VA Servicer Handbook M26-4 Chapter 5
VA Servicer Handbook M26-4 Chapter 5, verbatim from VA KnowVA (article 554400000314374, updated Jun 01, 2026, effective June 1, 2026).
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Verbatim provisions from VA Servicer Handbook M26-4 Chapter 5 — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
VA Servicer Handbook M26-4 Chapter 5 — 5.01
7 sections · 13,572 characters of verbatim text. Open a section to read it, or . Every section below is in the page source whether open or closed.
§5.01 VA Loss Mitigation Waterfall a. Servicers must follow the VA…835 ch
5.01 VA Loss Mitigation Waterfall a. Servicers must follow the VA Loss Mitigation Waterfall (Waterfall) when a borrower indicates they are ready and able to resume monthly payments and they wish to retain their home. If the borrower indicates they are not yet ready and able to resume monthly payments but they wish to retain their home, servicers must follow Section 5.01 a. 2., below. If the borrower does not wish to retain their home, the servicer discusses alternatives to foreclosure to include a private sale, short sale, and deed-in-lieu of foreclosure (DIL), if appropriate. A servicer may contact VA for further evaluation of a loan, on a case-by-case basis. 1. Each time the servicer reviews the loan under the Waterfall, the servicer must start at Step 1, unless specifically noted otherwise in the steps enumerated below.
aIf the loan is less than three (3) full months past due, the…160 ch
(a) If the loan is less than three (3) full months past due, the servicer will only follow Steps 1 through 4 of the Waterfall. Steps 5 and 6 are not available.
bIf the loan is three (3) full months or more past due, the…2,965 ch
(b) If the loan is three (3) full months or more past due, the…670 ch
(b) If the loan is three (3) full months or more past due, the servicer must follow Steps 1-6 of the Waterfall. The options outlined in Steps 5 and 6 are only available for loans that are at least three (3) full months past due. 2. When a borrower indicates they are not yet ready and able to resume monthly payments but wish to retain their home, servicers may offer an informal forbearance or an informal repayment plan. This temporary, informal assistance may allow the borrower to resolve their reason for default and regain the ability to resume monthly payments. VA always encourages servicers to work with borrowers who are struggling with making their payments.
aVA does not track informal forbearances or informal repayment…149 ch
(a) VA does not track informal forbearances or informal repayment plans through event reporting, and VA will not pay an incentive for these actions.
bIf the servicer is unable or unwilling to offer an informal…2,146 ch
(b) If the servicer is unable or unwilling to offer an informal forbearance or an informal repayment plan, the servicer must proceed with delinquent loan servicing, as outlined in Chapter 4. 3. VA reminds servicers of their duties to develop and maintain a loan servicing program that follows accepted industry standards, as outlined in 38 C.F.R. § 36.4350. Part of this responsibility is to undertake all reasonable and prudent efforts to help borrowers retain their homes, which includes applying the steps of the Waterfall. However, this responsibility also can include efforts such as determining when home retention efforts have failed, the loan is insoluble, and foreclosure is unavoidable (e.g., the borrower is continually disengaged in the loss mitigation process, the property has been abandoned, or the borrower has lost a reliable income stream). More information can be found in Chapter 8. 4. The Waterfall generally requires minimal documentation from the borrower. Servicers must not collect financial or additional documents, unless required by VA. b. When using the Waterfall, the servicer proceeds through the numbered steps below. The servicer must review the loan and ask the borrower a series of questions. Based on the borrower’s responses, the servicer must offer the loss mitigation option specified by the Waterfall. If, at any point, the borrower indicates they no longer wish to retain the home, the servicer discusses alternatives to foreclosure. 1. STEP 1: REVIEW FOR SPECIAL FORBEARANCE (a) The servicer asks if the borrower can afford to repay the missed payments in a lump sum within the next 90 days. If the borrower confirms they can afford to repay the missed payments in a lump sum within the next 90 days or the borrower agrees to a Repayment Plan, the servicer offers the borrower a Special Forbearance. If the borrower refuses the Special Forbearance, the servicer discusses alternatives to foreclosure to include a private sale, short sale, and DIL or proceeds with foreclosure, as appropriate. (b) If the borrower cannot afford to repay the missed payments in a lump sum, the servicer proceeds to Step 2.
cIf the borrower reaches the end of the Special Forbearance…7,302 ch
(c) If the borrower reaches the end of the Special Forbearance…524 ch
(c) If the borrower reaches the end of the Special Forbearance timeframe and is unable to repay the missed payments in a lump sum, the servicer may offer the borrower a Repayment Plan, outlined in Section 5.05, without reviewing the loan under the Waterfall again. If the borrower cannot afford the terms of the Repayment Plan but is ready to resume monthly mortgage payments and wishes to retain their home, the servicer follows steps outlined in 5.01(c) for re-entering the Waterfall. 2. STEP 2: REVIEW FOR REPAYMENT PLAN
aThe servicer asks if the borrower can afford the current monthly…433 ch
(a) The servicer asks if the borrower can afford the current monthly mortgage payment, plus additional amounts, until the loan is current. If the borrower confirms they can afford the current monthly mortgage payment, plus additional amounts until the loan is current, the servicer discusses a Repayment Plan with the borrower. If the borrower can afford the servicer’s terms, then the servicer offers the borrower a Repayment Plan.
