VA Provides Guidance Regarding Interest Rate on Loan Modifications with a Trial Payment Plan

VA Circular Letter 26-20-28 provides guidance to servicers regarding the interest rate for loan modifications with a Trial Payment Plan (TPP).  The guidance becomes effective on September 1, 2020, and is described as follows: 

• TPP approval date is also the date the Modification Agreement is approved;
• Pre-Approval request will no longer be used to lock in the market interest rate for modifications with a TPP;
• Reduction of interest rate by one percent or more between TPP approval and final scheduled payment on the TPP requires recalculation of “…the interest rate using the reduced rate at the time of the final scheduled payment”; and
• Modifications without a TPP are not impacted.

Guidance is also provided for Regional Loan Centers to ensure servicer compliance.  Non-compliant loans will be flagged for Post Audit review.