Military homeowners forced to relocate because of new orders will now be automatically eligible for a short sale under mortgage servicing rules released this week.
The Federal Housing Finance Agency (FHFA) issued the changes to ease the financial burden on active service members, nearly a third of whom receive Permanent Change of Station (PCS) orders each year. Sudden, service-based relocation forces scores of homeowners to juggle multiple mortgages or face default and the ensuing credit tailspin.
Moving forward, Fannie Mae and Freddie Mac will treat these military transfers as a hardship that merits a short sale for borrowers who are current on their mortgage.
"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," FHFA Acting Director Edward J. DeMarco said in a news release.
The changes also ensure active military members are insulated from the negative credit consequences of selling their home for less than they owe. Mortgage servicers can no longer employ delinquency requirements that force homeowners to skip mortgage payments in order to qualify for help, a maneuver that can devastate a military member's credit score.
Fannie Mae and Freddie Mac won't push homeowners to pay the difference for any home purchased on or before June 30, 2012, according to the Federal Housing Finance Agency.
These policy updates come on the heels of huge financial settlement this winter involving military homeowners who were illegally foreclosed upon over the last five years. The country's largest mortgage servicers agreed to pay nearly $117,000 plus lost equity and interest to active military whose rights were violated under the Servicemembers Civil Relief Act.
Federal financial regulators made it clear they would keep a close eye on complaints regarding compliance with consumer protections for military homeowners. Both the Department of Defense and the Department of Veterans Affairs have endorsed the new rules.
Financial problems consistently rank among the top stressors for military families. Mortgage problems at home can weigh heavily on those serving abroad and even affect mission readiness.
"Permanent Change of Station orders can complicate a service member's homeownership decisions in ways that civilians may not experience," said Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB). "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."
Consumers can submit complaints to the CFPB at Consumer Finance.gov.
Chris Birk is director of communications for the VA Mortgage Center, which specializes in VA loans for veterans and active duty service members.