology company until February 2024. Finding another role at the same level and pay was tough.
At first, he was able to make his mortgage payments. But after seven or eight months, when his severance package ran out, he couldn’t do it anymore. Johnson asked his mortgage servicer for a three-month forbearance while he was looking for a job. He eventually found another role, but with less pay, he had to find a way to make his monthly payments a lot more manageable.
Luckily, he found one through the Veterans Affairs Servicing Purchase (VASP) loan program, implemented by the Biden administration to offer VA mortgage holders a last-resort option to avoid losing their homes. Since May 31 of last year, the Department of Veterans Affairs has helped more than 17,000 struggling veterans with their mortgages by buying up their loans through the special foreclosure-prevention program.
For Johnson, the program has been a lifeline. Having his mortgage rate lowered from 5.5% to 2.5% will save him $1,500 a month, he told MarketWatch in an interview last month. If VASP were eliminated, he added, “you’re going to have a lot of veterans who are going to be on the street.”
But the program will stop accepting new enrollees on May 1, the VA told MarketWatch. VASP “was unilaterally created by the Biden administration and lacks congressional authority,” said VA Press Secretary Pete Kasperowicz. “This change is necessary because VA is not set up or intended to be a mortgage-loan restructuring service.” The end of VASP will not impact any homeowners currently on the program or those who enroll in it before May 1, he added. Kasperowicz did not mention any replacement for the program.
The announcement comes at a time when tens of thousands of veterans across the U.S. continue to struggle with their mortgage payments. Many with VA-backed loans have missed multiple payments and are in danger of losing their homes to foreclosure, according to recent data from Intercontinental Exchange. Foreclosure starts, which refer to the start of the foreclosure process, were up 34% in February compared with the same month a year earlier, according to ICE, stemming in part from defaults on VA-backed mortgages.
Against this backdrop, halting the VASP program “will increase the number of veterans facing foreclosure unless the VA and Congress implement a permanent partial-claim option as soon as possible,” Bob Broeksmit, president and chief executive of the Mortgage Bankers Association, an industry lobby group, said in a statement after the VA’s announcement.
A “partial-claim payment,” a tool to avoid foreclosure, is another avenue for government agencies like the VA to provide homeowners with some financial relief. The VA’s process had allowed borrowers facing hardship to skip payments and pay back what they owe at the end of the loan’s term without accruing interest. The VA ended its partial-claim payment program in 2022 and introduced VASP last year as a new option.
Republican lawmakers who had sought to end VASP called its shuttering “the right move by [Veterans Affairs] Secretary [Doug] Collins and the Trump administration to protect the integrity of the VA home-loan program.”
“We — along with many of our colleagues — had serious concerns about the impact VASP would have on not only the future of VA’s home-loan program, but the mortgage-lending business as a whole,” House Committee on Veterans’ Affairs Chair Rep. Mike Bost of Illinois and Subcommittee on Economic Opportunity Chair Rep. Derrick Van Orden of Wisconsin said in a statement. “This action underscores House Republicans’ intent to establish a partial-claims program at VA to ensure veterans can stay in their homes if they’re in financial hardship while still protecting the American taxpayer.”
Chris Nolan, a former Marine and a real-estate agent with eXp Realty based in Florida, told MarketWatch that some of the veteran homeowners he works with are feeling nervous due to economic uncertainty. One former client who bought a home with him is now having trouble holding down a job, said Nolan, who founded Let the Heroes Know, a nonprofit that offers counseling for veterans.
“Everybody is just concerned about their jobs,” he added, “and if they can maintain paying for their home loans.”
The latest complications for veteran homeowners began on the last day of 2024, when the federal government ended a moratorium that stopped financially strained military homeowners from losing their homes. The foreclosure moratorium had prevented creditors from repossessing homes when current and former members of the military fell behind on their mortgage payments.
A month after the pause expired, foreclosure activity started surging.
In January, out of the 40,000 U.S. mortgages that were entering foreclosure proceedings, 20% were VA loans, according to data from Intercontinental Exchange. VA loans don’t typically make up such a big share of foreclosures.
One possible reason for the increase in foreclosures on homes financed with a VA loan could be that mortgage servicers are working through backlogs of foreclosure proceedings that were held up due to the moratorium, Andy Walden, head of mortgage and housing-market research at ICE, told MarketWatch.