bIf the borrower cannot afford the terms of the Repayment Plan,…1,729 ch
(b) If the borrower cannot afford the terms of the Repayment Plan, the servicer proceeds to Step 3. 3. STEP 3: REVIEW FOR TRADITIONAL VA MODIFICATION (a) The servicer reviews the loan to determine if the terms can be modified under a Traditional VA Modification and keep the current monthly principal and interest payment the same or lower. If so, the servicer offers a Traditional VA Modification, subject to the successful completion of a Trial Payment Plan (TPP). If the borrower does not agree to the Traditional VA Modification, the servicer offers alternatives to foreclosure or proceeds with foreclosure, as appropriate. (b) If the Traditional VA Modification would result in an increase to the current monthly principal and interest payment, the servicer proceeds to Step 4. 4. STEP 4: REVIEW FOR 30-YEAR MODIFICATION (a) The servicer reviews the loan to determine if the modified terms under a 30-Year Modification would result in the same or a lower monthly principal and interest payment. If so, the servicer offers the borrower the 30-Year Modification, subject to the successful completion of a TPP. If the borrower does not agree to the 30-Year Modification, the servicer offers alternatives to foreclosure or proceeds to foreclosure, as appropriate. (b) If the 30-Year Modification would result in an increase to the current monthly principal and interest payment and the borrower is less than three (3) full months past due, the servicer again discusses a Repayment Plan with the borrower. If the borrower does not agree to the terms of the Repayment Plan, the servicer discusses alternatives to foreclosure because only Steps 1 through 4 are available on a loan that is less than three (3) full months past due.
cIf the 30-Year Modification would result in an increase to the…4,616 ch
(c) If the 30-Year Modification would result in an increase to…239 ch
(c) If the 30-Year Modification would result in an increase to the monthly principal and interest payment and the borrower is at least three (3) full months past due, the servicer proceeds to Step 5. 5. STEP 5: REVIEW FOR VA PARTIAL CLAIM
aThe servicer reviews the loan to determine if the loan and…382 ch
(a) The servicer reviews the loan to determine if the loan and borrower meet the qualifying criteria for a VA Partial Claim. If so, the servicer offers the borrower a VA Partial Claim, subject to the successful completion of the TPP. If the borrower does not agree to the VA Partial Claim, the servicer offers alternatives to foreclosure or proceeds to foreclosure, as appropriate.
bIf the qualifying criteria for a VA Partial Claim are not met,…671 ch
(b) If the qualifying criteria for a VA Partial Claim are not met, the servicer proceeds to Step 6. 6. STEP 6: REVIEW FOR 40-YEAR MODIFICATION (a) The servicer reviews the loan to determine the terms under a 40-Year Modification. The servicer discusses the 40-Year Modification with the borrower. If the borrower confirms they can afford the servicer’s terms, then the servicer offers the borrower the 40-Year Modification, subject to the successful completion of the TPP. (b) If the borrower cannot afford the terms of the 40-Year Modification or does not agree to the terms, the servicer offers alternatives to foreclosure or proceeds with foreclosure, as appropriate.
cThis is the final step in the Waterfall. c. RE-ENTERING THE…3,324 ch
(c) This is the final step in the Waterfall. c. RE-ENTERING THE WATERFALL. Borrowers who fail to successfully complete a loss mitigation option or TPP, or who fail to take the necessary actions to finalize a home retention option must be reviewed for loss mitigation options again, as directed here: 1. When a borrower indicates they are ready to resume payments and wish to retain their home, servicers must use the Waterfall to review borrowers again, considering the following provisions: (a) If a borrower has failed three (3) TPPs during the current default episode, the loan can no longer be reviewed for options that require successful completion of a TPP during the current default episode (this means the borrower can only be reviewed for a Special Forbearance, Repayment Plan, or alternatives to foreclosure). (b) If a borrower has failed three (3) TPPs during the current default episode, the servicer must collect supporting documents, as outlined in Section 5.01 d., before the borrower can be approved for a Special Forbearance or Repayment Plan. 2. In the case of a borrower who re-enters the Waterfall during the current default episode, the servicer should proceed with alternatives to foreclosure or foreclosure if the servicer determines the loan is insoluble or that the property has been abandoned. More information can be found in Chapter 8. 3. Subject to the other provisions in this Section 5.01 c., servicers must use the Waterfall to review borrowers who were previously offered an alternative to foreclosure but later indicate an intention to retain home ownership (e.g., a borrower who was 2 months past due was offered an opportunity to complete a short sale and is now, after an additional 45 days without a sale, hoping to retain the home and is more than 3 full months past due). d. SUPPORTING DOCUMENTS. The servicer must collect supporting documents before approving a Special Forbearance or Repayment Plan under Section 5.01 c. 1. (b), subject to the following: 1. Repayment Plan. The servicer must confirm the borrower’s income will support the terms of the Repayment Plan. (a) Servicers must collect a list of the borrower’s monthly household expenses. A list of household expenses may be collected over the phone, in writing or email, through an online portal, or by any other method commonly used by the servicer to collect information from the borrower. (b) Servicers must verify all household income by collecting document(s) from the borrower that clearly support the reported amount. Documents may include pay stubs, Profit and Loss Statements, bank statements showing reoccurring deposits, Award Letters, etc. i. Any documents that are frequently updated, such as bank statements or pay stubs, used to determine the borrower’s financial capacity are only acceptable if the date the servicer receives them is not more than 90 days from the date shown on the document. ii. Documents such as award letters, that are generally received once or infrequently, are acceptable, even if the servicer receives them after 90 days from the date shown on the document. (c) If the documentation confirms the household income supports the total amount of household expenses, including the monthly payment amount under the terms of the Repayment Plan, the servicer must approve a Repayment Plan.
dIf the documentation does not confirm the household income…2,153 ch
(d) If the documentation does not confirm the household income…488 ch
(d) If the documentation does not confirm the household income supports the total amount of household expenses, including the monthly payment amount under the terms of the Repayment Plan, the servicer cannot approve a Repayment Plan. 2. Special Forbearance. The servicer must review documents that support the borrower’s intention to repay the missed payments in one lump sum. (a) The servicer must request documents that are specific to the borrower’s plan to repay the missed payments.
iFor example, if the borrower has filed their income tax return…227 ch
i. For example, if the borrower has filed their income tax return and indicates the borrower’s refund amount will cover the missed payments, the servicer may request a copy of the tax filing to support the Special Forbearance.
