November 20, 2006
Mortgagee Letter 2006-28
TO: ALL APPROVED MORTGAGEES
ATTENTION: Single Family Servicing Managers
SUBJECT: Mortgage and Foreclosure Rights of Servicemembers under the Servicemembers Civil Relief Act (SCRA)
This Mortgagee Letter provides information regarding a new legal requirement to notify homeowners in default of the mortgage and foreclosure rights of servicemembers and their dependents under the Servicemembers Civil Relief Act (SCRA). It also provides guidance regarding the implementation of SCRA requirements in servicing FHA-insured mortgages. This guidance supersedes prior Mortgagee letters ML 2003-04, Soldiersâ€™ and Sailorsâ€™ Civil Relief Act and ML 01-22, The Effect of the Soldiersâ€™ and Sailorsâ€™ Civil Relief Act of 1940 on FHA Insured Mortgages. However, the guidance provided in ML 91-20, Effect of the Soldiersâ€™ and Sailorsâ€™ Civil Relief Act of 1940 on FHA Insured Mortgages remains valid with respect to the calculation of Section 235 subsidy.
Section 688 of the National Defense Authorization Act for Fiscal Year 2006 (public law
109-163, enacted January 6, 2006) amended the required content of notifications of homeownership counseling availability under section 106(c)(5)(A)(ii) of the Housing and Urban Development Act (12 U.S.C. 1701x(c)(5)(A)(ii)) and directed HUD to develop and disseminate a format for the required notice.
Servicemembers Civil Relief Act Notice
Pursuant to the statutory amendment, HUD has developed, in consultation with the Departments of Defense and Treasury, the form for the required notice of servicemember rights (Attachment 1). All mortgage loans, including conventional mortgages and mortgages insured by HUD are subject to the notification requirement that became effective June 5, 2006. The notice must:
â€¢ Be sent to all homeowners who are in default on a residential mortgage;
â€¢ Include the toll-free military one-source number to call if servicemembers or their dependents require further assistance (1-800-342-9647); and
â€¢ Be made within 45 days from the date a missed payment was due, unless the homeowner pays the overdue amount before the expiration of the 45-day period.
Legal Rights and Protections Under the SCRA Applicable to all Debts
The SCRA states that a debt incurred by a servicemember or spouse jointly, prior to entering military service shall not bear interest at a rate above six percent per year during the period of military service. Interest in excess of six percent per year that would otherwise be incurred during the period of military service is forgiven. Servicemembers become eligible for the interest rate limitation by providing to the mortgagee a written notice, a copy of the military orders calling the servicemember to military service, and any orders further extending military service, not later than 180 days after the date of the servicememberâ€™s termination or release from military service. Upon receipt, the mortgagee must limit interest on the obligation to no more than six percent per year effective as of the date on which the servicemember is called to military service. Only a court may grant the mortgagee an exception to the interest rate limitation and then, only if, in the opinion of the court, the ability of the servicemember to pay interest upon the obligation or liability at a rate in excess of six percent per year is not materially affected by reason of the servicememberâ€™s military service.
In a legal action to enforce a debt against real estate that is filed during, or within 90 days after the servicememberâ€™s military service, a court may stop the proceedings for a period of time, or adjust the debt. In addition, the sale, foreclosure, or seizure of real estate shall not be valid if it occurs during, or within 90 days after the servicememberâ€™s military service unless the creditor has obtained a court order approving the sale, foreclosure, or seizure of the real estate.
The SCRA provides some additional legal protections. HUD is not in a position to interpret all the various provisions of the SCRA as they may affect rights between creditors and servicemembers. Such interpretations should be obtained from the Department of Defense or be determined by the courts.
Reduction of Monthly Payments on FHA-Insured Loans
When, pursuant to the SCRA, interest must be reduced to six percent on an FHA-insured loan, the mortgagee may either calculate interest due for the period of active duty on a per diem basis, or permit the lower interest rate from the first through the last month of military service.
If notified that a mortgagor is on active military duty, the mortgagee must advise the servicemember or representative of the adjusted amount due, provide adjusted coupons or billings, and ensure that the reduced payments are not returned as insufficient.
