New VA Program Allows Government to Buy Up to 30% of Veterans' Mortgage Debt to Prevent Foreclosure

The Veterans Housing Stability Act of 2025 is trying to solve a serious problem: veterans defaulting on their VA-guaranteed home loans. The bill introduces a new tool called the Partial Claim Program, which is essentially a lifeline for veterans struggling with mortgage payments.

The VA Becomes Your Second Mortgage Lender

Here’s the deal: If a veteran is in default or about to be, the VA Secretary can step in and make a “partial claim.” This means the VA buys a chunk of the debt the veteran owes—up to 25% of the remaining principal balance. If the veteran was already behind when this Act passed, or if the default is due to a major disaster, the VA can cover up to 30% of the balance. The money goes directly to the lender to cover missed payments and costs needed to fix the default, and the veteran doesn't pay any administrative fees for this transaction.

For the veteran, this is huge because they agree to pay back that VA-purchased portion later—usually when the main loan is paid off—and the best part is that this repayment is interest-free. Think of it like a zero-interest second mortgage from the government that clears your immediate debt crisis. In exchange, the VA puts a second security interest (a lien) on the property right behind the main lender.

The Catch: Unchallengeable Decisions and Future Entitlement Risk

While the interest-free debt relief is a clear benefit, the bill hands the VA Secretary immense power. The decision to offer a partial claim, and the terms of that claim, is entirely at the Secretary’s “sole discretion.” Even more critically, the bill states that the Secretary's decision cannot be challenged in court. For a veteran who believes they meet the criteria but is denied, there is no legal recourse. This concentration of unchallengeable authority is a serious provision to watch.

Furthermore, the program creates a new risk for veterans down the road. If a veteran accepts the partial claim but later defaults on the repayment to the VA, they become liable for any loss the VA suffers. They also face a reduction in their total available entitlement for any new VA-guaranteed mortgages they might seek in the future. Essentially, you trade an immediate foreclosure risk for a future debt obligation that, if mishandled, could cost you your eligibility for subsequent VA loans.

Putting the Squeeze on Lenders

This bill also introduces new teeth when dealing with loan holders (lenders). It establishes civil penalties for lenders who knowingly and significantly lie on paperwork related to this new Partial Claim Program or existing default procedures. The penalty can be steep: the greater of two times the loss the VA suffered, or up to $27,894. This is a clear move to ensure lenders play by the rules and don't try to game the system using false claims. The VA is also strongly encouraged to tell lenders to put a temporary hold (a moratorium) on foreclosing on VA-guaranteed loans until this new program is fully operational, forcing a temporary pause on foreclosures while the machinery gets set up.