iiFor example, the borrower is expecting an annual bonus and…1,438 ch
ii. For example, the borrower is expecting an annual bonus and indicates the amount will cover the missed payments, the servicer may request a letter from the borrower’s employer or an employment contract that provides details about the expected bonus to support the Special Forbearance. (b) If the borrower cannot provide supporting documents that demonstrate the ability to repay the missed payments in a lump sum, the servicer cannot approve the Special Forbearance. 3. If the borrower is unable or unwilling to provide the requested documentation, the servicer offers alternatives to foreclosure or proceeds with foreclosure, as appropriate. e. DISASTER MODIFICATIONS. While the VA Disaster Modification and Disaster Extend Modification options are never mandatory, servicers can always offer the options to borrowers who have been affected by a Presidentially-declared or other major disaster. Servicers do not need to follow the Waterfall before offering these options to affected borrowers. f. Reference for VA Loss Mitigation. Loss Mitigation Loss Mitigation Details Home Retention Requires 3 Month Delinquency Requires Successful TPP Limited/One Time Use Special Forbearance Chapter 5.04 X Repayment Plan Chapter 5.05 X VA Traditional VA Modification Chapter 5.06(b) X X 30-Year Modification Chapter 5.06(c) X X VA Partial Claim Chapter 22 X X X X 40-Year Modification> Chapter 5.06(d) X X X VA Disaster Modification Chapter 5.06
eX X Disaster Extend Modification Chapter 5.0649 ch
(e) X X Disaster Extend Modification Chapter 5.06
fX Short Sale Chapter 5.08 X Deed-in-Lieu of Foreclosure Chapter…108 ch
(f) X Short Sale Chapter 5.08 X Deed-in-Lieu of Foreclosure Chapter 5.09 X Go to Top 5.02 Loss Mitigation a.
VA Servicer Handbook M26-4 Chapter 5 — 5.02
5.02 Loss Mitigation a. The loss mitigation process includes a review of both home retention options and alternatives to foreclosure. Home retention options include Repayment Plans, Special Forbearances, all loan modification types, and VA Partial Claims. Additional Information on VA Partial Claims can be found in Chapter 22 of this Manual. Alternatives to foreclosure include short sales and DIL. b. VA technicians become involved in the loss mitigation process when: 1. Borrowers contact VA directly to request assistance; or 2. 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. c. When a borrower indicates they are ready and able to resume monthly payments and they wish to retain their home, servicers must review and offer home retention options as outlined in the Waterfall. This Waterfall can be found in Section 5.01 of this Chapter. Home retention options include: 1. Special Forbearance. 2. Repayment Plan. 3. All loan modification types. 4. VA Partial Claim. d. If, however, servicers encounter a situation where they believe it is in the best interest of the borrower and VA to deviate from the Waterfall, they must request pre-approval through the VA Loan Electronic Reporting Interface (VALERI) application. For more information on pre-approvals, review Chapter 6 of this manual. e. If the servicer and the borrower cannot resolve the delinquency through a home retention option or the borrower no longer wishes to retain the home, the servicer must consider the viability of alternatives to foreclosure before taking action to foreclose the loan. Alternatives to foreclosure include: 1. Short sale. 2. DIL. f. When servicers report to VALERI a home retention event through their nightly file and the loan reinstates, VALERI generates a Default Cured/Loan Reinstated (DCLR) event. If servicers report a home retention event manually through the VALERI Events Bulk Upload Templates, the servicer must also report the Default Cured/Loan Reinstated event after the home retention event has cured the loan. VA will determine whether a servicer qualifies for an incentive payment after the default is cured through the Default Cured/Loan Reinstated event. Regarding incentives paid for alternatives to foreclosure, VA will determine whether the servicer qualifies for an incentive payment after the servicer reports an alternative to foreclosure event. g. When loss mitigation options are not feasible, the servicer must immediately refer the loan to foreclosure to reduce potential losses to the Government and to ensure the borrower’s indebtedness is not unduly increased. VA encourages servicers to continue to pursue loss mitigation options even after initiating the foreclosure process. Any new loss mitigation reviews start at Step 1 of the Waterfall, unless otherwise noted in this Chapter. h. Upon completion of any loan modification or alternative to foreclosure on a loan that is less than 61 days delinquent, the servicer must report the Electronic Default Notice (EDN) event by choosing imminent default or property problems as the reason for default. The EDN must be submitted prior to reporting the Loan Modification Complete event or alternatives to foreclosure. VA does not require the Special Forbearance or Repayment Plan events to be reported for a loan that is less than 61 days delinquent. i. Loans that have been reported with an EDN using the VALERI Events Bulk Upload will not automatically generate the Default Cured Loan Reinstated (DCLR) event. Servicers must manually report the DCLR event when the loan reinstates. j. Information on loss mitigation event reporting can be found in Chapter 2 of this Manual. Go to Top 5.03 Acceptance of Electronic Signatures a.
VA Servicer Handbook M26-4 Chapter 5 — 5.03
5.03 Acceptance of Electronic Signatures a. VA has no objection to the use of electronic signatures on repayment, forbearance, or modification agreements between servicers and borrowers, provided they are readily identifiable during a Post Audit review. The Electronic Signatures in Global, and National Commerce Act (15 U.S.C. § 7001) provides that with respect to any transaction in, or affecting interstate, or foreign commerce that "a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form." b. However, VA cautions servicers to ensure compliance with all regulations governing VA-guaranteed home loans, including the requirement to obtain and maintain a lien of proper dignity. Servicers are also required to comply with all other federal, State, and local laws, especially concerning contracts and the documenting of modifications to existing loans. Go to Top 5.04 Special Forbearance (38 C.F.R. §36.4301) a.
VA Servicer Handbook M26-4 Chapter 5 — 5.04
5.04 Special Forbearance (38 C.F.R. §36.4301) a. A Special Forbearance is a documented agreement, by and between the borrower and holder, where the holder agrees to suspend all payments or accept reduced payments for 1 or more months on a loan that is 61 or more calendar days delinquent (a reportable default), and the borrower agrees to pay the total delinquency at the end of the specified period or enter into a Repayment Plan. To qualify for an incentive, the Special Forbearance must be established for at least 30 days. No events should be reported when a Special Forbearance is approved on a loan before it reaches 61 days delinquent. b. During the forbearance period, servicers must monitor the agreement and take appropriate action if the borrower does not comply. Agreements may be renegotiated at any time. c. Servicers must offer the Special Forbearance when the borrower agrees to repay the missed payments in a lump sum or agrees to enter into a Repayment Plan, as outlined in the Waterfall. Go to Top 5.05 Repayment Plan (38 C.F.R. §36.4301) a.
