March 4, 2011 (Chris Moore)
The Department of Veterans Affairs (VA) has issued new regulations regarding loan modifications to existing VA home loans. The new rules are designed to add more flexibility and encourage loan holders to modify more loans.
The VA revised its regulations back in 2008 to give loan servicers more authority in modifying VA loans without prior approval from the federal agency. However, portions of that rule created obstacles and burdens when it came to modifying loans. The new rules were created to address those obstacles.
Previously, interest rates for a VA modified loan was calculated on the Ginnie Mae coupon rate. The new rule changes that and rates will now be based on the conforming 30 year fixed mortgage loan rate released weekly by Freddie Mac. The new maximum interest rate on a modified loan can be no more than 50 basis points above the Freddie Mac rate and is now based on the executed date of the loan modification, rather than the date of approval. The date of execution is the day the loan modification agreement is signed by the borrower.
The previous regulation allowed loan modifications without a limit on the interest rate, now the lender is required to get a prior approval on any VA modification in which the interest rate increases by more than one percent over the existing rate.
If a state housing finance authority holds the loan, the interest rate on the modified loan may now remain the same as the original loan’s interest rate when the law governing the state agency’s program prohibits a change in the interest rate.
The VA also amended the regulation to allow legal fees and foreclosure costs to be capitalized in the modified loan balance along with the items previously allowed such as principal, accrued interest, and deficits in taxes and insurance impound accounts. The advantage of this is that a veteran can now finance all of the costs instead having to make an up-front payment which might have prevented them from being able to get a loan modification.
The most important thing to remember is, don’t wait. These new rules have already taken effect. If you’re a veteran and you’re starting to have problems, contact your lender right away. Veteran loans have more built-in protections than conventional loans but waiting can increase your costs down the road. Get help early and take advantage the benefits you’ve earned.
Tags: VA, loan modifications, new regulations, loan servicers, interest rates, modified loan, Freddie Mac, legal fees, foreclosure costs
