The Department of Veterans Affairs has technically ended some temporary mortgage relief. But there's a phase-out process that could sustain loan buyout activity in Ginnie Mae securitizations another couple of months.
"Despite VASP's termination on May 1, VA buyouts remain elevated for June print (May speeds), which we believe is mainly a result of the permissible VASP timeline," Bank of America researchers said in a report published Monday.
"Although direct data disclosure on VASP is not available, the evidence is solid that the recent pickup in VA buyout is VASP-driven," they added.
That means some nonbank mortgage companies may want to ensure they have the capital available to handle relatively higher buyouts from securitized pools through the summer. Ginnie guarantees securitizations of mortgages that other public entities back at the loan level.
"Discount VA speeds did pick up for a handful of servicers (led by Village, The Money Source, NewRez, Planet Home, Crosscountry) indicating heavier usage of VASP," the Bank of America researchers said in their report.
Why VASP posed challenges as a long-term program
Some Democrats and consumer groups have called for
But one industry executive who works with the Mortgage Bankers Association said it had an unnecessarily high price tag that made that difficult.
"The VASP program was giving a permanent lower interest rate to solve what may be a short term problem (e.g. job loss)," said David Battany, executive vice president, capital markets, at Guild Mortgage, and chair of the MBA's Residential Board of Governors.
"This was not great for taxpayers or veterans, because one of them would be having to pay the bill for the 20+ point loss on each loan that was modified," he said, referring to the fact that the 20 cents lost on the dollar could detract from funds available to other VA programs.
A potential VASP successor and where it stands
The VA department, which still has other forms of relief available beyond VASP, could also still go back to offering a partial claim program
"It is much better to have a servicer offer a loss mitigation that better fits a veteran's situation, that gives them more help now when they need it, such as forbearance where the veteran is making zero monthly payment if they lost their job, and then when they get a new job, the servicer can do a partial claim for the amount of the missed payments," Battany said.
"If a veteran loses their job and gets temporary forbearance of a zero mortgage payment for 6-18 months, adds the amount of their unpaid loan payments to the back end of their mortgage, the total cost to the system is way less than the 20+ point loss to taxpayers on every loan that goes through the VASP process," he added.
The VA offered a temporary partial claim during the pandemic but it also had financial burdens associated with it. Those prompted the department to discontinue it back the temp partial claim in 2022. The department created VASP last year to succeed the pandemic partial claim.