VA Servicer Handbook M26-4 Chapter 5 — 5.05
5.05 Repayment Plan (38 C.F.R. §36.4301) a. A Repayment Plan is a documented agreement by and between the borrower and the holder to reinstate a loan that is 61 or more calendar days delinquent (a reportable default), by requiring the borrower to pay the normal monthly payment, plus an agreed upon portion of the delinquency, each month. To qualify for an incentive, the Repayment Plan must be established for at least a 3-month period. No events should be reported when a Repayment Plan is approved on a loan before it reaches 61 days delinquent. b. A typical Repayment Plan duration is up to 6 months. However, if the loan’s current interest rate is less than the current Maximum Allowed Modified Rate, as outlined in 38 C.F.R. § 36.4315(a)(8)(i), servicers are encouraged to consider a Repayment Plan with longer terms. Servicers are encouraged to offer plans at 12 or 18 months, to provide borrowers with a more affordable option to reinstate the loan, without raising their interest rate. c. During the repayment agreement, servicers must monitor the agreement each month and take appropriate action if the borrower does not comply. Plans may be renegotiated at any time. d. Servicers must discuss and offer, if appropriate, the Repayment Plan when the borrower indicates they can repay the current loan payment plan plus additional amounts to bring the loan current, as outlined in the Waterfall. Go to Top 5.06 Loan Modifications (38 C.F.R. §36.4315) a.
VA Servicer Handbook M26-4 Chapter 5 — 5.06
8 sections · 16,486 characters of verbatim text. Open a section to read it, or . Every section below is in the page source whether open or closed.
§5.06 Loan Modifications (38 C.F.R. §36.4315) a. A loan…1,504 ch
5.06 Loan Modifications (38 C.F.R. §36.4315) a. A loan modification is a documented agreement by and between the holder and all obligors on the loan, which permanently changes one or more of the terms of a loan, and may include re-amortization of the balance due. VA considers the execution date of the loan modification agreement to be the date of the borrower’s signature. The loan modification must be consistent with this Manual and sound lending practices. If the loan originated prior to January 1, 1990, and includes a transferee, servicers must ensure that no previous obligor is released from liability by the completion of a loan modification. All loan modifications must meet the following conditions: 1. The loan is in default. 2. The event or circumstance that caused the default has been or will be resolved and it is not expected to re-occur. 3. The loan modification will reinstate the loan and cure the default. 4. The current owner(s) is obligated to repay the loan and is party to the loan modification agreement. 5. The servicer cannot charge a processing fee and must waive all unpaid late fees. Any other actual costs that are incurred by the servicer but cannot be capitalized in the modified indebtedness, may be collected directly from the borrower or waived, at the discretion of the servicer, if they were legally chargeable under applicable law. 6. The servicer has ensured the first lien position remains intact. 7. The guaranty dollar amount will not exceed the greater of:
aThe original guaranty amount of the loan being modified (if loan…1,769 ch
(a) The original guaranty amount of the loan being modified (if loan modified amount is less than the original loan amount, the amount of guaranty will be equal to the original guaranty percent applied to the modified loan amount), or (b) 25 percent of the loan being modified subject to the statutory maximum specified at 38 U.S.C. § 3703(a)(1)(B). 8. Borrower does not receive any cash back from the modification. 9. The property securing the mortgage loan must not have been abandoned or condemned. 10. The borrower has not received a VA Partial Claim on the guaranteed loan within 24 months of the date the servicer reviewed the loan for the modification under the Waterfall. 11. Unless specifically noted in this Chapter, the general loan modification provisions outlined in 38 C.F.R. § 36.4315 apply. VA notes that market circumstances can change rapidly, meaning that the regulation is not a limitation on the Secretary’s statutory discretion in 38 U.S.C. § 3720(a)(2) to consent to various terms of modification. If it were, the Secretary would not be able to adjust to the market circumstances in real time, at the speed of business, and Veterans could be at serious risk of foreclosure, solely due to bureaucratic obstacles. Thus, servicers must stay apprised of all the terms to which VA consents via regulation and administrative guidance (such as this Manual and VA Circulars). (a) In general, a borrower may not receive a loan modification more than once during a 3-year period. If, however, the borrower has received a loan modification within the past 24 months, as of the date the borrower is reviewed for the modification under the Waterfall, but within the 3-year period, the servicer may request Preapproval to proceed with the modification option.
bIf a requirement for a loan modification is not met but the…323 ch
(b) If a requirement for a loan modification is not met but the servicer believes the option would be in the best interest of the borrower and the Government, the servicer must submit a request for pre-approval consideration in VALERI for VA review. Refer to Chapter 6 of this Manual for more information on pre-approvals.