VA loans make up a relatively small part of the mortgage market, with conventional loans forming the biggest share. Still, the resumption of VA-loan foreclosures could result in an increase in overall foreclosure activity by as much as 15% in 2025, Walden estimated.
To be sure, it’s not just military veterans who are missing mortgage payments. Delinquencies on home loans backed by the Federal Housing Administration are also rising sharply, as MarketWatch has reported — indicating financial distress among first-time homeowners as well as lower- and middle-income households who rely on FHA loans to buy homes.
Part of the reason homeowners with FHA loans are missing payments is “mounting financial distress,” Mark Zandi, chief economist at Moody’s Analytics, said recently. The distress these homeowners are experiencing could be a “canary in the coal mine” signaling an economic downturn, according to Zandi.
Among all the entities that insure mortgages — including government-sponsored enterprises Fannie Mae, Freddie Mac, and the Department of Housing and Urban Development, which backs FHA loans — the VA has the least advanced processes to help struggling homeowners, Laurie Goodman, a housing-finance scholar at the Urban Institute, a left-leaning think tank, told MarketWatch.
The process of putting borrowers through a so-called loss-mitigation waterfall — industry parlance for helping homeowners seeking to avoid foreclosure find the lowest-cost form of assistance — was less sophisticated at the VA, partly because the agency’s authority to do so was more limited, Goodman said.
In other words, a homeowner with a conventional mortgage has more options available when they’re about to lose their home than a military veteran does, according to Goodman. And that could be a problem if foreclosure activity on VA loans continues to rise in the coming months.
The waterfall process was developed in the aftermath of the Great Recession, when loan servicers had to deal with H*** numbers of foreclosures, Goodman noted. They implemented standardized programs to help homeowners find more affordable payment plans.
But each of the agencies and the government-sponsored enterprises that back mortgages developed their processes a little differently. After the pandemic, when the agencies had to temporarily implement a new set of guidelines to help homeowners who were struggling, the VA emerged with the fewest number of tools available to help compared with other agencies like the FHA.
The VA ended up operating a partial-claim payment program to address the potential surge in foreclosures, but it expired in October 2022. VASP, introduced less than two years later, became a game changer for veterans struggling with high interest rates. It offered an escape hatch for those who had exhausted all other options, and allowed servicers to refer struggling VA borrowers to the program.
One of the program’s biggest perks was a reduction in the mortgage’s interest rate down to 2.5%. After the agency purchased defaulted VA loans from the mortgage servicers, it modified the loan’s interest rate to a fixed 2.5% and put it on the VA portfolio as a direct loan.
“The reason they’re doing that is because it’s the only way they can offer borrowers any relief,” Goodman said. “This isn’t their first-choice way to structure this product, but given there are other constraints, it’s one of the few things they can do” to offer borrowers some relief unlike Fannie Mae, Freddie Mac or even the FHA.
John Bell, who heads up the VA’s home-loan program, told Congress in a hearing last month that VASP was not intended to be “the end-all, be-all program to help our veterans,” as there are other tools available.
“One of the best things Congress could do would be to allow VA to offer veterans the same waterfall that the [government-sponsored enterprises] and FHA do,” Goodman said.
Since the VASP program’s inception, the VA has bought 17,109 loans worth a total of $5.48 billion, according to the agency. The continued existence of the program amounts to a costly “mortgage bailout” that will leave taxpayers “holding the bag,” according to Tobias Peter, a senior fellow at the American Enterprise Institute, a conservative think tank.
But the other loss-mitigation options available to homeowners “do not offer the same amount of payment reduction as VASP does,” said Walt Kieschnick, a senior vice president of mortgage servicing at Cornerstone Servicing, based in Houston. He estimated that nearly a quarter of the loans that his company services are VA loans.
“If VASP goes away with no replacement, we could see delinquencies rise on VA loans [for people] that are experiencing hardship,” he added.
Veterans facing financial difficulties should know they are not alone, said Nolan, the real-estate agent and former Marine. Those who are missing their mortgage payments or facing a default notice should call the mortgage servicer and then a real-estate agent for advice on the various options that are available, he said.
“The problem is most of our vets out there are acting or feel that they are alone in this. They don’t want to ask for help,” Nolan added. “The more you keep your head down in the mud, the worse it gets.”
