Federal regulators crack down on abuse of military by some mortgage companies
By Ylan Q. Mui,
Federal financial regulators on Thursday moved to tighten oversight of how mortgage companies handle loans for servicemembers who are underwater and forced to transfer to new bases.
In new guidance, they spelled out several practices they would consider unfair, deceptive or abusive. They include failing to notify service members of assistance programs or requiring them to waive their rights to special protections for military before offering help.
The regulators said they would also crack down on mortgage servicers who advise military homeowners to stop paying their mortgages in order to qualify for financial assistance programs. They also are checking to ensure timely communication by the servicers.
“We want to make sure our military are treated fairly, and when they are not, we will take appropriate action,” said Richard Cordray, director of the Consumer Financial Protection Bureau.
The Mortgage Bankers Association, an industry trade group, said servicers take consumer protection and their obligations to the military seriously.
“We appreciate the CFPB and other regulators’ guidance on this front and will use the occasion of this guidance to re-ensure that all appropriate protections for military families are in place,” said Steve O’Connor, head of public policy and industry relations for the MBA.
CFPB Officials recounted cases of servicemembers facing foreclosure because they were assigned to a new base and could not sell their homes or find renters to cover the mortgage. In other instances, servicemembers left their families in the old homes while they moved to the new base.
In addition to the guidance, the Federal Housing Finance Agency announced that members of the military who face transfer and are underwater — meaning that they owe more than the market value of their home — will automatically be approved for short sales.
To qualify, the home must have been purchased before June 30, and the loan must be owned or guaranteed by Fannie Mae or Freddie Mac. In addition, FHFA said it would not pursue any balance on the loan that’s left over after the short sale.
“It is in everyone’s interest for the men and women serving in our armed forces to focus on the important job they are doing defending our country, rather than worry about the maintenance and leasing of a property in another jurisdiction,” said Edward J. DeMarco, acting director for FHFA.
Government officials said about a third of active-duty military personnel are required to move each year. There has been a public outcry over accusations that thousands of military members were charged high mortgage interest rates and were illegally foreclosed upon in recent years.
JP Morgan Chase spent $27 million last year to settle a class-action lawsuit over the issue. Other banks have also settled suits over similar violations of military consumer protection laws. Two bills under consideration in Congress would extend and enhance homeowner protections for military under the Servicemembers Civil Relief Act.
Thursday’s guidance was issued jointly by the CFPB, the Federal Reserve, the Federal Deposit Insurance Corp., the National Credit Union Administration and the Office of the Comptroller of the Currency.