cWhile a servicer must take steps, as outlined in the Waterfall…5,379 ch
(c) While a servicer must take steps, as outlined in the Waterfall above, to confirm the borrower can afford the payment, servicers are not required to evaluate borrower creditworthiness under other criteria. 12. Standard servicer incentives for a completed modification will apply. Refer to Chapter 7 of this Manual for more information on incentives. 13. Servicers must offer the appropriate modification, as outlined in the Waterfall in Section 5.01 of this Chapter. The modification options in the Waterfall and further described below are those for which VA provides advance consent to servicers. VA’s advance consent means that a servicer does not need to submit a proposed modification to VA for prior approval if the conditions are met. 14. Servicers can request pre-approval to proceed with a modification that does not conform to the loan modifications requirements listed below. VA technicians will review each request and make a determination based on what VA believes would be the best outcome for the borrower and VA. For more information on the pre-approval process, review Chapter 6 of this Manual. b. TRADITIONAL LOAN MODIFICATION 1. When directed under the Waterfall, servicers must review for the Traditional VA Modification. If the modification does not increase the monthly principal and interest payment, the servicer must offer the borrower a Trial Payment Plan (TPP) that, if successful, will result in a traditional loan modification. Servicers must provide the Traditional VA Modification upon successful completion of the TPP. If the borrower has an adjustable rate mortgage (ARM), the Traditional VA Modification monthly principal and interest payment cannot exceed the current monthly principal and interest payment. 2. The modified loan 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 to the nearest one-eighth of one percent (0.125%), as of the date the modification TPP is approved, plus 50 basis points. The posted maximum allowable interest rate will be effective Friday through Thursday. Servicers may offer an interest rate below the maximum allowable rate at their discretion, without VA preapproval. 3. The unpaid principal balance of the modified loan will be re-amortized over the remaining life of the loan, or if the loan term is to be extended, the maturity date will not exceed the shorter of: (a) 360 months from the due date of the first installment under the modification, or (b) 120 months after the original maturity date of the loan (unless the original term was less than 360 months, in which case the term may only be extended to 480 months from the due date of the first installment of the original loan). 4. The borrower must successfully complete a Trial Payment Plan (TPP). Refer to Section 5.07 of this Chapter for more information on VA requirements for TPPs. 5. The following prerequisites under 38 C.F.R. § 36.4315 are not required for a Traditional Loan Modification under this Chapter: (a) At least 12 monthly payments have been paid since the closing date of the loan. (b) A loan has not been modified more than three times during the life of the loan. (c) After being determined and selected in accordance with Section 5.06 b.2., the fixed-rate of interest is not more than one percent higher than the existing rate on the loan. c. 30-YEAR MODIFICATION 1. If a Traditional VA Modification would result in an increase to the current monthly principal and interest payment, the servicer instead considers the terms for the 30-Year Modification. If the 30-Year Modification results in the same or lower principal and interest payment, the servicer offers the borrower a TPP, which if successful, will result in the 30-Year Modification. Servicers must provide the 30-Year Modification upon successful completion of the TPP. If the borrower has an adjustable rate mortgage (ARM), the 30-Year Modification monthly principal and interest payment must be equal or less than the current monthly principal and interest payment. 2. As with the Traditional Loan Modification, the loan modified under a 30-Year Modification 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 to the nearest one-eighth of one percent (0.125%), as of the date the modification TPP is approved, plus 50 basis points. The posted maximum allowable interest rate will be effective Friday through Thursday. Servicers may offer an interest rate below the maximum allowable rate at their discretion, without VA approval. 3. The unpaid balance of the modified loan will be re-amortized over a term of 360 months. 4. Borrower must successfully complete a TPP. Refer to Section 5.07 of this Chapter for more information on VA requirements for TPPs. 5. The following prerequisites under 38 C.F.R. § 36.4315 are not required for a 30-Year Modification under this Chapter: (a) At least 12 monthly payments have been paid since the closing date of the loan. (b) A loan has not been modified more than three times during the life of the loan. (c) After being determined and selected in accordance with Section 5.06 c.2., the fixed-rate of interest is not more than one percent higher than the existing rate on the loan.
dThe maturity date will not exceed the shorter of: i. 360 months…4,356 ch
(d) The maturity date will not exceed the shorter of: i. 360 months from the due date of the first installment under the modification, or ii. 120 months after the original maturity date of the loan (unless the original term was less than 360 months, in which case the term may only be extended to 480 months from the due date of the first installment of the original loan). d. 40-YEAR MODIFICATION 1. When the borrower is at least 3 full months past due and wants to retain home ownership but does not qualify for any other home retention options in the Waterfall, the servicer reviews the terms of the 40-Year Modification. If the borrower indicates the ability to afford the terms of the 40-Year Modification, the servicer offers the borrower a TPP, which if successful, will result in the 40-Year Modification. Servicers must provide the 40-Year Modification upon successful completion of the TPP. 2. As with other loan modifications, the 40-Year Modification 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 to the nearest one-eighth of one percent (0.125%), as of the date the modification TPP is approved, plus 50 basis points. The posted maximum allowable interest rate will be effective Friday through Thursday. Servicers may offer an interest rate below the maximum allowable rate at their discretion, without VA pre-approval. 3. The unpaid balance of the modified loan will be re-amortized over a term of 480 months. 4. The modification is offered after successful completion of a TPP. Terms of the TPP are outlined in Section 5.07 of this Chapter. 5. The following prerequisites under 38 C.F.R. § 36.4315 are not required for the 40-Year Modification under this Chapter: (a) At least 12 monthly payments have been paid since the closing date of the loan. (b) A loan has not been modified more than three times during the life of the loan. (c) After being determined and selected in accordance with Section 5.06 d.2., the fixed-rate of interest is not more than one percent higher than the existing rate on the loan. (d) The maturity date will not exceed the shorter of: i. 360 months from the due date of the first installment under the modification, or ii. 120 months after the original maturity date of the loan (unless the original term was less than 360 months, in which case the term may only be extended to 480 months from the due date of the first installment of the original loan). e. VA DISASTER MODIFICATION. Allows servicers to offer a permanent modification of loan terms to provide payment relief to impacted delinquent borrowers, without requiring the borrower to submit a complete loss mitigation application. All impacted borrowers should have an opportunity to be considered for a VA Disaster Modification. 1. Evaluation of Borrower. Servicer evaluation of the borrower’s financial information is not required for a VA Disaster modification. To qualify for the VA Disaster Modification option, borrowers must successfully complete a 3-month TPP. Servicers must provide the VA Disaster Modification upon successful completion of the TPP. 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 to the nearest one-eighth of one percent (0.125%), as of the date the modification agreement is approved, plus 50 basis points. Servicers may offer an interest rate below the maximum allowable rate at their discretion, without VA prior approval. 3. VA Disaster Modifications are available for up to 12 months following the date of the incident that resulted in the applicable Presidential major disaster declaration. 4. Additional Qualifying Requirements: (a) The borrower has been impacted by a Presidentially-declared major disaster. (b) The mortgage loan was not more than 30 days past due, as of the date of the date of the incident that resulted in the applicable Presidential major disaster declaration. (c) Servicers may offer a VA Disaster modification to a borrower if clear evidence shows that the borrower is ready to resume monthly installments. (d) The borrower must successfully complete a TPP. Refer to Section 5.07 of this Chapter for more information on VA requirements for TPPs.
