VA finalizes partial claim program, eliminates proposed payment increase

The U.S. Department of Veterans Affairs (VA) on Monday finalized updates to its loss mitigation and partial claim policies, creating a new foreclosure prevention option for struggling borrowers with VA-backed mortgages and setting the stage for implementation later this year.

The updated guidance, available on the VA’s website, implements provisions of the 2025 VA Home Loan Program Reform Act, which authorized the agency to establish a partial claim option for delinquent borrowers with VA-guaranteed mortgages.

The law was enacted after the wind-down of the Veterans Affairs Servicing Purchase (VASP) program left the agency without a permanent foreclosure prevention alternative for financially distressed homeowners.

Under the program, the VA can cover a portion of a delinquent borrower’s missed mortgage payments to bring the loan current. The amount, generally capped at 25% of the unpaid principal balance, is placed in a subordinate lien that does not require monthly payments and is repaid when the home is sold, refinanced or the mortgage is otherwise paid off.

The final policy follows months of industry feedback on draft guidance released in March. One notable change removes language from the proposal that would have allowed certain loan modifications tied to a partial claim to increase a borrower’s monthly payment by as much as 15%. That provision drew criticism from mortgage industry groups, which said that higher payments could undermine foreclosure prevention efforts.

The removal of the provision was welcomed by industry trade groups, including the Mortgage Bankers Association.

“MBA applauds the VA’s release of its partial claim program and updated loss mitigation waterfall, following a collaborative stakeholder feedback process that helped strengthen the proposed policies,” said Bob Broeksmit, the trade group’s president and CEO.

“We are pleased to see that veteran homeowners will have access to a key loss mitigation option available to other borrowers with government-backed mortgages, that can allow veterans to remain in their homes without increasing their monthly payments.”

Broeksmit said the association will continue to work with the VA and its servicer members to support the implementation of the program, adding that servicers will need time to update systems and train staff before the program takes effect.

The VA also finalized revisions to its loss mitigation waterfall, the sequence of foreclosure avoidance options servicers must evaluate before initiating foreclosure proceedings. Under the updated framework, the partial claim becomes a new retention option available to eligible borrowers who have resolved the hardship that caused their delinquency and can successfully complete a three-month trial payment plan.

Borrowers generally will be limited to one partial claim per loan, although a second may be available in certain disaster-related circumstances. Loans that previously received a VA partial claim or COVID-era refund modification may face additional restrictions.

Mortgage servicers may begin submitting trial payment plans for loan modifications and partial claims on June 15. The VA has provided a 180-day implementation period, giving servicers until Nov. 28 to update systems and operational processes before the program is fully implemented.