Mortgage Relief for Servicemembers
A new program was unveiled in June 2012 that could help tens of thousands of veterans and servicemembers who are struggling with underwater homes. The program expands the national mortgage settlement that the government previously reached with some of the largest banks, and it steps up enforcement of the Servicemembers Civil Relief Act (SCRA).
These are key changes for servicemembers who often have to relocate more frequently than their civilian counterparts because of the demands of military life. About 33% of active duty personnel are required to relocate each year. These continuous moves can leave them more vulnerable to a drop in housing prices. This new program will help alleviate that pressure.
The government is particularly concerned about firms that required servicemembers to waive rights they have as members of the military before the firms would offer assistance. In some cases, servicemembers were advised to stop making mortgage payments, and then suffered harm for doing so.
The new relief is a joint effort of many agencies and departments, including the Federal Housing Finance Agency (FHFA), the Consumer Financial Protection Bureau (CFPB) and the Department of Defense.
FHFA Acting Director Edward DeMarco explained the importance of the new programs, saying in a press release that: “It is in everyone’s interest for the men and women serving in our armed forces to focus on the important job they are doing defending our country, rather than worry about the maintenance and leasing of a property in another jurisdiction.”
The key SCRA-related components of the program that offer relief to servicemembers include:
- Compensation for Wrongful Foreclosures: Every servicemember that suffered a foreclosure since 2006 (when the housing market collapsed and house values plummeted) will have his or her file reviewed. The review will be performed under the supervision of the Department of Justice (DOJ) and the review will determine if the foreclosure violated the SCRA. If any violations are found, the mortgage lenders will be required to pay significant compensation to parties that they damaged. The White House stated that the damages will be either:
- The servicemember’s lost equity, plus interest, and an additional $116,785; or
- An amount provided for the same violation as a result of a review conducted by the banking regulators.
- Compensation for Excessive Interest: Any servicemember that was charged more than the 6% limit set by the SCRA is entitled to compensation equal to four times the excess interest they were charged. Again, the DOJ will supervise the review done by the mortgage lenders.
- Foreclosure Protection and Hostile Fire/Imminent Danger Pay: No matter when their mortgage was secured, all servicemembers are protected from foreclosure for nine months from the time that they received Hostile Fire/Imminent Danger Pay, as long as they were stationed away from their home.
The White House urged any servicemembers or their dependents who feel that their rights under the SCRA were violated to contact their nearest Armed Forces Legal Assistance office. Office locations can be found online, by clicking on the Legal Services Locator.
Permanent Change of Service
Some of the new protections are specific to servicemembers with a PCS. Because a PCS often requires a quick move, servicemembers are especially vulnerable to financial harm, even moreso if they owe more on their mortgage than their home is worth and can only sell their home by doing so at a loss.
Richard Cordray, the director of the Consumer Finance Protection Bureau (CFPB) said, “Those who serve our country deserve to be given the best service by their mortgage servicer. Permanent Change of Station orders can complicate a servicemember’s homeownership decisions in ways that civilians may not experience. This guidance provides specific notice to mortgage servicers that this country already has substantial laws in place to help military members in this still-recovering housing market.”
PCS considered a Hardship- If you have a loan that is backed by Fannie Mae or Freddie Mac and you have a PCS, you will have the ability to sell a primary residence that was purchased before June 30, 2012 for less than you owe on your mortgage balance. You do not have to be behind on your mortgage or in default. If your home sells for less than you owe, you won’t be responsible for the remaining balance - as long as have a Fannie Mae or Freddie Mac loan. You can check online to determine if either Fannie Mae or Freddie Mac backs your loan.
Increased Funding for the Veterans Housing Benefits Program
In addition, mortgage lenders agreed to fund $10,000,000 into the Veterans Housing Benefits Program. This program offers loans to veterans at very favorable interest rates and terms.
The White House intends this relief offered to veterans and servicemembers, including the ones harmed by wrongful foreclosures and excessive interest, to be part of its coordinated effort to improve the economy by expanding refinance opportunities through the HARP program and reducing fees for the FHA streamlined refinance program. Regardless, every veteran and servicemember should be sure to take advantage of all relief programs for which they qualify.