Interest Rate on Loan Modifications with a Trial Payment Plan
Veterans Benefits Administration
Department of Veterans Affairs
Washington DC
Circular 26-20-28
August 12, 2020
Interest Rate on Loan Modifications with a Trial Payment Plan
1. Purpose. This Circular provides guidance to mortgage loan servicers regarding the
interest rate for loan modifications with a Trial Modification, also known as a Trial Payment
Plan (TPP), on Department of Veterans Affairs¡¯ (VA) guaranteed home loans.
2. Background. Loan modifications allow servicers to extend permanent payment relief to
impacted borrowers that are behind on their mortgage payments. A TPP allows borrowers to
demonstrate their ability to make the modified monthly mortgage payments, prior to the
completion of a permanent modification. VA regulation 38 CFR 36.4315(a)(8)(i) requires
mortgage servicers to modify the loan at a rate that does not exceed the most recent Freddie
Mac Weekly Primary Mortgage Market Survey Rate for 30-year fixed-rate conforming
mortgages, rounded to the nearest one-eighth of a percent (0.125%), as of the date the
Modification Agreement is approved, plus 50 basis points. In the past, VA has used the date
of the final modification approval, after the completion of the trial payments, to calculate the
rate. If servicers preferred to calculate the interest rate at the start of the TPP, they had the
option to request Pre-Approval in the VA Loan Electronic Interface (VALERI) application to
lock in the rate.
3. Guidance. Below is the guidance for determining the interest rate for modifications with
TPPs.
a. Servicers will consider the date the TPP has been approved as the date the Modification
Agreement is approved.
b. Servicers will no longer use a Pre-Approval request to lock in the market interest rate for
modifications with a TPP.
c. In cases where the interest rate has reduced by 1% or more between the time of the TPP
approval and the final scheduled payment on the TPP, the servicer must recalculate the
interest rate using the reduced rate at the time of the final scheduled payment.
d. There is no impact to modifications without a TPP. The interest rate will continue to be
calculated based on modification agreement approval date.
4. Additional Guidance for Regional Loan Centers. To ensure servicers are reviewing the
market rate at the time of the final TPP payment, Regional Loan Centers (RLCs) will review
the interest rate at the time of the Non-Routine and Routine Incentive processes. If the
interest rate appears to have dropped by 1% or more between the approval of the TPP and
the estimated date of the final scheduled payment, RLCs must notify the VALERI Helpdesk
at VALERIHELPDESK.VBACO@ to flag the case for Post Audit review.
(LOCAL REPRODUCTION AUTHORIZED)
Circular 26-20-28
August 12, 2020
5. Effective: This guidance is effective September 1, 2020.
6. Rescission: This Circular is rescinded August 1, 2021.
By Direction of the Under Secretary for Benefits
Jeffrey F. London
Executive Director
Loan Guaranty Service
Distribution: CO: RPC 2024
SS (26A1) FLD: VBAFS, 1 each (Reproduce and distribute based on RPC 2024)
2.
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