Questions & Answers for Lenders Regarding the Servicemembers Civil Relief Act of 2003
See 50 USC 526 issued on July 30, 2008 and Mortgagee Letter 2006-28.
HUD does not have jurisdiction over interpretation or enforcement of the SCRA (formerly known as the Soldiers' and Sailors' Civil Relief Act of 1940). As such, lenders are instructed to contact their legal counsel for more information about their legal obligations with respect to compliance with the Act. Official HUD policy with respect to servicing of FHA-insured mortgages in relation to the SCRA is found in HUD handbooks and FHA Mortgagee Letters. The following is therefore provided solely for informational purposes.
Are There New SCRA Notification Requirements?
Yes, effective June 5, 2006 refer to Mortgagee Letter 2006-28 and, effective July 30, 2008, see 50 USCA 526 for detailed instructions.
Who Is Eligible?
The provisions of the SCRA apply to active duty military personnel - members of the Army, Navy, Marine Corps, Air Force, Coast Guard; commissioned officers of the Public Health Service and the National Oceanic and Atmospheric Administration who are engaged in active service; reservists ordered to report for military service; persons ordered to report for induction under the Military Selective Service Act; guardsmen called to active service for more than 30 consecutive days - who had a mortgage obligation prior to enlistment or induction for an initial tour of duty or prior to recall after a break in service when subsequently ordered to active duty. In limited situations, dependents of servicemembers are also entitled to protections.
Is the Homeowner Protected Against Foreclosure?
Mortgage lenders may not foreclose, or seize property for a failure to pay a mortgage debt, while a service member is on active duty for 9 months grace period prior to December 31, 2014 unless they have the approval of a court. After December 31, 2014, the grace period for Service member's protection will revert back to 3 months. In a court proceeding, the lender would be required to show that the service member's ability to repay the debt was not affected by his or her military service.
Is This Relief Only Available for Borrowers with FHA-insured Mortgages?
No, the provisions of the SCRA apply to both conventional and government-insured mortgages.
How Many Reservists and Guardsmen Will Get This Relief?
HUD does not have data on the number of reservists and guardsmen that have mortgages eligible for interest rate reduction to six percent and other SCRA relief.
Who Pays for This Relief?
It depends on how the mortgage was financed. In recent years, the majority of FHA-insured mortgages have been financed using Ginnie Mae mortgage-backed securities or state government issued bonds.
If the mortgage is in a Ginnie Mae pool, Ginnie Mae will reimburse the issuer for interest in excess of six percent for payments that are collected on eligible loans. Other security issuers and government bond issuers may have different policies. Mortgagees should seek advice from their legal counsel. Since the maximum allowable interest is six percent, a document other than the mortgage or note will be the determining factor.
HUD regulations authorize mortgagees to postpone or suspend foreclosure proceedings on FHA-insured mortgages to borrowers in active duty military service as defined in the SCRA. Under 24 CFR 203.346, the period during which the mortgagor is in military service shall be excluded in computing the period during which the mortgagee shall commence foreclosure or acquire the property by other means. Further, postponement or delay in prosecuting foreclosure proceedings during the period the mortgagor is in military service shall not be construed as a failure to exercise reasonable diligence. Thus, the mortgagee should not experience an interest curtailment due to foreclosure delay if an insurance claim is eventually filed with the Department. The reimbursed interest would be at the debenture rate.
How Much Will the Relief Cost the Housing Industry?
The costs of the relief cannot be estimated because there are unknown factors - for example, the number of active duty servicemembers who will seek mortgage relief.
What Should Reservists and Guardsmen Do to Take Advantage of the Act?
Reservists, guardsmen and other eligible servicemembers should contact their lenders and other creditors and provide documentation that they have been called to active duty and, therefore, are eligible for certain relief under the SCRA. Lenders should already be aware of the SCRA and its relief provisions. See the top of this page for a link to Mortgagee Letter 2006-28.
Does the Act Apply to All Those on Active Duty?
Yes, all personnel on active military duty are eligible for the reduced interest rates on debts that were incurred prior to enlistment in the military, or prior to the activation of a reservist or guardsman, unless in the opinion of the court, the ability to pay is not materially affected by reason of such service.
Does This Apply to Reservists and Guardsmen in the Process of Buying Homes?
No. The SCRA applies if the closing on the house occurs prior to the reservist or guardsman being ordered to active duty.
Are There Any Mortgage Considerations in the Event that an Eligible Servicemember Is Killed?
The Act does not address this matter. For FHA-insured loans, however, you are required to work with the surviving family members to consider all applicable loss mitigation options to save the family home through a special forbearance plan, loan modification or partial claim, or avoid foreclosure through a Pre-foreclosure sale or deed-in-lieu of foreclosure.
How Can I Verify Whether a Borrower is in Active Military Service?
Please see last section of Mortgagee Letter 2006-28 for detailed verification instructions.
Where Can I Obtain Further Guidance?
HUD encourages lenders to seek advice from their legal counsel for further clarification.
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