"We are calling on mortgage servicers to pause foreclosures of VA-guaranteed loans through May 31, 2024," the VA said in a press statement circulated over the weekend. "During this pause, we will work with servicers on workable home retention solutions for veterans."

The suspension followed recent press reports about the discontinued partial claims program's impact on borrowers and a letter from a group of Senate Democrats calling for such a change until its replacement, the VA Servicing Purchase program [VASP], can be established.

In addition to asking servicers to put a hold on foreclosures, the VA said it also will extend through the COVID-19 Refund Modification program, scheduled most recently to expire at the end of this year, to May 31.

The latter program is aimed at allowing borrowers to receive an adjustment in their mortgage terms that would make their go-forward payments more manageable. It also permits them to get a separate loan to cover monthly obligations they haven't fulfilled without incurring interest. 

"During this pause, we will work with servicers on workable home retention solutions for veterans," the VA said in an emailed statement. 

While consumer advocates generally applauded the borrower assistance measures, industry stakeholders and experts at the time of this writing had questions about the potential impact of the changes on servicing advance obligations.

"What's scary is to put another kind of a moratorium on foreclosures, which means that lenders can't move forward to deal with the delinquent borrowers," said Ted Tozer, former president and CEO of government agency Ginnie Mae and nonresident fellow at the Urban Institute.

Housing finance companies that are Ginnie servicers have to provide funds for investor payments from securitizations of government loans that the agency guarantees when borrowers aren't meeting their obligations.

"The issuers are going to have to keep advancing the principal and interest payments to the bondholders, that really can put — especially small to medium-sized — independent mortgage bankers extremely at risk of failure," said Tozer.

Tozer has suggested that Ginnie could help these companies obtain financing by guaranteeing one-year commercial-paper funding facilities from the private market under the same authority it has to to back securitizations but would need congressional funding to do it.

Ginnie Mae had not responded to an inquiry at deadline.

The VA's statement also raised questions about how voluntary compliance with the directive was, said Peter Idziak, an attorney at Polunsky Beitel Green.

"They're 'calling on servicers' to stop foreclosures until May 31, of 2024, and that, to me, is a little bit — as a lawyer — less strict than 'we are updating our policies,'" he said.

While the move could be helpful to some VA borrowers in the foreclosure process, for those further along the impact could be mixed, he said.

"I think it's laudable to keep homeowners in their homes as much as possible, but for those that thought of foreclosure as a way to get out from under their obligations, they're stuck in limbo," Idziak said, noting they may not qualify for the refund mod or the VASP.

While there were industry questions about how the VA's announcement would impact the full range of borrowers, consumer groups projected the number it would help made it generally positive.

"The foreclosure pause is badly needed as veteran borrowers have had no meaningful alternatives to foreclosure for over a year," said Steve Sharpe, senior attorney at the National Consumer Law Center, in a press release.

With a measure available to bridge the gap the partial claim program's discontinuation created, the Center for Responsible Lending estimated that the number of borrowers that avoid foreclosure could number in the five digits.

"The VASP program will give tens of thousands of active-duty servicemembers and Veterans the assistance they have earned through their service," said Kanav Bhagat, a consultant who has worked with the Center for Responsible Lending on the issue, in the same press release.

Both Democrats and Republicans have faced criticism for increasingly weighing in on mortgage policy in a partisan manner in the lead-up to the next presidential election.

Industry groups also have been calling on the VA to do something about the gap between the partial claims program and its successor. 

The VA had some unique considerations from "a budgetary standpoint" that led to the program's discontinuation, John Bell III, executive director of the loan guaranty program, told attendees at the Mortgage Bankers Association's servicing conference earlier this year.