eThe borrower has not submitted a complete loss mitigation…2,567 ch
(e) The borrower has not submitted a complete loss mitigation…290 ch
(e) The borrower has not submitted a complete loss mitigation application currently under review or is not performing under a default curing loss mitigation option. 5. The following prerequisites under 38 C.F.R. § 36.4315 are not required for a VA Disaster Modification under this Chapter:
aAt least 12 monthly payments have been paid since the closing…84 ch
(a) At least 12 monthly payments have been paid since the closing date of the loan.
bA loan has not been modified more than once in a 3-year period or…1,637 ch
(b) A loan has not been modified more than once in a 3-year period or more than 3 times during the life of the loan. f. DISASTER EXTEND MODIFICATION. Allows servicers to offer permanent payment relief by extending the maturity date, up to 12 months, to impacted delinquent borrowers, without requiring the borrower to submit a complete loss mitigation application. All impacted borrowers should have an opportunity to be considered for a VA Disaster Modification. 1. Evaluation of Borrower. Servicer evaluation of the borrower’s financial information is not required for a Disaster Extend modification. A TPP is not necessary for the Disaster Extend Modification, but the servicer must waive the delinquent interest accrued on the loan as a result of the delinquency. 2. The interest rate must be fixed and not exceed the lesser of: (a) the borrower’s current interest rate; (b) the most recent Freddie Mac Weekly Primary Mortgage Market Survey Rate for 30-year fixed-rate conforming mortgages, rounded to the nearest one-eighth of one percent (0.125%), plus 50 basis points. 3. The servicer may re-amortize the loan, if necessary, to meet any investor restrictions, as long as the new monthly payment is the same as, or less than, the current monthly installment. 4. VA Disaster Modifications are available up to 12 months following the date of the incident that resulted in the applicable Presidential major disaster declaration. 5. Additional Qualifying Requirements: (a) The borrower has been impacted by a Presidentially-declared major disaster. (b) The mortgage loan was not more than 30 days past due at the time of the disaster.
cServicers may offer a Disaster Extend Modification to a borrower…152 ch
(c) Servicers may offer a Disaster Extend Modification to a borrower if clear evidence shows that the borrower is ready to resume monthly installments.
dThe terms of the loan are extended by the equal number of months…288 ch
(d) The terms of the loan are extended by the equal number of months the loan is delinquent due to the disaster. For example, if the loan is 4-months delinquent, the loan term may only be extended by 4 months. The limit of the term extension is 12 months, without prior approval from VA.
eThe modification does not raise the borrower’s current interest…116 ch
(e) The modification does not raise the borrower’s current interest rate or monthly principal and interest amounts.
fServicer waives the delinquent interest45 ch
(f) Servicer waives the delinquent interest.
gThe borrower has not submitted a complete loss mitigation…543 ch
(g) The borrower has not submitted a complete loss mitigation application currently under review or is not performing under a default curing loss mitigation option. 6. The following prerequisites under 38 C.F.R. § 36.4315 are not required for the Disaster Extend Modification under this Chapter: (a) At least 12 monthly payments have been paid since the closing date of the loan. (b) A loan has not been modified more than once in a 3-year period or more than three times during the life of the loan. Go to Top 5.07 Trial Payment Plan (TPP) a.
VA Servicer Handbook M26-4 Chapter 5 — 5.07
4 sections · 6,539 characters of verbatim text. Open a section to read it, or . Every section below is in the page source whether open or closed.
§5.07 Trial Payment Plan (TPP) a. The TPP allows borrowers to…1,205 ch
5.07 Trial Payment Plan (TPP) a. The TPP allows borrowers to demonstrate their ability to make monthly mortgage payments, prior to the completion of a loss mitigation option. TPPs are offered when the Waterfall indicates a need for a TPP and all other qualifying criteria are met for the applicable loss mitigation option. Upon successful completion of a TPP, servicers must provide the appropriate loss mitigation option to the borrower. b. When a TPP is offered, the servicer must provide to the borrower a written TPP to outline the terms and payment amounts, not later than 15 calendar days from the date that the servicer submits the appropriate TPP event in the VALERI application. Note: Servicers must confirm the event is Accepted or Requires VA Review, as defined in Section 5.07 f. TPPs must comply with the following requirements: 1. In general, TPPs will be three (3) consecutive months in duration. Servicers are reminded that they must comply with the Government National Mortgage Association’s (Ginnie Mae) mortgage-backed securities requirements, if applicable. 2. TPP payments must equal the full monthly payment that would be due after the applicable loss mitigation option is complete.
aFor loans with an established escrow account, VA does not require…418 ch
(a) For loans with an established escrow account, VA does not require an escrow analysis prior to establishing a TPP. However, VA does not prohibit servicers from completing such an analysis as part of establishing a TPP. For loan modifications, the TPP payment includes the tax and insurance collection (i.e. T&I), if applicable, plus the anticipated principal and interest payment under the applicable modification.
bFor VA Partial Claims, the TPP payment includes the tax and…1,777 ch
(b) For VA Partial Claims, the TPP payment includes the tax and insurance collection (i.e., T&I), if applicable, plus the current principal and interest payment. 3. If the servicer sends the TPP agreement to the borrower on or before the 15th day of a calendar month, the first TPP payment will be due on day 1 of the successive calendar month. If the servicer sends the TPP to the borrower after day 15 of the calendar month, the first TPP payment will be due on day 1 of the successive month following the next month. The remaining two payments will be due on the same day for the next two consecutive months. For example, if the TPP is sent on January 5, the first TPP payment would be due on February 1. The remaining two TPP payments would be due March 1 and April 1. As another example, if the TPP is sent on January 17, the first TPP payment would be due on March 1. The remaining two TPP payments would be due April 1 and May 1. c. Servicers must cease initiating, continuing, or completing foreclosures on loans where a TPP is offered to the borrower. d. The borrower must make each of the scheduled trial payments by the final day of the month in which the payment is due. 1. Upon failure of a TPP, the servicer must proceed with delinquent loan servicing. Definition of a failed TPP: (a) Failure to make a payment by the final day of the month in which the payment is due, even if the final day of the month falls on a weekend or holiday. (b) If the servicer discovers a TPP payment was returned for non-sufficient funds (NSF) and the borrower has not replaced the payment by the final day of the month in which the payment is due, the TPP fails. If a servicer has already notified VA of a successfully completed TPP, the servicer must notify VA of the failed plan.
