House veterans subcommittee grills VA and industry on VASP, partial-claim options and taxpayer risk

House Veterans' Affairs Subcommittee members questioned Department of Veterans Affairs officials and mortgage-industry witnesses about the scope and risks of the VA Servicing Purchase Program, or VASP, and whether the department should adopt a permanent partial-claim option to prevent foreclosures.

The discussion matters because tens of thousands of VA-backed borrowers face higher mortgage costs in a rising-rate environment, and the choice of relief tools affects both how many veterans keep homes and the size of taxpayer exposure.

VA witnesses said VASP was a last-resort tool deployed during a period of sharply higher rates, and that the department is evaluating other loss-mitigation options. ‘‘We have 15,000 veterans that are in the VASP program,’’ John Bell, executive director for loan-guarantee services at the Department of Veterans Affairs, told the subcommittee. Industry witnesses and some lawmakers urged adoption of a permanent partial-claim program instead, arguing it would better preserve homeownership while limiting taxpayer risk.

Mortgage bankers said partial claims allow missed payments to be moved to the end of a loan without changing the borrower's interest rate, reducing payment shock if rates fall later. ‘‘A partial claim is a proven foreclosure-prevention tool used by FHA,’’ Elizabeth Balcay, executive vice president of servicing at Carrington Mortgage Services, testified on behalf of the Mortgage Bankers Association. She added that a partial-claim program should not reduce the VA’s 25% loan guarantee or impose repayment terms that would unduly burden veterans.

Think-tank witnesses warned of moral-hazard and fiscal risks if the VA increasingly acquires and manages loans. ‘‘VASP has fundamentally altered the VA’s role in lending… It could disrupt the alignment between private servicers, the VA, and veterans,’’ Tobias Peter, co‑director of the Housing Center and senior fellow at the American Enterprise Institute, said. Peter said VASP-style purchases can shift risk to taxpayers and create incentives that weaken market discipline.

Committee members pressed VA for data and legal analyses. Representative McGarvey criticized VA witnesses for being unprepared on staffing and program details, and repeatedly asked whether VA had the statutory authority to institute a permanent partial-claim program; VA officials said they would take several questions for the record and work with the committee. Several members requested a legal analysis of VA’s authority and a timeline for implementation.

On operational details, witnesses and lawmakers cited the program’s scale and financial magnitude: Bell said the VA’s VASP portfolio includes roughly 15,000 loans and that VA’s average loan amount is in the low‑to‑mid $300,000 range. Bell also said about 301 borrowers in the purchased portfolio were in foreclosure proceedings, and that foreclosure processes vary by state.

Industry witnesses urged Congress to adopt a permanent partial-claim authority with clear operational details — including how the partial claim would interact with VA’s 25% stop‑loss protection, whether repayment terms should differ from other federal programs, and how long any pilot or sunset should run. MBA recommended avoiding a short sunset and ensuring the partial claim would not reduce lender guarantee coverage.

Chairman Van Orden opened the hearing noting multiple related bills on the agenda, and lawmakers from both parties stressed urgency. Some members warned that eliminating VASP before a workable partial-claim alternative exists could lead to an increase in veteran foreclosures. ‘‘Without VASP, VA would have foreclosed on tens of thousands of homeowners,’’ Balcay said succinctly when asked about consequences of ending the program before alternatives were in place.

The subcommittee did not vote on legislation. Members and witnesses agreed on the need for additional data — including legal authority memos, precise counts of affected borrowers, and a timetable for implementation — before Congress moves to legislate. Several members said the committee will expect prompt follow-up responses from VA.

Ending notes: Committee members asked VA to provide detailed legal and operational analyses, and to return answers for multiple questions taken for the record. The department said it would engage further with the committee as it considers reforms to the VA home‑loan program and related loss‑mitigation tools.