Two types of foreclosure activity rose by double-digit percentages last month due to a Department of Veterans Affairs policy change, according to ICE Mortgage Technology.

Foreclosure starts surged 30% and sales climbed 25% in January as the Department of Veterans Affairs ended a voluntary ban it had in place to help certain distressed borrowers with a transition away from temporary pandemic relief. Foreclosure inventory rose by 7%.

The increases highlight the extent of the backlog that accumulated as the department gave borrowers left in the lurch by end of the pandemic program in October 2022 a chance to use transitional last-resort aid through the Veterans Affairs Servicing Purchase program.

Whether the jump is kicking off a trend remains to be seen. 

Mortgage Bankers Association President and CEO Bob Broeksmit indicated there’s some uncertainty about VASP’s future during a panel at a recent servicing conference, noting there has been “vitriol from certain committees” in the House, where Republicans have a firm majority.

Broeksmit indicated that ending the program the industry recently stood up could challenge the mortgage market. 

The department has struggled to fund distressed borrower relief since the pandemic given its legislative and fiscal constraints and it had ended VASP’s predecessor due to its costs. VASP was designed to be more cost effective but still required some resources to operate and maintain. Republicans are currently conducting a wide-ranging assessment of public spending.

Meanwhile, as foreclosures rose, the delinquency rate fell on a consecutive-month basis by 24 basis points to 3.47%. However, it was still up 33 basis points from a year earlier, in line with recent trends. A drop in hurricane-related arrears contributed to monthly decline.

There were increases in delinquencies from other natural disasters. Around 680 homeowners with properties in Southern California wildfire areas missed payments in January. Delinquencies are on track to exceed 2,800 by the end of February.

Prepayments were at their lowest level in almost a year at 0.48%.

ICE Mortgage Technology derives its findings from a representative sample of its national database. It utilizes rounding in the figures it presents.