VA Ends Low-Rate Loan Program, Stranding 15,000 Veterans With Higher Payments

More than 700 veterans have seen their monthly mortgage payments increase by at least $1,000 since the Department of Veterans Affairs shut down a low-interest loan modification program in May 2025. This financial burden follows the abrupt end of the Veterans Affairs Servicing Purchase (VASP) program, which had offered distressed borrowers a 2.5% interest rate to roll missed payments into their existing loans.

Data obtained by NPR indicates that more than 15,000 veterans with modified loans now pay at least $150 more each month than before. The program closure forced many borrowers to accept new loan terms at current market rates, which hover near 7%. This contrasts sharply with the broader U.S. mortgage market, where government-backed loan modifications typically lower or maintain payments for 98% of borrowers. For VA loans, 63% of veterans who received a modification during the transition period saw their payments rise.

The administration ended VASP on May 1, 2025, in coordination with House Republicans who opposed the program created by the Biden administration. Rep. Derrick Van Orden, a Wisconsin Republican and committee member, argued that VASP placed taxpayers on the hook for thousands of difficult-to-service loans. He warned in March 2025 that allowing VASP to continue could jeopardize the future of the VA home loan program. Despite these concerns, industry leaders warned that killing the program without a replacement would leave veterans stranded with higher-cost modifications.

Scott Boyd, an Army veteran living near Columbus, Ohio, experienced these consequences firsthand. After losing his job and seeking treatment for PTSD at the Dayton VA hospital in 2025, Boyd fell behind on his mortgage. His lender advised him to wait for VASP assistance, a program that allowed him to pause payments and resume with affordable terms. When the administration ended VASP, Boyd was presented with a new modification at a 6.75% interest rate, up from his original 2.75% rate. His monthly payment jumped by $1,181, and his loan term extended to 40 years, shifting the majority of his payments from principal to interest.

Boyd accepted the modification to avoid foreclosure while his new job and health remained unstable. Two weeks after he signed the new terms, the VA announced its replacement program, the Partial Claim Program (PCP). The PCP allows veterans to move missed payments to the back of their loan term while retaining their original interest rates. However, the VA took more than 13 months to design the new program after closing VASP. Mortgage companies received 180 days to implement it, and most did not begin offering the PCP until months after veterans like Boyd had already locked into higher payments.

The new PCP does not apply to veterans who already accepted modified loans during the gap between the two programs. Those borrowers remain stuck with their higher interest rates and extended terms. Rep. Mark Takano, a California Democrat and ranking member of the House Veterans' Affairs Committee, criticized the outcome. He stated that veterans who were already financially distressed were hit with increased payments, calling the situation "the height of insanity." Takano noted that the VA could move these veterans back into lower-cost mortgages, or Congress could pass a law to do so.

The VA defended its decision in a statement, asserting that the home loan program is based on the premise that veterans must generally be able to make their mortgage payments. VA press secretary Quinn Slaven wrote that many leading voices in Congress supported the termination of VASP, which he said put the entire home loan program at risk. Slaven did not directly address the specific group of veterans who incurred higher payments during the transition period.

Foreclosures on VA loans rose to a 10-year high following the shutdown of VASP, according to industry data. Experts at a congressional roundtable in September warned that the government has limited time to assist these veterans before a larger wave of foreclosures occurs. The VA gave mortgage companies a deadline of November 28 to fully implement the PCP. As of October 2026, most of the industry is still in the process of standing up the program, leaving veterans who entered the gap period with no current mechanism to revert to their original loan terms.