Mortgage companies can submit requests on behalf of more than 40,000 borrowers who need the new VA Servicing Purchase program starting at the end of next month, according to a department press release. Servicers are charged with identifying qualified borrowers.

Confirmation of the successor program fulfills a promise the VA made when it called upon servicers to put foreclosures on hold until May 31 in response to reports of borrowers affected by the partial claim's cessation but came without a comment period the industry had requested.

VASP, while different in structure and implementation from the Federal Housing Administration's new payment-supplement partial claim, has a similar goal to address difficulty modifying loans with differences in current and originated interest rates.

"This program will help ensure that when a veteran goes into default, there is an additional affordable payment option that will work in a higher interest rate environment," said Josh Jacobs, the department's undersecretary of benefits, in a press release.

Trade groups generally welcomed VASP's confirmation but expressed a continuing interest in seeing its predecessor reinstated; and warned implementation could take time.

"CHLA continues to believe that the best long-term action would be the implementation of a comprehensive, partial claims program," said Scott Olson, executive director at the Community Home Lenders of America in an emailed statement. "However, in the short run, it is critical that actions are taken to make sure distressed VA borrowers are protected." 

Bob Broeksmit, president and CEO of the Mortgage Bankers Association, expressed a similar interest in reviving the department's partial claim, and also asked borrowers to be patient given that servicers may need beyond the end of next month to fully implement the new program.

"While the VA has announced a May 31 effective date, it is important for veterans to understand that the VA has assured servicers that additional time will be provided to implement this complex and novel program," Broeksmit said.

In a separate notice posted in the VA's servicing portal, the department said VASP would need to be implemented by Oct. 1, noting that mortgage companies facing challenges in meeting deadlines due to technology issues or otherwise could reach out for assistance.

"Veterans who are having difficulty reaching a resolution with their mortgage servicer can contact VA at 877-827-3702, option 4," the department said in its press release.

The VA cited budgetary concerns in discontinuing the partial claim back in October 2022. Complications related to the nature of the partial VA backing for loans and the agency's structure may have played roles as well.

The department said in its press release that VASP "will result in a government subsidy reduction of approximately $1.5 billion from 2024 to 2033" because it'll cost less to purchase homes through the program than it would be to go through with foreclosures on them.

The mechanism the department will use to lower rates to 2.5% through VASP involves buying them from servicers, and modifying them. It will hold the mortgages in a VA-owned portfolio as direct loans, something that's only been done through smaller scale transfers in the past.

In contrast to VASP, the department's partial claim involved setting some borrower obligations aside in a second lien that generally comes due when the first mortgage is refinanced or the home gets sold.

VASP will be only a "last resort," according to the department, which instructed servicers to consider all other available options first. The department helped prevent a total of 145,000 foreclosures through other programs in 2023.