cIf the borrower files either a Chapter 13 or Chapter 7 bankruptcy…3,139 ch
(c) If the borrower files either a Chapter 13 or Chapter 7 bankruptcy before successful completion of the TPP, VA the TPP is failed. 2. Generally, VA will not allow extensions for TPP payments beyond the final day of the month. However, if the borrower’s late TPP payment is the result of active military deployment or activation under Title 32 orders, the servicer may request pre-approval from VA to accept and apply the TPP payment as timely. 3. If the borrower fails a TPP, the borrower must be reviewed under the Waterfall again, as outlined in Section 5.01 c. However, if a borrower has failed three (3) TPPs during the current default episode, the loan can no longer be reviewed for options that require successful completion of a TPP during the current default episode. e. After successfully completing the TPP, the servicer must provide the borrower with the final loss mitigation agreement. 1. For loan modifications, the servicer must complete the modification agreement so the modification becomes effective on the first day of the second month, following the month the final TPP payment was due. The borrower must sign and return the loan modification agreement before the effective date. If the borrower does not return the executed loan modification agreement before the effective date, the loan is not modified. For example, if the final TPP payment was due on January 1, the first payment due on the loan modification agreement must be March 1. If the borrower fails to return the executed loan modification agreement by March 1, the modification is denied. 2. For information on the steps following a successful TPP for VA Partial Claims, review Chapter 22 of this Manual. 3. The borrower is not required to make an additional TPP payment during the (interim) month in between the month the final TPP payment was due and the month in which the loan modification becomes effective. f. TPP EVENT REPORTING – Servicers report TPP related events in VALERI, using the Event Bulk Upload template, located at VALERI (VA Loan Electronic Reporting Interface) Guides and Templates. 1. Modification TPP Event. When the servicer offers a modification to a borrower that requires the successful completion of a TPP, the servicer must report the Modification TPP event. An accepted event will reflect a status of Accepted or Requires VA Review. (a) If VALERI rejects the event, VALERI has indicated the qualifying criteria were not met. (b) Servicers must report the Modification TPP event not later than 30 calendar days from the date the servicer reviewed the borrower for options under the Waterfall. 2. Partial Claim TPP Event. Refer to Chapter 22 for information on the Partial Claim TPP Event. 3. TPP Failed Event. When the borrower fails a TPP, according to the provisions outlined in this section, the servicer must report the TPP Failed event. (a) This event is used to indicate the borrower failed a Modification TPP or Partial Claim TPP. (b) Servicers must report the TPP Failed event not later than 30 calendar days from the date the servicer determines the TPP failure. Go to Top 5.08 Short Sale (38 C.F.R. §36.4322(e)) a.
VA Servicer Handbook M26-4 Chapter 5 — 5.08
5.08 Short Sale (38 C.F.R. §36.4322(e)) a. A short sale is a sale to a third party for an amount less than the borrower’s total eligible indebtedness (TEI) on the loan. This alternative should be considered when a private sale is not feasible due to little or no equity. The servicer must agree to release the lien in exchange for the proceeds of the sale. The servicer may complete a short sale under the following conditions: 1. The servicer has determined the loan insoluble. Note: Servicer evaluation of the borrower’s financial information is not required if the loan is 60 or more days delinquent, and the borrower has requested a short sale. In those instances, it is not necessary for the servicer to establish employment status, present income of the borrower(s), current monthly expenses of the borrower(s) including household, or debt obligations. 2. The net proceeds equal or exceed the net value of the property securing the loan. 3. The current owner of the property will not receive any proceeds from the sale of the property. b. Any liquidation appraisal for a property originally scheduled for foreclosure will not require a second appraisal if a subsequent short sale offer is made on the property. The exterior-only liquidation appraisal will be sufficient to complete the short sale without any further delays. c. If regulatory requirements for a short sale are not met, and the servicer believes the option would be in the best interest of both the borrower and the Government, the servicer must submit a request for pre-approval in VALERI. Refer to Chapter 6 of this Manual for more information on pre-approvals. d. In any case where the borrower has an outstanding partial claim interest, servicers must submit a request for pre-approval in VALERI. Refer to Chapter 6 of this Manual for more information on pre-approvals. An outstanding partial claim interest includes any of the following: 1. a VA Partial Claim under 38 U.S.C. § 3737; 2. a COVID-19 Veterans Assistance Partial Claim Payment under subpart F, part 36, title 38, C.F.R.; or 3. a COVID-19 Refund Modification. Go to Top 5.09 Deed-in-Lieu of Foreclosure (DIL) (38 C.F.R. §36.4322(f)) a.
