Insights

In this time of war, increased regulatory actions have been taken to protect military servicemembers who are risking their lives to protect the country. Two recent changes relate specifically to servicemembers affected by Permanent Change of Station (“PCS”) orders. On June 1st, the Home Affordable Mortgage Program was modified to assist military homeowners by allowing them to qualify for loan modifications as owner-occupants when they have to relocate after receiving PCS orders. The military homeowner will qualify for a HAMP loan modification if he or she: (1) was occupying the home as a principal residence immediately before the relocation; (2) intends to return to the home in the future; and (3) does not own any other single-family real estate. If the military homeowner owns other single-family properties, he or she may still qualify for a loan modification on the property as rental property due to the expansion of HAMP for rental properties announced in January 2012. The changes to the HAMP rules was followed on June 21st by Interagency Guidance jointly issued by the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of Currency (collectively, the “Agencies”).

The Interagency Guidance warns mortgage servicers that the Agencies will take appropriate supervisory and enforcement actions against servicers engaging in acts or practices that are unfair, deceptive, or abusive or that violate any other Federal consumer financial laws or regulations. Some deceptive practices concerning military homeowners with PCS orders highlighted in the Interagency Guidance include:

• Failing to provide military homeowners who notify their mortgage servicers of the PCS orders with accurate and readily understandable information about available assistance options for which the homeowner may qualify based on information known to the mortgage servicer;
• Asking military homeowners to waive their rights under the Servicemembers Civil Relief Act or any other law in order to obtain information about available assistance options or to be evaluated for the assistance options;
• Advising military homeowners to default in order to obtain assistance that they otherwise would not qualify for;
• Failing to provide a method for military homeowners to check the status of their request for assistance;
• Failing to timely communicate the servicer’s decision on an assistance request; and
• Failing to provide an explanation for a denial of an assistance request.

The Interagency Guidance also advises mortgage servicers to ensure that their employees are adequately trained on assistance options available to these military homeowners. Finally, the Interagency Guidance notes that mortgage servicers should maintain policies and procedures to prevent the aforementioned deceptive practices from occurring.

Mortgage servicers should take note of this guidance and take applicable measures in order to avoid regulatory actions.

Shawnielle Predeoux is an associate in the Hanover, MD office of Hudson Cook, LLP. Shawnielle can be reached at 410-865-5425 or by email at spredeoux@hudco.com.