Mortgage lenders have to follow special rules when military servicemembers are ordered to quickly move to a new location, the Consumer Financial Protection Bureau and other bank regulator said in guidance issued this week.
Each year, about a third of active-duty servicemembers receive permanent change of station (PCS) orders.
“Permanent Change of Station orders can complicate a servicemember’s home ownership decisions in ways that civilians may not experience,” said CFPB Director Richard Cordray. “This guidance provides specific notice to mortgage servicers that this country already has substantial laws in place to help military members in this still-recovering housing market.”
PCS orders are non-negotiable and operate under short, strict timelines. Upon moving, a servicemember’s household income may drop if the servicemember is unable to find a renter willing to pay a price that will cover the mortgage payment or the spouse is not immediately able to secure a job in the new location.
Additionally, a servicemember’s housing allowance may be lower at the new duty station. In order to avoid defaulting on their loan obligations, military home owners need to receive clear, accurate, and timely information about available options such as loan modification or short sale, so they can make informed decisions and request the assistance for which they may qualify, Cordray said.
The interagency guidance warned servicers not to:
- Ask servicemembers with PCS orders to waive their legal rights under the Servicemembers Civil Relief Act or any other law as a prerequisite to the mortgage servicer either providing information about available options or evaluating the servicemember’s eligibility for assistance
- Advise home owners with PCS orders who are current on their loans and able to make the monthly payment to intentionally skip making payments in order to create the appearance they are having financial difficulties in order to obtain assistance for which they would not otherwise qualify
- Fail to provide a reasonable means for servicemembers to find out information about the status of their request for assistance
- Fail to timely communicate the servicer’s decision regarding requests for assistance from home owners with PCS orders and failing to include an explanation for the denial, where required
In a related move, Freddie Mac said it will let military service members with PCS orders to short sale their homes. In a short sale, the home owner sells his house for less than what he owes on the mortgage.
Freddie Mac said it will not ask the service member to pay the difference between what’s owed and the home’s sale price.
Freddie Mac policy currently requires mortgage servicers to treat PCS orders as a hardship for a loan modification or forbearance.
Any consumer, including servicemembers or veterans, who are having problems with their mortgages may call the CFPB toll free: 855/411-2372. Home owners may also submit mortgage-related complaints on the CFPB website.