VA Circular 26-13-9 Special Relief Following OK Tornadoes
Investor Update: On May 22, Veterans Affairs (VA) released Veterans Benefits Administration Circular 26-13-9 subtitled Special Relief Following Oklahoma Tornadoes.
SPECIAL RELIEF FOLLOWING OKLAHOMA TORNADOES
1. Purpose. This circular expresses concern about Department of Veterans Affairs (VA)
home loan borrowers affected by Oklahoma’s severe storms and tornadoes, and
describes measures mortgagees may employ to provide relief.
2. Direct and Indirect Impact on Borrowers. Directly affected by Oklahoma’s severe
storms and tornadoes were those whose homes were severely damaged or destroyed,
the families of those killed during the storms, and those who suffered considerable
personal injury. Also directly affected were those whose work environments were
destroyed or severely damaged as a result of the tornadoes. Many others have been
indirectly affected, including business partners of those in the federally declared disaster
areas announced by the Federal Emergency Management Agency (FEMA). The impact
may continue to ripple throughout the country, as evacuees travel nationwide to seek the
support and shelter of family members.
3. Forbearance Request. VA encourages holders of guaranteed loans to extend every
possible forbearance to borrowers in distress as a result of Oklahoma’s severe storms
and tornadoes. Careful counseling with borrowers should help determine whether their
difficulties are directly or indirectly related to these storms, or whether they stem from
other sources that must be addressed. The proper use of authorities granted in VA
regulations may be of assistance in appropriate cases. For example, Title 38, Code of
Federal Regulations (CFR), section 36.4311 (Prepayments) allows the reapplication of
prepayments to cure or prevent a default. This means that if a borrower has been making
additional principal payments over a period of years, the principal balance may be
increased up to the scheduled balance and the increase applied toward regular
installments. Also, 38 CFR 36.4315 (Loan modifications) allows the terms of any
guaranteed loan to be modified without the prior approval of VA, provided certain
conditions in the regulation are satisfied.
4. Moratorium on Foreclosure. Although the loan holder is ultimately responsible for
determining when to initiate foreclosure, and for completing termination action, VA has
requested on its website (http://www.benefits.va.gov/homeloans) that holders establish a
90-day moratorium from the date of a disaster on initiating new foreclosures on loans
affected by major disasters. VA regulation 38 CFR 36.4324(a)(3)(ii) allows additional
interest on a guaranty claim when eventual termination has been delayed due to
circumstances beyond the control of the holder, such as VA-requested forbearance.
The initial request applies to loans in the federally declared disaster areas, which VA
believes should include areas declared by FEMA as eligible for public assistance as well
as those areas eligible for individual assistance. Because of the widespread impact of
Oklahoma’s severe storms and tornadoes, holders should ensure that all foreclosure
referrals nationwide during the moratorium are reviewed prior to initiation to ensure that
borrowers have not been affected significantly enough to justify delay in referral. Any
questions about impact should be discussed with the VA Regional Loan Center (RLC)
5. Late Charge Waivers. VA believes that many servicers plan to waive late charges on
loans in the disaster areas, and VA encourages all servicers to adopt such a policy for
any loans that may have been affected due to the ripple effect of the storms as mentioned
in paragraph 2.
6. Credit and VA Reporting. In order to avoid damaging credit records of Veteran
borrowers in the affected areas, many servicers may suspend credit bureau reporting on
loans in those areas. At this time, VA would encourage servicers to consider suspension
of credit reporting on Veteran borrowers nationwide who have been affected by the
storms. Similarly, VA will not penalize servicers for any late default reporting to VA as a
result of the storms. This may include direct damage to servicer facilities located in the
disaster areas or their operations elsewhere which may have been impacted by business
partners within the disaster areas. Please contact the appropriate RLC with any questions.
7. Activation of the National Guard. Some members of the National Guard have already
been called to active duty to assist in recovery efforts. Those individuals may experience
financial difficulties of their own due to what could be extended tours of duty during the
disaster recovery efforts. VA encourages servicers to extend special forbearance to
National Guard members in this situation.
8. Rescission: This circular is rescinded October 1, 2014.
By Direction of the Under Secretary for Benefits
Michael J. Frueh
Director, Loan Guaranty Service
To view the online VA Circular, please click here.
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