The Department of Veterans Affairs (VA) is encouraging servicers of loans it guarantees to extend mortgage forbearance for at least six months to homeowners with properties built with the Chinese-manufactured drywall that is believed to emit sulfur gas that causes corrosion to pipes is making residents ill. The US Consumer Product Safety Commission (CPSC) received nearly 3,300 complaints from homeowners in 37 states, including the coastal states of Florida, Louisiana and Virginia. Those three states all have port cities where much of the Chinese drywall was imported to during the housing boom, and all three states have various military installations. "Due to the limited sources of funds currently available to remedy affected homes, this forbearance may need to be extended to provide borrowers the opportunity to obtain funding and sufficient time in which to remediate the damage to their homes," the VA said in a circular released Tuesday (download here). The VA is also asking servicers to suspend "derogatory credit reporting" and not to assess late fees to borrowers affected by the drywall. "This is intended to help veteran borrowers by easing the financial stress they are facing and by providing them time to determine a suitable course of action," the circular said. The CPSC has determined the only way to remediate a home affected by the drywall is to completely remove it, along with any affected pipes and electrical components. The circular's instructions are scheduled to rescind July 1, 2012. Other similar forbearances have been extended to a number of borrowers with mortgages owned by the government-sponsored enterprises (GSEs). After Fannie Mae (FNM) extended forbearances to borrowers in Virginia, US senators from Florida and Louisiana requested similar treatment for their constituents. In addition, a judge ruled against one of the drywall manufacturers and awarded $2.6m to seven families whose homes were built with the alleged defective materials. However, the company, Taishan Gypsum Co., was not present for the hearing and it is unlikely the families will recover the money. Another manufacturer, Knauf Plasterboard Tianjin, reached a settlement with Beazer Homes (BZH) and is in negotiations with other US-based builders to resolve complaints against its products. Write to Austin Kilgore. The author held no relevant investments.