The veteran loan calamity

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1:24It's gorgeous farmland out here. Yeah, it's nice. Picture a Jeep bouncing along a dirt road in rural Oklahoma. Is that their house? What does it say? It's on the right or the left? I think it's on the left. These are two of my colleagues, NPR reporters Quill Lawrence and Chris Arnold, and they're pulling up to a house. Is that right? I think that's right, yeah. Kind of the house, really, that's been at the center of this astonishing and frankly pretty bizarre problem that has been unfolding over the last couple years. They get out of the car, microphones recording, of course. How are you doing?

2:06Doing good, how are you? Good. Good. Just, um, you know. I apologize if you guys put microphones in your face. No, it's fine. They're greeted by the homeowners, Ray and Becky Queen. Ray served in the army in Iraq. You've got Arabic on your wrist, actually. It was done in Iraq. Oh, yeah. A buddy of mine bought a tattoo machine. On the fob? On, yeah. Where were you? Liberty. Oh, okay. That's where we were based. The Liberty Victory Complex. That nonsense, yeah. Yep, that nonsense. When Chris first met Ray and Becky Queen, they were about to lose their house. Because, somewhere, in some governmental office, a decision was made about how to help veterans keep their homes during COVID.

2:49and it had gone catastrophically wrong. I didn't want to talk to you in the first place, I'm going to be honest with you. That's just not my thing. When you told me how many people this affected, it made me feel a lot better about wanting to get this fixed. Hello and welcome to Planet Money. I'm Kenny Malone. Today on the show, we ride along with our colleagues at NPR as they uncover a single change to some wonky mortgage terms that not many people were paying attention to. The result of that change, tens of thousands of veterans were about to lose their homes because of a policy meant to help keep them in those homes.

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4:20Twice weekly shows will feature in-depth debates and discussions with The Economist senior editors as they share expertise and analysis to make sense of an increasingly complex and dangerous world. More at economist.com slash insider. Let's make sure everyone is rolling. Rolling. Rolling. Hang on the AG in Maryland is texting me about something. This is the most Chris Arnold way to start an interview. Oh, I'm sorry. The attorney general in another state is texting me about something else. Chris Arnold is a reporter for NPR's investigations team. He has been on the show many times before. And this particular story starts when Chris got a call from a lawyer.

5:03The lawyer, she was like, look, I got a call from this guy and I don't know if I can help him. His house has already been foreclosed on. Somebody screwed up. He had a COVID mortgage forbearance and the family's like about to be put out on the street. Yes, COVID mortgage forbearance. When COVID hit, 20 million people lost their jobs. But we hoped it was going to be a temporary thing. And so Congress said like, hey, look, if you're a homeowner and you're in trouble, You are allowed to temporarily pause your mortgage payments and not lose your home. That is forbearance. And it's become an important part of the crisis playbook.

5:45The system, the financial system learned after the 2008 financial crisis and the foreclosure mess and millions of people losing their homes, it learned that like, well, everybody wins if you can avoid a foreclosure. Like the people on the other end that are trying to collect the money win, you know, the neighborhood wins, the homeowner wins. So forbearance comes into play where it's like, all right, well, something happened. I'm in between jobs. So I might not be able to pay my mortgage for three or four months, but I'm getting another job. So just hang with me here, you know? Yeah. And even when there is not a crisis, you can usually work with your lender to pause mortgage payments for just a few months.

6:25With COVID, though, the government extended that. Homeowners were ultimately allowed 18 months of forbearance. However, Chris was hearing that something was going very wrong with that system, and it seemed to be hitting one particular group of homeowners. I remember hearing from some lawyers who were, you know, like people are about to lose their house, they start calling lawyers. And they were telling me they're getting a lot of calls from veterans, like something wasn't right. Yeah, so I was out in L.A. doing a story on homeless veterans, actually. That is Quill Lawrence, our second guide today.

7:03Quill covers veterans affairs for NPR. And Chris reaches out to me, and he's got some story about veterans losing their homes. And I'm not used to hearing from Chris about veterans stories. He's the mortgage guy. So Chris and Quill went searching for somebody who was in the middle of this big problem, somebody who was about to lose their home. And eventually I got connected with this couple, Ray and Becky Queen, in Bartlesville, Oklahoma. And I was like, OK, yeah, let's talk to these guys. This is the letter that I received, my husband and I received yesterday, stating that our home is now in foreclosure.

