Oversight and Resolution of Home Loan Defaults

The VA Office of Inspector General (OIG) conducted this audit to determine whether the Veterans Benefits Administration (VBA) Loan Guaranty Service provided required oversight of the default resolution process for VA-guaranteed home loans. VA’s reported default resolution rate has steadily increased each year for the last four fiscal years from 2015 to 2018. The Loan Guaranty Service monitors loan servicers and intervenes as needed to ensure delinquent VA home loan borrowers have all available alternatives to foreclosure. The OIG found the Loan Guaranty Service did not always provide sufficient oversight to ensure borrowers in default received the needed assistance. The audit team estimated, based on a sample review of 200 loans, that 14 percent of loans had at least one oversight deficiency. Specifically, the OIG team found the Loan Guaranty Service was sometimes unaware servicers were not reporting loan status, and at other times did not ensure loan servicers sent borrowers the required loss mitigation letters. The OIG team also found that the Loan Guaranty Service did not conduct quarterly monitoring of loan servicing and did not implement a mandatory tier-ranking system for loan servicers. The OIG team and the Loan Guaranty Service also identified potential loan servicing risks to borrowers in disaster areas. The Loan Guaranty Service director said upgrades to the VA Loan Electronic Reporting Interface (VALERI) system implemented on May 28, 2019, were to provide the missing capabilities. The OIG recommended that the under secretary for benefits implement controls to identify and address unreported monthly loan statuses in VALERI, make certain loan servicers report when loss mitigation letters are sent and cite them for infractions when required, ensure key loan servicer performance statistics are generated, and develop a plan to implement a formal tier-ranking system for loan servicers.