In the Second Quarter 2011 issue of Consumer Compliance Outlook, the lead article discussed “Compliance Requirements for the Servicemembers Civil Relief Act.” Developments regarding the Servicemembers Civil Relief Act (SCRA) since then warrant this brief update for Outlook readers.
For all mortgage loans, including conventional mortgages and mortgages insured by the U.S. Department of Housing and Urban Development (HUD), when a borrower defaults, creditors and their servicers must provide HUD's “Servicemembers Civil Relief Act Notice” to the borrower within 45 days. The notice informs the borrower of the rights available to service members under the SCRA. HUD introduced the required notice in Mortgagee Letter 2006-28 (Mortgage and Foreclosure Rights of Servicemembers under the SCRA).
On June 30, 2011, HUD announced a revised “Servicemembers Civil Relief Act Notice Disclosure” form that updates, among other things, the extended time frames associated with the relief afforded to military personnel on active duty. HUD's announcement and a link to the revised disclosure can be found at http://1.usa.gov/scra-hud. The revised notice includes the service members' right to not pay an interest rate above 6 percent on a debt incurred prior to entering military service, during the period of military service, and one year thereafter. Additionally, the revised notice advises borrowers of service members' protection from foreclosure proceedings during, or within nine months after, a service member's military service.
On May 26, 2011, the Department of Justice announced settlements with two lenders under the SCRA to resolve allegations that the lenders wrongfully foreclosed on active duty service members without first obtaining court orders. Under one settlement, a subsidiary of Bank of America Corporation (formerly Countrywide Home Loans Servicing) agreed, among other requirements, to establish a $20 million fund from which to compensate service members on whom Countrywide allegedly wrongfully foreclosed. Under a second settlement, Saxon Mortgage Services Inc. agreed, among other measures, to establish a $2.35 million fund to compensate service members on whom Saxon allegedly wrongfully foreclosed. Both lawsuits alleged that the lenders did not consistently check the military duty status of borrowers before initiating foreclosure.
The Department of Justice's complaint alleged that both of these lenders knew or should have known about the military status of a substantial percent of the identified victims. Both lenders agreed under the respective consent orders to check the Defense Manpower Data Center's website and their own files to confirm the service status of all borrowers prior to initiating any foreclosure proceedings.
The Department of Defense hosts the Defense Manpower Data Center (DMDC) to assist lenders in determining if a particular borrower is currently on active military duty. The data center can be accessed at https://www.dmdc.osd.mil/appj/scra/scraHome.do with the appropriate certificate. With the borrower's name and Social Security number, lenders can use the DMDC to confirm the current military duty status of that individual. Verification of a borrower's military service status before initiation of foreclosure proceedings is considered a mortgage servicing best practice.
Lenders may also consider contracting with one of the private vendors that perform this verification on behalf of mortgage servicers and creditors. In cases where a lender has a larger number of verifications to perform, the bulk verification services of these vendors can provide cost-effective alternatives for review of an entire portfolio of loans.
On August 15, 2011, the Federal Reserve issued revised SCRA examination procedures to incorporate recent amendments to the Housing and Economic Recovery Act. The amendments extended certain SCRA protections that were to expire on December 31, 2010 until December 31, 2012. In particular, the provision for an extended time period beyond active military duty (from 90 days to nine months) for protections affecting foreclosure, sale, or seizure of real or personal property remains effective until December 31, 2012. The revised examination procedures can be accessed at http://1.usa.gov/scra-frb.
Complete Issue (1.7 MB, 20 pages)
Kenneth Benton, Editor
FEDERAL RESERVE SYSTEM
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