Mortgage servicing companies regularly deny requests for help from military families, a violation of federal rules, according to a recent letter by the Federal Housing Finance Agency.
“[S]ervicers are telling service members they cannot receive any assistance unless they are delinquent on their mortgage,” according to a letter sent to members of Congress by Edward DeMarco, the agency’s acting director. “This position runs counter to explicit guidance from Fannie Mae and Freddie Mac and is absolutely not the case.”
The problem involves permanent change-of-station orders, which require servicemembers to move to a new base. In the past, they often would sell their homes, or rent homes out until they found a buyer.
But due to the mortgage crisis and declining home values, many servicemembers find that they cannot earn enough from selling their homes to pay off their mortgages, and renting their homes out does not generate enough money to cover their monthly mortgage payments, according to a letter sent to the agency by 12 Democratic members of Congress. Meanwhile, military families often face lower incomes due to lower housing allowances at their new station, plus a loss of income as their spouse searches for work.
The federal government has rules to help servicemembers facing exactly such situations. A change of station qualifies as a hardship, which means members of the military can ask their loan servicers for a loan forbearance, a loan modification or a short sale, even if they are current on their mortgage payments.
But according to the FHFA, servicers aren’t following those rules. Instead, many companies are telling military families that they must be behind on their mortgage payments in order to qualify for help with their loans.
“Servicers also have apparently suggested that PCS orders do not qualify as a hardship,” DeMarco wrote. “Again, this information is incorrect.”
In many cases, homeowners who receive such advice stop making mortgage payments. This places them at great financial risk because so many loan modification applications are ultimately denied. If that happens, the family is responsible for all their missed payments plus compound interest, which sometimes forces them to default on their loan.
“These actions by mortgage servicing companies against U.S. servicemembers are very troubling,” the members of Congress wrote in their response. They requested more information, including the names of companies accused of breaking the rules.
Credit.com provides readers with unique insight, helpful tips and straight answers about their financial world. Our team of reporters and experts explore credit, loans, debt, saving, and identity theft topics, all designed to help you make smarter financial decisions. Visit Credit.com to sign up for your FREE Credit Report Card and find out where you stand today!
Christopher Maag Contributing writer for Credit.com, Chris graduated with honors from the Columbia University Graduate School of Journalism, and has reported for a number of publications including The New York Times, TIME magazine and Popular Mechanics. Reach Chris via email at firstname.lastname@example.org.