U.S. regulators released rules for mortgage servicers that are designed to help members of the military get information needed to sell their homes or modify loans when they are forced to relocate.
“Those who serve our country deserve to be given the best service by their mortgage servicer,” Consumer Financial Protection Bureau Director Richard Cordray said today in an e-mailed statement outlining the guidance. Relocation requirements “can complicate a servicemember’s homeownership decisions in ways that civilians may not experience,” he said.
The guidance from the CFPB, Federal Reserve, Federal Deposit Insurance Corp., National Credit Union Administration and Office of the Comptroller of the Currency affects service members who get “permanent change in station” orders that can’t be appealed and must be followed on a short timetable.
The goal of the guidance is to ensure that members of the military who must move are getting “clear, accurate, and timely information about available options such as loan modification or short sale,” the CFPB said in its statement.
“If a regulator determines that a mortgage servicer has engaged in practices that are unfair, deceptive, or abusive, or if a regulator determines that a mortgage servicer has in any way violated federal consumer financial laws, it will take appropriate enforcement action,” the CFPB said.
Mortgage servicers are responsible for collecting monthly payments, acting as escrow agent for taxes and insurance, and handling foreclosures when borrowers are seriously delinquent. The five largest U.S. servicers -- Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. -- reached a settlement with federal agencies and 49 states over claims of abusive foreclosure practices.
Under the new policy, Fannie Mae and Freddie Mac won’t seek court judgments that force people to pay the difference between the mortgage balance and a home’s sale price for any property purchased on or before June 30, 2012, according to the Federal Housing Finance Agency, which oversees the government-owned finance companies.
Members of the military who get so-called PCS orders will automatically be eligible for a short sale of their homes, FHFA said. The rule follows one last year that opened government foreclosure programs to service members who get the orders.
“We are not suggesting that we are creating brand-new programs,” Cordray said at a news conference.
About 180,000 members of the military are homeowners, according to the Department of Defense. It is unclear how many of those homes are owned by so-called under water borrowers, those who owe more than their homes are worth. About one-third of active-duty service members get PCS orders each year, according to the CFPB.
Air Force Captain Elizabeth Farrell, 38, estimates she lost as much as $200,000 when she sold a house in LaPlata, Maryland, last November after she was transferred from duty in Washington to Eglin Air Force Base in Florida.
“We tried to do the right thing and we paid the whole amount,” Farrell said in a telephone interview from her home in Fort Walton Beach, Florida. “If you were unlucky enough to buy a home and you lost money, but you were financially responsible, you’ve got to pay.”
Farrell bought the LaPlata house in January 2006 for $620,000. It sold in November for $465,000, including $12,000 Farrell contributed to help the buyer with the down payment. She assumed the lenders were going to approve a short sale and forgive part of her debt.
“They weren’t willing to share any of the losses,” Farrell said. As a result, Farrell still owes money to USAA, a San Antonio, Texas-based bank that caters to military members. The bank had a second lien on the house.
Nicole Alley, a spokeswoman for USAA, said the bank treats PCS orders as “a qualified hardship and works with our members to settle on the basis of their ability to repay the debt.”
“The majority of our members repay their outstanding balance,” Alley said in an e-mail. “In cases where the laws dictate that USAA Bank should forgive the remaining balance, we forgive it.”
USAA reduced the interest rate on the balance of her loan to 0.5 percent from 7 percent, Farrell said. She has 115 remaining monthly payments of $623 as of June 5.
The new federal guidance also addresses such problems as mortgage servicers asking people to waive rights under the Servicemembers Civil Relief Act -- which forbids foreclosure on active-duty military members -- as a prerequisite to getting assistance.
The rules also address the practice of asking service members to skip mortgage payments to become eligible for assistance for which they would otherwise not qualify.
“We look forward to working with our servicers on this new short sale policy,” Paul Mullings, Freddie Mac’s interim head of single family business and information technology, said in a statement. “Together we can help ease the challenge of relocation for military families when Permanent Change of Station orders are received.”
The Departments of Agriculture, Defense, Housing and Urban Development, Justice, Treasury, and Veterans Affairs all endorsed the rules.