VA Servicer Handbook M26-4 Chapter 5 — 5.09
5.09 Deed-in-Lieu of Foreclosure (DIL) (38 C.F.R. §36.4322(f)) a. A DIL is a voluntary transfer of a property from the borrower to the servicer in exchange for a release of all obligations under the mortgage. b. In cases when a loan is insoluble and there is little or no likelihood of a private sale, consideration should be given to accept a DIL. Completing a DIL may save on foreclosure costs, cut down on possible decreases in the value of the security, and reduce negative impacts to the borrower. A DIL is completed when the borrower executes a deed to the servicer and the deed is sent for recording, or is recorded. VA considers the custody of the property transferred to VA when the servicer reports the Transfer of Custody (TOC) event in VALERI, and the event is accepted. An accepted event will have an event status of Accepted or Requires VA Review. Servicers must submit the full title package to VA’s property management contractor. [Refer to the Title Documentation, Insurance, and Timeframe Requirements on the VALERI Internet for additional information.] Servicers may complete a DIL if all the following conditions are met: 1. The loan is insoluble. Note: Servicer evaluation of the borrower’s financial information is not required if the loan is 60 or more days delinquent, and the borrower has requested a DIL. In those instances, it is not necessary for the servicer to establish employment status, present income of the borrower(s), current monthly expenses of the borrower(s) including household, or debt obligations. 2. The VA net value of the property has been determined by subtracting the estimated costs to VA for the acquisition, and disposition of the property from the “as is” value available on the Notice of Value (NOV). 3. The quantum and quality of the title to the property meet VA’s regulatory requirements. 4. An agreement, signed by the borrower, to vacate the property when the deed is recorded or to give possession of the property to VA immediately upon notification to do so. c. In any case where the borrower has an outstanding partial claim interest, servicers must submit a request for pre-approval in VALERI. Refer to Chapter 6 of this Manual for more information on pre-approvals. An outstanding partial claim interest includes any of the following: 1. a VA Partial Claim under 38 U.S.C. § 3737; 2. a COVID-19 Veterans Assistance Partial Claim Payment under subpart F, part 36, title 38, C.F.R.; or 3. a COVID-19 Refund Modification. Go to Top 5.10 Relocation Assistance for VA Borrowers a.
VA Servicer Handbook M26-4 Chapter 5 — 5.10
5.10 Relocation Assistance for VA Borrowers a. VA authorizes servicers to advance $1,500 in relocation assistance to borrower occupants who complete a short sale or who execute a DIL. VA will treat this as a reimbursable expense that may be included in the Basic Claim event in VALERI. More information on requesting reimbursement for the relocation expense can be found in Chapter 14 of this Manual. b. VA expects servicers to proactively notify borrowers of the availability of alternatives to foreclosure and, where the Waterfall directs a servicer to offer one of the alternatives, to encourage completion of a short sale or DIL. If an alternative to foreclosure is the route taken, the servicer must also obtain the homeowner’s written agreement regarding the requirements for receipt of relocation assistance. In the case of a DIL, the agreement must specify that the property must be unencumbered by other liens or unallowable restrictions on title, that it will be kept in good and safe condition, and that it will be left ready for sale in “broom clean” condition (i.e., clear of all personal belongings, and reasonably clean) upon the homeowner’s departure. c. Relocation assistance is a way that VA helps provide necessary funds to conduct a move or pay for lodging for borrowers who are faced with the loss of their home. For servicers, the transfer of ownership via DIL or short sale is typically shorter than a foreclosure time period. Additionally, the property is left in better condition via DIL than foreclosure, which helps preserve the value of the property by minimizing the time it is vacant and subject to vandalism and deterioration. Also, alternatives to foreclosure options generally provide borrowers and communities a substantially improved outcome compared to a foreclosure sale. Go to Top 5.11 Loan Modification Oversight a.
VA Servicer Handbook M26-4 Chapter 5 — 5.11
5.11 Loan Modification Oversight a. VA performs several reviews during the life of the loan. Reviews are performed to ensure that VA’s liability was not increased due to non-compliance with VA requirements. b. Suspicious Loan Modification. VA performs a review of a loan modification if the servicer failed to report all necessary data elements in the Loan Modification Complete event, and/or VALERI determines the data has failed VA requirements. When this occurs, VALERI will open a Review Suspicious Loan Modification process for review by the VA-assigned technician. All broken business rules in the Loan Modification Complete event must be reviewed to determine the validity of infractions. VA will review the loan modification to ensure the servicer followed the requirements of the modification option used. Infractions could result in VA requesting a revision to the loan modification, possibly adjusting a claim, or taking additional administrative enforcement actions as VA determines appropriate. VA will also recover any incentive VA paid to the servicer for the completion of the loan modification. VA may require the servicer to make corrections if the terms negatively impact the borrower or the Government. Servicers must complete all corrections within 60 days of notification by VA. Failure to make corrections within the required timeframe could result in VA making an adjustment to the claim if the loan becomes delinquent and subsequently terminates. VA may also take other administrative action, depending on the seriousness or frequency of the servicer’s infractions. The following are some errors that may require further VA review: 1. The loan modification did not cure the default. 2. The interest rate on the modified loan exceeds the maximum allowable rate. 3. The term of the modified loan exceeds the maximum allowable term. 4. The new loan does not amortize to within $50 of zero over the new term. c. Early Payment Default (EPD) on a Modified Loan. VA reviews EPDs any time a servicer reports that the loan became delinquent within the first 6 months of the first payment due date on the loan modification agreement. When this occurs, VALERI will open a Review Early Payment Default process for review by the VA-assigned technician. An EPD may be the result of an improper decision by the servicer to modify the loan. VA will complete an analysis of the loan modification underwriting package, if applicable, to ensure it complies with VA requirements. Servicer errors may result in an infraction being added and a possible future claim adjustment, along with other possible administrative enforcement, depending on the seriousness or frequency of the servicer’s infractions. Go to Top Article Feedback Email Print Was this article useful?
Operationalizing VA Servicer Handbook M26-4 Chapter 5
This is verbatim, source-snapshotted regulator text from the Claude for Compliance open corpus. To turn a rule like this into compliance work product: gap-analyze your policies and procedures (P&Ps) against these requirements to surface stale, conflicting, or missing provisions; operationalize any change with a ready-to-run update kit; and produce audit-ready evidence — every step grounded only in the regulator’s own words, never invented.
To work from the whole rulebook rather than this one page: download the corpus — every register on this site, verbatim, each with its source snapshot and effective date — then follow the methodology. It asks your assistant to answer only from the downloaded text, cite the register id and effective date it used, and tell you when the corpus does not cover something instead of filling the gap from memory. Running it locally also means no one sees which regulations you are looking at.
Source of record: https://claudeforcompliance.com/regs/va-m26-4-ch05/
· register va-m26-4-ch05 · Claude for Compliance. Free to read and download;
see regulatory updates and methodology.