Lawmakers push for changes to the VA Home Loan Program, but mortgage experts warn they may do more harm than good
Congress is considering major changes to the VA Home Loan Program, sparking concerns among mortgage experts who warn that the proposed reforms could limit lending options for veterans.
During a hearing on March 11, the House Committee on Veterans’ Affairs Subcommittee on Economic Opportunity reviewed multiple legislative proposals aimed at protecting the VA home loan program and improving services for veterans. At the center of the discussion was a push to limit VA direct loan repurchases and establish a permanent partial claim option to assist struggling borrowers.
Chairman Mike Bost (R-IL) introduced the Restoring the VA home loan program in Perpetuity Act, which seeks to cap the number of direct loans the VA can repurchase. He said the VA Service Purchase Program (VASP), which allows the VA to purchase delinquent loans and modify them, poses a financial risk to the program’s long-term stability.
“This legislation would limit the number of direct loans VA is authorized to purchase back to what VA had traditionally done before the creation of the VA Service Purchase Program,” Bost said in a statement. “I believe that if we don’t change VASP this program will continue to be a trojan horse on VA’s books that could ruin the VA home loan program forever.”
Bost, who has personally used the VA home loan program multiple times, said the program must remain viable for future generations of veterans.
“If the Biden version of VASP is allowed to continue, I fear that the home loan will not exist in the future for my fellow veterans,” he added.
Bost also called for a partial claim program that would allow veterans facing financial hardship to defer missed payments without immediately facing foreclosure, making the VA Home Loan Program on par with similar relief programs available under FHA, Fannie Mae, and Freddie Mac. Bost emphasized that the VA must provide responsible financial assistance while ensuring its long-term sustainability.
“Many of you have heard me express my frustration with the idea of VA taking responsibility for as many as 60,000 mortgages that would put the American taxpayers on the hook when there are foreclosures to the tune of $16 billion through VASP,” said Bost. “This legislation would allow VA to provide limited assistance and includes mechanisms to encourage repayment as soon as the veterans are able.”
While lawmakers focused on limiting VA’s direct loan repurchases, Carrington Mortgage Services executive Elizabeth Balce testified on behalf of the Mortgage Bankers Association (MBA), expressing concerns that capping VA loan repurchases would limit critical assistance for veterans.
Balce recommended that the partial claim should not reduce the VA guaranty on the first mortgage. Reducing the guaranty could increase risks for lenders, making VA loans less competitive and potentially limiting veterans' access to these mortgages.
“MBA supports the partial claim program in the VA Home Loan Program Reform Act,” she said. “However, several changes are needed to ensure the program is workable and provides maximum benefit to veterans.
“First, the bill must clarify that a partial claim does not reduce the VA guaranty on the first mortgage. If a partial claim is deducted from the 25% loan guaranty, lenders will be left with little to no remaining coverage, increasing risk and making VA loans less competitive in the market. This could reduce veterans’ access to VA mortgages.”
Balce and the MBA support the introduction of a partial claim option, but they have raised concerns about certain provisions in the bill that could limit its effectiveness. One issue is the bill’s requirement that veterans start repaying their partial claim within three years to maintain a 0% interest rate. After three years, a 0.5% interest rate would be imposed on any remaining balance.
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“Veterans should not be subjected to unnecessary repayment burdens that could jeopardize their ability to remain in their homes,” said Balce. “This is inconsistent with other government partial claims and would prove difficult to operationalize.”
Balce noted that the bill sunsets the partial claim program on September 30, 2027, which could limit its effectiveness. She advocated for a longer effective window, such as five years, to ensure meaningful assistance for more veterans.
While acknowledging that VASP has provided critical relief to thousands of veterans in the current high-interest-rate environment, Balce emphasized that partial claims should be the first line of defense.
She opposed the Restoring the VA Home Loan Program in Perpetuity Act, which imposes an arbitrary cap of 250 loans per fiscal year, arguing that limiting VA's ability to assist veterans is not the solution. Instead, strengthening loss mitigation tools, like a permanent partial claim, would make VASP a tool of last resort.
“Another ongoing concern for MBA is the VA funding fee, which has repeatedly been increased or extended to offset the costs of unrelated veteran benefits,” Balce said. “We urge Congress to stop using the VA funding fee as a budgetary offset and ensure it remains aligned with the home loan program’s mission.”
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