5.08 VA AFFORDABLE MODIFICATION (02/01/18)
- Kacey Olson
- Marsha Freeman
Owned by Kacey Olson
a. VA-guaranteed loans should be considered for a VA Affordable Modification (VAAM) when traditional home retention options are not feasible, in an effort to help homeowners avoid foreclosure. The servicer must evaluate the loan for a VAAM prior to determining the loan is insoluble. VA allows servicers to use a VAAM on any VA-guaranteed loan, subject to the requirements in 38 C.F.R. 36.4315, and preapproval must be obtained for any regulatory deviation. The VA guaranty amount on a VAAM will be calculated pursuant to 38 C.F.R. 36.4315(a)(13) which could impact the maximum guaranty amount on the modified loan. An exception is granted for 38 C.F.R. 36.4315(a)(3) requiring borrower creditworthiness to be evaluated under the criteria specified in 38 C.F.R. 36.4340.
b. VAAM offers the following:
1. New monthly mortgage payment (including principal, interest, property taxes, insurance, and condominium, or homeowners’ association fees (PITIA)) no greater than 31 percent of the borrower’s monthly gross income.
2. Must bear a fixed-interest rate. The rate must not exceed the weekly Freddie Mac Primary Mortgage Market Survey Rate for 30-year fixed rate conforming mortgages, rounded up to the nearest one-eighth of one percent (0.125%), as of the date the modification agreement is approved, plus 50 basis points, and no more than 1 percent higher than the existing interest rate on the loan. Servicers may offer an interest rate below the maximum allowable rate at their discretion.
c. If the servicer is unable to contact the borrower to obtain financial information, or if the borrower declined to provide financial information, then evaluation for a VAAM style modification cannot be completed. If verified financial information indicates insufficient income to justify a traditional loss mitigation option, then the servicer will use the financial information obtained to evaluate the possibility of a VAAM.
d. Servicers will calculate the estimated new principal balance in accordance with 38 C.F.R. 36.4315(a)(10) with respect to allowable costs that may be included in the modified indebtedness.
1. Servicers may reduce the interest rate, and extend the terms to achieve the target monthly PITIA payment. If principal deferment is necessary to achieve the target monthly mortgage payment, it must be non-interest bearing, and either paid, or refinanced by the maturity date. Principal deferment is optional, and at the discretion of the servicer. VA has no requirement regarding the amount deferred. If none of these measures result in the target monthly PITIA payment, then servicers must pursue alternatives to foreclosure.
e. Standard VA servicer incentives apply.