Mortgage Trade Groups Urge Va To Revise Elements Of Proposed Partial Claim Rules

The Mortgage Bankers Association (MBA) urged the U.S. Department of Veterans Affairs (VA) to revise elements of its proposed partial claim and loss-mitigation policies for VA-backed mortgages, arguing that the draft rules could leave veteran borrowers at a disadvantage compared to others.

In a comment letter submitted Wednesday and addressed to Patrick Zondervan, executive director of the VA’s Loan Guaranty Service, MBA said the VA should simplify its proposed loss-mitigation waterfall to improve outcomes for borrowers while reducing costs for lenders and the loan guaranty program.

The letter responds to draft policies for implementing the VA Home Loan Program Reform Act, which authorized a new partial claim option for distressed borrowers with VA-guaranteed loans.

Under the proposal, eligible borrowers at least three months delinquent could access the program once their servicer submits a partial claim trial payment for VA review.

Borrowers must also have made at least 12 payments since loan origination and at least six since any modification. Eligibility would be retroactive to May 1, 2025, when the VA Servicing Purchase (VASP) program ended.

Under the draft rules, the partial claim option would appear as the seventh step in the VA’s loss-mitigation waterfall, with a 40-year loan modification remaining as the final home retention option. Servicers would not be allowed to charge interest on the partial claim balance.

MBA said the VA’s proposed framework could result in veterans having “substantially worse” loss-mitigation options than borrowers with loans backed by Fannie Mae, Freddie Mac or the Federal Housing Administration (FHA).

The group recommended restructuring the waterfall so that loan modifications that increase a borrower’s monthly payment are used only as a last resort. MBA also suggested replacing the proposed “special forbearance” with a standard forbearance program, which would let borrowers pause payments for one to three months at a time, up to 12 months of delinquency per default.

The association recommended limiting borrowers to one permanent home retention option within 24 months, warning that repeated use of loss-mitigation programs can erode home equity and increase VA guaranty fund losses.

The group raised concerns about interactions with pandemic-era relief, saying veterans who received COVID-related assistance should still be eligible for the partial claim program.

Lastly, the MBA’s letter called for clearer guidance on servicers’ responsibilities and longer implementation timelines for servicers to adjust systems. The association recommended that the VA provide at least 180 days before requiring lenders to comply with the new rules.

In a letter sent Thursday to Zondervan, the Community Home Lenders of America (CHLA) recommended eliminating the provision to allow monthly principal and interest to rise up to 15% under a 30-year loan modification.

CHLA urged the VA not to include waterfall provisions that increase monthly costs for VA families. Like the MBA, it also recommended at least 180 days of lead time before the policy takes effect.