Regulators turn their attention to the servicemembers civil relief act.
A July 2012 Government Accountability Office (GAO) report revealed that, although the total number of violations of the Servicemembers Civil Relief Act (SCRA) aren’t known, thousands of violations have been uncovered in the wake of Congressional inquiries, Justice Department investigations, and record class-action settlements against large bank mortgage servicers during the past few years.
That’s why credit unions should expect to see NCUA and the banking regulators step up their efforts to review financial institutions’ SCRA compliance.
The SCRA provides certain financial protections to active-duty military personnel, such as requiring creditors to reduce interest rates to 6% on preservice debts, prohibiting foreclosures and repossessions without a court order, and allowing servicemembers to terminate leases under certain circumstances.
The Justice Department enforces the SCRA.
The GAO report on the regulatory oversight of compliance with the SCRA recommended that the agencies conduct more extensive loan file testing for SCRA compliance, because of the large numbers of violations found during federal inquiries and investigations.
Addressing these violations and educating the financial services industry on SCRA requirements have moved to the top of the regulatory to-do list.
In addition, the Consumer Financial Protection Bureau’s (CFPB) Office of Servicemembers Affairs has played a key role in providing SCRA outreach to servicemembers and mortgage servicers responsible for complying with the Act.
GAO report findings
In reviewing financial institution regulators’ compliance examinations, GAO found that NCUA and the federal banking agencies identified only 251 instances of SCRA compliance problems at depository institutions between 2007 and 2011 (such as 6% rate cap violations, mortgage foreclosures without a court order, etc.). This number was nowhere near the number of violations apparently occurring in the marketplace.
The Federal Deposit Insurance Corp. (FDIC) identified 230 SCRA compliance problems, the Federal Reserve Board identified 16, the Office of the Comptroller of the Currency (OCC) identified four, and NCUA identified just one.
According to the report, NCUA identified only one problem because the agency had focused more on safety and soundness during the recent economic crisis than on consumer compliance. NCUA doesn’t have a separate consumer compliance examination, although consumer compliance is part of the overall safety and soundness evaluation.
But NCUA stated that along with testing during fair-lending examinations, the agency has incorporated reviews for SCRA compliance in its analysis and investigations of member complaints.
As it advances its consumer protection initiatives, the agency said that it would continue to encourage credit unions to consistently demonstrate best practices in mortgage lending and to pay particular attention to the SCRA. (See NCUA’s comments in the report’s Appendix IX.)
NEXT: Mortgage servicing guidance
Mortgage servicing guidance
NCUA and the federal banking agencies issued guidance to mortgage servicers on certain practices that have the “potential to mislead or otherwise cause harm” to military homeowners who receive Permanent Change of Station (PCS) orders.
PCS orders to move to a new military installation present unique challenges for military homeowners since the orders are nonnegotiable and operate under short, strict timelines.
Military homeowners with PCS orders remain obligated to honor their financial obligations, including their mortgages.
If their home values have declined, they may be unable to sell the home and obtain sufficient funds to pay off the mortgage debt and may continue to be obligated to make monthly payments after relocating to the new duty station.
Mortgage servicers should avoid the following practices:
Credit unions that service mortgage loans should have policies and procedures in place to ensure:
The agencies made it clear they would take appropriate enforcement action if they determined that a mortgage servicer has engaged in unfair, deceptive, or abusive practices, or in any way violated federal consumer financial laws.
NEXT: SCRA foreclosure protections
CUNA’s e-Guide to Federal Laws and Regulations: Servicemembers Civil Relief Act resources, cuna.org/compliance
GAO-12-700: Mortgage Foreclosures: Regulatory Oversight of Compliance with Servicemembers Civil Relief Act Has Been Limited (7-17-12): gao.gov
NCUA Letter to Credit Unions 12-CU-07: Interagency Guidance on Mortgage Servicing Practices Concerning Military Homeowners with Permanent Change of Station Orders: ncua.gov
Consumer Financial Protection Bureau Office of Servicemembers Affairs: consumerfinance.gov/servicemembers
SCRA foreclosure protections
In August, President Obama signed into law the Honoring America’s Veterans and Caring for Camp Lejeune Families Act. Section 710 of the law amended the SCRA to temporarily extend the Act’s protections against foreclosures from nine months to one year through Dec. 31, 2014, for servicemembers after they separate from active duty.
The Housing and Economic Recovery Act amended the SCRA in 2008 to provide nine months of protection (originally 90 days) from mortgage foreclosures for returning servicemembers.
The provision was set to expire on Dec. 31, 2010, but the Helping Heroes Keep Their Homes Act extended the Recovery Act’s foreclosure protection through Dec. 31, 2012.
The latest law will take effect 180 days after enactment (in February 2013) to extend protections after release from active duty from nine months to one year.
This law contains a sunset date of Dec. 31, 2014, at which time the protections will revert to 90 days after release from military service—unless Congress extends the protections again.
VALERIE Y. MOSS is CUNA’s director of compliance information. Contact CUNA’s compliance department at firstname.lastname@example.org.