7:48They're starting foreclosure proceedings. Ray and Becky Queen have four kids. Ray works for a veterans nonprofit, veterans education stuff. Becky's a social worker. And a few years ago, they moved to Oklahoma for Becky's job. We purchased the home that we are in now in June of 2021, babe, June-ish. Yeah, we moved here at the middle of June 20—no. Oh, when we bought the house, yeah. Yeah. So just, and just so you're aware, I have brain damage from my time in Iraq. And so my memory is absolutely not great. So that's why Becky does most of the talking, because she's basically the memory bank for both of us.

8:37Ray and Becky were able to buy their home because of one of the key benefits of military service, what's known as a VA home loan. It's a loan that is backed by the Department of Veterans Affairs. And these loans date back to World War II. You know, veterans, all the GIs returning from the war, it was a way for them to get a leg up into the middle class. Part of the deal, and part of the reason veterans are a protected class, is, yeah, because when they come back, you want some stability for them. And so the deal that they get includes, you know, health care if they need it, and some benefits for disability like Ray has, and also this really sweet home loan with no money down and a really good interest rate.

9:23And the Queens are able to get that no money down, low rate mortgage, in part because the Department of Veterans Affairs acts as this almost like very good, very rich friend for the Queens. The VA basically says to mortgage lenders, hey, you can lend to the Queens, and we promise one way or another, you'll get paid back. And look, like this is something the US government does for most people who buy a home. You've likely heard of Freddie Mac or Fannie Mae, the FHA. These are the massively rich friends that back most of the home loans in the US and that makes it less risky for banks to make loans and has generally brought mortgage rates down.

10:03But yeah, anyway, it is the Department of Veterans Affairs that helped Ray and Becky Queen get the house that they show to Chris and Quill. And in the kitchen, the kids have not done the dishes, so we'll just ignore that, too. They gave us a tour of the house, and it's, like, very comfortable. The kids are hanging out, doing their homework, playing video games, I mean, you know, doing stuff outside. It just feels like a place that they've just settled in. Come here, Blaze. It's nothing remotely grand or ostentatious, but it feels so homey. I got lots of chickens, much to raise chagrin. On this really cute little farm.

10:52It's more farm than house. There's this one moment where one of the kids just fires up this four-wheeler ATV thing. It's like kid size. And he just goes flying off around this field with a helmet on. He's bouncing around. And it just looked like so much fun. I was honestly jealous. Like, I want to be doing that. That looks great. Well, and it must feel good to have, you know, you got a house with some land and your kid can go tearing off on the four-wheeler. Yeah, it wasn't a possibility when I was a kid for multiple different reasons. So it's great that they're able to explore the things that they want to do.

11:33He's an engine guy. He's probably going to be an engineer. At almost 11, he's smarter than I am already. Like Ray said, he was wounded in Iraq. I don't know, in my experience, sometimes it's hard for these folks to find a peaceful spot. But this looks like his peaceful spot to me. When Chris first met the Queens, they were about to lose all of that. During COVID, Becky and Ray were among the millions of Americans who needed the help of mortgage forbearance. Becky's mom died of COVID. Becky had to take extended leave from her job and then lost her job. She called up the company that now handles her mortgage payments.

12:19And they told her, yeah, you can pause your payments. So I'm 41 years old and I do my research. I'm not just going to be like, oh, sign me up. I don't have to pay you. Cool. I did my research. I looked into everything. I called numerous, numerous times. And every time I was told a forbearance is very simple. It is, it's meant to last short term up to a year. And at the end of that year, whatever you did not pay is tacked on to the end. Right. She says that they told her that when it was time to start making her mortgage payments again, nothing would really change. Those those missed payments would move to the end of the loan.

13:06So so basically, if she missed a year of payments, she would still owe those just, you know, like way, way down the road. The way we were told explained it, it would be a fairly simple process. You start making payments again and you're done. And to be clear, this is a very normal way to restart payments after forbearance. And the vast majority of homeowners who had trouble during COVID were able to resume making their mortgage payments in some affordable way. But a lot of military veterans with VA loans were not able to do that. When the Queen's forbearance period was up, when they got their repayment options, that simple, affordable version of forbearance where you just move the missed payments to the back of the loan, it was nowhere to be found.

13:56So they were told they could pay back all of their missed payments all at once,$22 ,000, which they didn't have, or they could do what's called a loan modification. But rates had gone way up. I mean, mortgage rates had doubled. And that meant if they did a loan mod, their payments were going to go up by a huge amount. They couldn't afford any of those options. And after arguing on the phone for months with their mortgage company, saying this wasn't supposed to be the deal, they eventually realized they're going to be facing foreclosure. And when I tell you that my heart dropped and, like, my hands were shaking, and honest to God, I – it was scary.

