5.01 LOSS MITIGATION OPTIONS (02/01/18)

© VA Servicers Handbook - M26-4

a. Loss mitigation is an option available to help Veterans avoid foreclosure on delinquent loans, and reduce possible loss to the government. VA delegates the primary responsibility for loss mitigation to servicers. VA recognizes five loss mitigation options, and pays an incentive to the servicer when any of these options are successfully completed. The loss mitigation options are divided into either home retention options, or alternatives to foreclosure. Home retention options include repayment plans, special forbearances, and loan modifications. Alternatives to foreclosure include compromise sales, and DIL of foreclosure.

b. VA also has a refund option that is available for eligible borrowers as an alternative to foreclosure. Please refer to Chapter 9, Refunds, of this handbook for additional information regarding the refunding process.

c. VA technicians may become involved in the loss mitigation process when borrowers contact VA directly to request assistance, or when the VA-assigned technician determines that a loss mitigation option should be pursued after reviewing the Adequacy of Servicing (AOS), or Pre-Foreclosure process on the loan.

d. VA encourages servicers to consider loss mitigation options that allow the Veteran to retain their home. However, if circumstances show that the borrower is unable to retain the home, or that home retention options are not feasible, the servicer should proceed with reviewing alternatives to foreclosure. Even though VA encourages servicers to consider loss mitigation for retention options, VA regulation does not require such review if the borrower is unable, or unwilling to retain their home. Servicers must select the best option for all parties involved as early in the delinquency as possible.

e. A home retention option should not be approved unless it is within the borrower’s financial ability to reinstate the delinquency. The servicer should not require a substantial sum from a delinquent borrower unless there is ample justification. It is inadvisable to encourage a delinquent borrower to obtain funds from another means for a payment to cure the default on the loan. The additional burden of installment payments on such a loan is likely to worsen the already difficult financial position, and increase the possibility of future default on the mortgage. Home retention options include:

1. Repayment plan.

2. Special forbearance.

3. Loan modification.

f. If the servicer, and the borrower cannot resolve the delinquency through a home retention option, the servicer should consider alternatives to foreclosure. Alternatives to foreclosure include:

1. Compromise sale.

2. DIL of foreclosure.

g. When servicers report a home retention event through their nightly file, or manually through the Servicer Web Portal (SWP), and the loan reinstates, the VA Loan Electronic Reporting Interface (VALERI) processes a Default Cured/Loan Reinstated (DCLR) event, and VA will review for an incentive payment eligibility. When servicers report an alternative to foreclosure event, VA reviews the incentive payment eligibility at the time of claim review.

h. When loss mitigation options are not feasible, the servicer should immediately refer the loan to foreclosure in, order to reduce potential losses to the Government, and to ensure the Veteran’s indebtedness is not unduly increased. VA encourages servicers to continue to pursue loss mitigation options even after initiating the foreclosure process.

i. When a servicer completes a loss mitigation, or alternative to foreclosure option on a loan that is less than 61 days delinquent, they will need to report the Electronic Default Notice (EDN) event by choosing “imminent default”, or, if appropriate, “property problems” as the reason for default. The EDN must be submitted prior to reporting the loss mitigation, or alternative to foreclosure event.