If the mortgagee was not notified that the mortgagor is on active military duty, but receives a reduced payment that approximates an interest reduction to six percent, an effort should be made to contact the mortgagor or a representative to determine whether the mortgagor is on active duty. If an appropriate explanation is not provided, the mortgagee may return the insufficient payment in accordance with 24 CFR Â§ 203.556.
Section 235 Mortgage Insurance and Assistance Payments Program
A few Section 235 mortgages still have assistance payments from HUD applied to them on behalf of lower-income mortgagors. Assistance for these mortgages may be affected by the six percent interest rate limitation. On all accounts receiving assistance when the note rate of interest exceeds six percent, the amount of assistance must be reanalyzed, and the subsidy amount must be recalculated using the full mortgage payment at a six percent rate when determining the amount of assistance. For some accounts, the interest rate deduction will cause the suspension of assistance for the period of active duty. Whenever an interest rate reduction is made with retroactive effect and the Section 235 assistance is reduced, any over-billed subsidy must be returned to HUD as a refund or adjustment to the subsequent Section 235 monthly billing. When active duty terminates and the note rate resumes, the assistance must be recalculated and restored in accordance with the usual procedures. Any income recertification requests received from mortgagors in accordance with 24 CFR Â§ 235.355 must be processed expeditiously. Please also reference ML 91-20, Effect of the Soldiersâ€™ and Sailorsâ€™ Civil Relief Act of 1940 on FHA Insured Mortgages for additional guidance in calculating Formula 2 subsidy.
HUD Relief Provisions for Servicemembers
FHA regulations contain special relief provisions authorizing postponement of principal payments and foreclosure proceedings for mortgagors in active duty military service as defined in the SCRA. Pursuant to 24 CFR 203.610, the mortgagee shall specifically give consideration to affording the mortgagor relief authorized by 24 CFR 203.345 and 203.346 and covered under the following two paragraphs.
Postponement of Principal Payments
Under 24 CFR 203.345, the mortgagee may, by written agreement with the mortgagor, postpone for the period of military service and for 3 months thereafter any part of the monthly mortgage payment which represents amortization of principal. The agreement shall contain a provision for the resumption of monthly payments after such period in amounts that will completely amortize the mortgage debt within the maturity as provided in the original mortgage. This agreement does not affect the amount of the annual Mortgage Insurance Premium (MIP) that will continue to be calculated in accordance with the original amortization provisions of the mortgage.
Postponement of Foreclosure
Under provisions of 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 of the mortgagee to exercise reasonable diligence.
Mortgagees must consider all FHA home retention loss mitigation options for active duty military persons who are in default on an FHA insured loan. These options, including special forbearance, loan modification, and partial claim help protect the servicemember against the risk of foreclosure after the period of service is completed. Mortgagees must also provide delinquent servicemembers with information about pre-foreclosure sale and deed-in-lieu of foreclosure options.
Claims for FHA Insurance Benefits
Debenture interest will not be curtailed because of SCRA-caused delays in initiating or prosecuting foreclosure proceedings. On conveyance claims involving loans subject to SCRA provisions, the Department will pay the applicable debenture interest rate from the date of default to the date the claim is paid unless interest must otherwise be curtailed pursuant to 24 CFR 203.402(k).
Reimbursement of Issuers for Interest Shortfalls on Eligible Loans in Ginnie Mae Mortgage-Backed Securities
Ginnie Mae will reimburse issuers for interest shortfalls attributable to SCRA for all eligible loans. To receive a reimbursement of interest, an issuer must demonstrate that the borrower meets the criteria for a reduction in interest rate. Mortgagees should refer to Chapter 34, Section 34-3 of Ginnie Mae Mortgage-Backed Securities Guide 5500.3, Rev. 1 for further information on obtaining such reimbursement. Links to each chapter of the Ginnie Mae MBS Guide are available at: http://www.ginniemae.gov/guide/guidtoc.asp?subTitle=Issuers
Verification of Military Service
Mortgagees who are otherwise unable to verify a defendant mortgagorâ€™s military status
may request and obtain a statement as to military service from the Department of Defense pursuant to 50 U.S.C. App. Â§ 582 of the SCRA. To facilitate SCRA searches, the Department of Defenseâ€™s Manpower Data Center (DMDC) has developed a secure public Internet access system through which any requester can quickly determine whether an individual is currently in the armed forces. The URL for SCRA queries is https://www.dmdc.osd.mil/owa/scra/home.
