New regulations rooted in consumer protection are reshaping the mortgage industry. After years of lax oversight, perhaps no demographic is more deserving of better safeguards than service members and military families.
"It's no secret that the housing crisis in recent years was particularly hard on military families," Holly Petraeus, who leads the Office of Servicemember Affairs for the Consumer Financial Protection Bureau, wrote in a recent CFPB blog post.
Banks illegally foreclosed on hundreds of service members during the peak of the housing crisis. Thousands more have struggled to secure loan modifications or short sales because of poor communication and inconsistent policies among mortgage servicers.
Today, mortgage issues account for more than a third of the complaints the CFPB receives from military members.
As part of the post-crash regulatory wave, the CFPB issued a host of new protections for mortgage borrowers that just took effect in January 2014. Here's a look at some of the changes that will better protect service members and military families in need of mortgage help.
Constant relocation is a way of life for many service members. Military homeowners grappling with Permanent Change of Station (PCS) orders or struggling to make mortgage payments have often found little relief from lenders and servicers.
Here are the new policies and procedures aimed at alleviating these struggles:
- Comprehensive help: In years past, service members might have to apply multiple times for mortgage help, sending in the same information and documents time and again. Now one submission should be enough. Servicers will have to exhaust all potential mortgage-relief options once an application is received.
- Clear communication: Servicers and lenders can no longer shuffle military members from person to person. Servicers must now assign a representative to work with the individual homeowner and keep close tabs on all documents and related paperwork, which is especially important for military members who relocate frequently.
- Mortgage modifications: New rules curb a lender's ability to talk with a homeowner about a modification and move simultaneously toward foreclosure proceedings. Both states and the CFPB have moved to restrict this phenomenon, known as "dual tracking." Lenders and servicers can't pursue foreclosure if there's a pending application for mortgage help.
"An end to dual tracking provides very important protections for borrowers, especially active duty military personnel who may be overseas and unable to comply with demands from multiple lender representatives," Peter G. Miller, nationally syndicated real estate columnist and founder of OurBroker.com, said in an email.
In addition, lenders and servicers will have to pay special attention to military members undergoing relocation. These mandatory moves automatically qualify as a hardship for Fannie Mae and Freddie Mac mortgages, allowing homeowners to pursue a loan modification without having to be delinquent.
"This is not a situation where they've made some irresponsible decision and they're looking for assistance," says Brooke Goldberg, deputy director of governmental relations for the National Military Family Association, a non-profit focused on military families. "They don't know what the market is going to hold for them, and they don't have the freedom to make a choice that seems like the budgetarily correct one without taking a hit."
For underwater homeowners, a PCS triggers automatic eligibility for a short sale. Military members with VA mortgages can also pursue the VA's short sale program.
Refinance your VA mortgage
These new mortgage protections will go a long way toward leveling the playing field for military homeowners and their families.
In fact, the CFPB announced in March that it had recovered more than $1 million for veterans who submitted complaints to the agency. Military consumers received a median amount of $470 in relief.
"Military families make enormous sacrifices for our nation and deserve to be protected," CFPB Director Richard Cordray said in a news release. "I am pleased that the bureau has assisted thousands in cutting through red tape when dealing with their financial institutions."
Active service members have additional protections from civil and financial obligations under the Servicemembers Civil Relief Act (SCRA).
Military homeowners struggling with mortgage payments should contact their lender or servicer immediately. You can also contact a housing counselor through the HUD, or call 888-995-HOPE (4673).
"Military members and their families can face such unique financial strains given the nature of their service," says Greg Steinhoff, president of strategic operations at Veterans United Home Loans. "Combined with preexisting policies and legislative safeguards, these new mortgage rules will make a tremendous difference for those in search of help."
More help from HSH.com
Advantages of FHA mortgages in 2017FHA loans became more affordable in 2016, thanks to a drop in the annual mortgage insurance premium that the Federal Housing Administration charges. More cost reductions may be on the way in 2017, too.
Flex Modification: An outline of HAMP's replacementThe Making Home Affordable Home Affordable Modification Program comes to an end on December 31, 2016, but is being replaced by a new Flex Modification program from Fannie Mae and Freddie Mac.
VA Funding Fee: 5 facts you need to knowOne slight drawback of securing a VA loan is that borrowers often have to pay a fee, known as the “VA Funding Fee.” Here are five facts you need to know about the VA Funding Fee and how it works.
FHA Streamline Refinance offers are real and worth exploringFHA Streamline Refinancing is real, and so are the benefits. In a FHA streamline refinance transaction, you home isn't subject to an appraisal and there is no income, credit score or employment verification.