14:38I was at work and I ended up I ended up leaving and telling Ray that, you know, I needed to talk to him before the kids got home from school because that was not something that the kids needed to hear. I mean, when I talked to Ray and Becky Queen, they were very close to foreclosure. I mean, you start getting letters in the mail that say, like, we're going to foreclose on your house. You know, there's not much time left. And they were scared and angry and confused. And now we're at the point where we've got to figure out what, you know, do we just do we give up and give in? Do we give up our property and and walk away?

15:16And this is supposed to be a program that you're that y 'all have to help people in times of crisis not being able to afford their mortgage. So so you don't take their house from them. Like, I don't understand. So what was happening? The clock was ticking on the Queen's home. Chris starts calling like everyone, trying to get an answer to what exactly is going on here. I can't remember exactly one thing led to another. And I finally found a guy. We'll call this person a well-positioned source. And Chris wound up talking to a bunch of people to confirm everything. But yes, he found a guy. And he's like, I'll tell you what I think's going on.

15:54And when he explains it, I'm like, oh, my God, like, like that makes sense. And it sounds And what that well-positioned source explained to Chris was essentially the VA was being a bad rich friend. Because you will recall the VA is supposed to be a good rich friend that vouches for veterans, you know, promises lenders that ultimately the VA can take the hit if someone stops paying their mortgage. Well, now, when tens of thousands of veterans took COVID forbearance, they paused mortgages temporarily, but it was up to the VA to decide how those missed payments could eventually be paid back. Like literally to decide what the options would be for those homeowners when they were ready to start paying again.

16:43Chris has this useful way to picture the whole thing. Yeah, I mean, you kind of think about it this way, right? So you're paying your mortgage, you own your house. it's like you're driving along the freeway. But then crisis hits. You pause your payments. You're pulling off the highway temporarily. Now, when it's time to start paying again, you need an on-ramp to get back onto the highway. It appeared that like loans backed by Fannie and Freddie or FHA or most other loans in America, that is, the on-ramps were working, people were getting back on, but something didn't seem to be working with the VA loans.

17:16Yeah, all those other, you know, rich friend entities, Fannie, Freddie, et cetera, that help people get mortgages? Well, they also got to determine their homeowner's forbearance repayment options, and those all seemed to be going fine. What Chris's source was telling him was that sometime in October 2022, the VA had stopped allowing the one repayment option that Ray and Becky Queen had thought they were getting, where they pause their payments, restart the payments, and the missed payments go all the way to the back of the loan. It was the VA's one affordable on-ramp. The VA basically blew up the on-ramp and people couldn't get back.

17:57As Chris and Quill dug into this, they discovered that there were as many as 40 ,000 veterans now stuck, unable to get back onto that mortgage payment highway. 40 ,000 veterans that were on the path to losing their homes. Yeah, I mean, that was one of the most striking things in all this, right? It's like veterans are supposed to have better protections than everybody else. What we saw here was most other American homeowners had better protections than veterans. It was the veterans who were getting hurt at the end of this COVID forbearance thing. Now, again, the Queens were about to lose their house.

18:38They say it was scheduled for the next foreclosure auction. And this next part of the story, Chris and Quill are just sort of running between the Queens and the Department of Veterans Affairs, just trying to figure out why the VA blew up the on-ramp. And so they go to the VA and they ask, why did you do this? Why did you blow up the one affordable option for veterans to start repaying their mortgage? And Quill says they were told, quote, We only had short-term authority for that specific program during COVID, and this wasn't part of our normal authority. Does that mean anything? It didn't mean anything.

19:13It didn't make any sense to me. Well, I mean, technically it means something, right? That they thought they had no choice but to turn off this option. But I mean, the thing that doesn't seem to add up or make any sense in that, it's like, you know, when we went to the VA, there were 6 ,000 veterans on the verge of foreclosure in the foreclosure process. A total of 40 ,000 vets headed that direction. I mean, you would think the VA would be jumping up and down saying, like, we've got a serious problem. We have to shut down this thing that's going to strand all these veterans. We need help. Congress, somebody, please.

19:47And it wasn't that. I mean, it was like it seemed like somewhere in a dark room late at night, somebody pulled the plug. It's bizarre. Now, the VA did seem to know there was a problem, to be fair. They said that they were working on a new on-ramp, if you will, a new way for people to start repaying again by sort of resetting the mortgage to a super low interest rate. But the VA admitted to Chris and Quill that whole thing wasn't going to be ready for months. So it was like, oh, there is a raging fire, you know, basically. And they have these fire trucks, but they don't have the wheels on them and the hoses.