The requester must provide a Social Security number (SSN) and a last name. First name, middle name, birth year, and birth month are optional.
A report is executed by clicking the â€œLookUpâ€ tab on the query form. If the provided SSN and other identifying information match the name of a person currently on active duty, the DMDC response report will provide the named individualâ€™s branch of military service and "begin date" of Active Duty status. If the provided SSN is matched to the name of a person on active duty but the last name and/or birth date entered do not match information recorded for that individual, the DMDC response report page states:
â€œBased on the social security number you have provided, the individual is currently on Active Duty. However, the name or partial DOB, or both provided do not match the individual against whom the social security number is assigned.â€
If the DMDC does not have information regarding whether the name of the identified person is on active duty, the response report will only list the supplied name with the text:
â€œBased on the information you have furnished, the DMDC does not possess any information indicating the individual is currently on active duty.â€
There is no charge for the online SCRA queries and no authorization, user ID or password is required. Should you require assistance, you may fax a SCRA request to DMDC at 703-696-4156 or call 703-696-6762.
The information collection requirements contained in this document have been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB Control Number 2502-0565. In accordance with the Paperwork Reduction Act, HUD may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a currently valid OMB Control Number.
Any questions regarding this Mortgagee Letter may be directed to HUD's National Servicing Center through its toll-free number 1-888-297-8685.
Brian D. Montgomery
Assistant Secretary for Housing-
Federal Housing Commissioner
United States Department of Housing and Urban Development
Servicemembers Civil Relief Act Notice
Legal Rights and Protections Under the SCRA
Servicemembers on â€œactive dutyâ€ or â€œactive service,â€ or a dependent of such a servicemember may be entitled to certain legal protections and debt relief pursuant to the Servicemembers Civil Relief Act (50 USC App. Â§Â§ 501-596) (SCRA).
Who May Be Entitled to Legal Protections Under the SCRA?
â€¢ Active duty members of the Army, Navy, Air Force, Marine Corps, Coast Guard, and active service National Guard;
â€¢ Active service members of the commissioned corps of the National Oceanic and Atmospheric Administration;
â€¢ Active service members of the commissioned corps of the Public Health Service;
â€¢ United States citizens serving with the armed forces of a nation with which the United States is allied in the prosecution of a war or military action; and
â€¢ Their spouses.
What Legal Protections Are Servicemembers Entitled To Under the SCRA?
â€¢ The SCRA states that, a debt incurred by a servicemember, or servicemember and spouse jointly, prior to entering military service shall not bear interest at a rate above 6 percent during the period of military service.
â€¢ The SCRA states that, in a legal action to enforce a debt against real estate that is filed during, or within 90 days after the servicememberâ€™s military service, a court may stop the proceedings for a period of time, or adjust the debt. In addition, the sale, foreclosure, or seizure of real estate shall not be valid if it occurs during, or within 90 days after the servicememberâ€™s military service unless the creditor has obtained a court order approving the sale, foreclosure, or seizure of the real estate.
â€¢ The SCRA contains many other protections besides those applicable to home loans.
How Does A Servicemember or Dependent Request Relief Under the SCRA?
â€¢ A servicemember or dependent, or both, may request relief under the SCRA by providing the lender a written notice with a copy of the servicememberâ€™s military orders. (Note: Lender should place its name, address and contact information here).
How Does a Servicemember or Dependent Obtain Information About the SCRA?
â€¢ Servicemembers and dependents with questions about the SCRA should contact their unitâ€™s Judge Advocate, or their installationâ€™s Legal Assistance Officer. A military legal assistance office locator for each branch of the armed forces is available at: http://legalassistance.law.af.mil/content/locator.php.
â€¢ The U. S. Department of Defenseâ€™s information resource is â€œMilitary One Source.â€ The toll-free telephone numbers for Military One Source are: From the United States: 1-800-342-9647. From outside the United States (where available): 1-800-342-6477. International collect: 484-530-5747.