What Happened?
On April 23, 2025, the U.S. Department of Veterans Affairs (VA) issued Circular 26-25-2 (the Circular), which announces that the VA’s Veterans Affairs Servicing Purchase (VASP) program is winding down. As of May 1, 2025, the VA will no longer accept VASP submissions and will rescind the VA Home Retention Waterfall. New VASP submissions received in VALERI by the deadline will be evaluated against the VASP qualifying criteria “subject to VA’s determination that funds remain available for VASP.”
Why Does it Matter?
VA implemented the VASP program in May 2024 as the final option in the VA Home Retention Waterfall (i.e., Appendix F to VA Servicer Handbook M26-4), to assist borrowers in finding an affordable loss mitigation option given the high-interest rate environment.
The Circular states that, as of May 1, 2025, VA will rescind the VA Home Retention Waterfall and will stop accepting VASP submissions, including new VASP trial payment plans (TPPs). However, VA will allow active TPPs to continue through August 31, 2025, and will purchase successful loans, subject to VA’s determination that funds remain available for VASP.
VASP Wind Down Key Dates and Requirements
The Circular sets forth the following key dates and program parameters with which servicers are required to follow as the VASP program winds down:
- VA Home Retention Waterfall: Servicers are required to discontinue use of the VA Home Retention Waterfall outlined in Appendix F to VA Servicer Handbook M26-4 (the Handbook), as soon as practicable, but no later than April 30, 2025, at 11:59 p.m. EDT (the Cutoff Date).
- VASP Event Submissions: On May 1, 2025, VA will no longer accept submissions for new VASPs in VALERI. Submissions for new VASPs reported through the Cutoff Date will be evaluated against the VASP qualifying criteria, and if accepted, VA will review for a VASP payment, subject to VA’s determination that funds remain available for VASP.
- TPPs: Veterans are permitted to continue making payments and complete VASP TPPs for any loans with an accepted VASP TPP event reported through the Cutoff Date. VA will not accept resubmissions of failed VASP TPPs after the Cutoff Date.
- VASP TPP Complete Events: Servicers must report the VASP TPP Complete event in VALERI for all completed VASP TPPs. VASP TPP Complete events should be reported when a VASP TPP fails, or the final payment is received. Any active TPP for which the VASP TPP Complete event is not received by the Cutoff Date will be canceled.
- VASP Required Documents: Servicers must upload required VASP documents into VALERI no later than 6 business days after the VASP Payment Process is launched. Beginning May 1, 2025, VA will deny VASP submissions when the servicer does not meet the 6-business day deadline, and VA will not provide servicers with an opportunity to resubmit. Servicers are responsible for monitoring pending submissions to ensure required documents are timely uploaded before the deadline.
- VASP Payment Process: For VASPs that are timely submitted by the Cutoff Date, and have ongoing active TPPs, VA will review pending VASP Payment processes for all successful submissions received through the Cutoff Date, subject to VA’s determination that funds remain available for VASP. However, no VASP payments will be issued after September 30, 2025 at 11:59 p.m. EDT.
Discontinuation of VA Home Retention Waterfall
As noted above, effective May 1, 2025, servicers are required to discontinue use of the VA Home Retention Waterfall and review veterans for all options outlined in Chapter 5 of the Handbook (Chapter 5). Servicers must offer the best loss mitigation option available for the borrower’s individual circumstances. Servicers are not required to follow the review outline in the VA Home Retention Waterfall; however, servicers must keep VA’s preferred order of consideration in mind.
Additionally, the Circular modifies VA’s pre-authorized loan modification requirements in Chapter 5 by removing the minimum 10% principal and interest payment reduction target for the 30- and 40-year loan modifications, effective May 1, 2025.
What Do I Need to Do?
The industry has been preparing for this wind down but, now that it’s here, servicers should take extra caution to ensure that any submissions before the Cutoff Date are error free. Servicers also should begin reviewing their loss mitigation policies, procedures, systems, and borrower-facing correspondence and make necessary updates in preparation for the discontinuance of VASP and the VA Home Retention Waterfall. Servicers should also consider ways to mitigate risk against a VA determination that funds are unavailable for VASP. Alston & Bird’s Consumer Financial Services Team is actively engaged and monitoring these developments and can assist with any compliance concerns regarding these changes to VA requirements.