20:28And that's not all going to be built for like maybe six months from now. So all the houses were going to be burned down before the VA's rescue plan was like on the road. I mean, it's just like, this is what you're doing. Chris and Quill go back to Ray Queen, explain all of this. And Ray is like, well, if the fix is coming, don't foreclose on us. Like, give the fire trucks time to show up. Let us keep paying towards our regular mortgage between now and then. And then once the VA has that fixed, then we come back and we address the situation. That seems like the adult, mature thing to do, not put a family through hell.

21:08Chris and Quill go back to the VA, manage to get a sit-down interview with the person in charge of the VA loan program, John Bell, and just tell him what Ray said. Why put families through hell, he said, if we don't have to, you know, if there's going to be help in a few months. I haven't said through this interview that, you know, that we aren't exploring all options at this point in time, because we certainly are. We owe it to our veterans to make sure that we're giving them every opportunity to be able to stay in the home. In other words, still no help for Ray and Becky and any other veterans about to lose their houses.

21:48So this time, Chris goes to the airwaves. An NPR investigation has found that thousands of U.S. military service members and veterans could lose their homes through no fault of their own. As NPR's Chris Arnold reports... Chris puts all of this reporting into a story, includes the Queens. Ray and Becky Queen are showing us around their farm in Bartlesville, Oklahoma. And this is where things really start to kind of blow up. So, yeah, so this time we do the story and four powerful U.S. senators who head major committees fire off a letter to the VA. And they were basically like, WTF, what is going on?

22:27Uh-huh. WTF, your own language there, I assume, not the senatorial. That was not, yeah, that's not technically what they wrote, but that was the spirit of the letter. Chris and Quill would later call up one of those senators, Montana Democrat John Tester. Don't let this go to your head. It was your coverage that brought this to our attention. Thank you, Senator. Tester is chairman of the Senate Veterans Affairs Committee. So, you know, he's in charge of the committee that oversees the VA. The truth is, we have a little more access to him than you do. So we pound on him regularly and we're going to continue to pound on him.

22:57So yeah, this angry letter from Tester and the other senators went off to the VA. And then by the end of the week, the VA actually, you know, hats off. I mean, responded and stopped foreclosures on every single veteran in the United States of America for six months. So what did that mean for the Queens in that moment? Yeah, I mean, it means suddenly everyone was safe for at least six months. There's a pause. No one's going to get foreclosed. You know, even for, like I say, veteran stories have a lot of political heft to them, and politicians do like to be seen to be doing stuff for veterans. But this is the fastest I've ever seen a story have a real-world effect in 30 years.

23:42She just—I just hurt her car, so she just— Oh, great. Yeah, well, wait two seconds. Chris called the Queens before news about the foreclosure moratorium had gotten out. So I heard from the VA tonight at six o 'clock on a Friday, but they sent me a statement here. And basically it says that the VA is now going to stop foreclosing on anybody with a VA loan for the next six months while they figure out this new program and get it up and running. so people in your guys' situation can take advantage of it and not lose your house for no reason. That's awesome. Yeah, so I just wanted to tell you guys that and then see what your take is on, you know, because I know you guys have been stressed and it's been rough and, you know.

24:34Yeah, I mean, it sucks that it had to get to this point to get them to do that. But the fact that telling our story and getting some sort of justice for what's going on with our problems and everything else also helps 40 ,000 other veterans, that's absolutely amazing to me. Okay. It's been a year since that phone call. After the break, everything is fixed. No. No. No way. No, it's not. No. Not fixed.

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26:31Taxes and fees extra. First three months only. See terms. So, a foreclosure pause is useful. But the whole point of that was to buy time for the Department of Veterans Affairs to roll out this permanent fix, this program that it was calling VASP. So what VASP is going to do is— What does that stand for, VASP? Quill? Veterans. It has to be veterans. Veterans Affairs. Veterans Affairs Servicing Purchase Program. Purchase Program. Let's call it the bailout plan. Good plan. So the bailout plan. If you are a veteran who is facing foreclosure, the VA will go to the bank or more likely the investors who hold your mortgage and they will take the mortgage back from them.

27:25Put it in its own portfolio of mortgages like the VA becomes a bank. And then since the VA is the bank, the VA can give you any interest rate it wants. So it could say, Kenny, you got a 2 % loan. It's going to be very affordable. problem solved. Yeah, the bailout essentially gives the VA the ability to take over the mortgages of veterans like the Queens and then allow the Queens to restart affordable mortgage payments, specifically at 2.5 percent for up to 40 years. It lets the VA offer a new on-ramp back onto the old mortgage payment highway. So, I mean, it is a good it's a good fix and it's going to help thousands of people.