VA requirements

New Disclosure Notice Requirements For Military Borrowers At Risk of Home Loan Default

July 1, 2011

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New Disclosure Notice Requirements For Military Borrowers At Risk of Home Loan Default

Military members have long had a form of financial protection offered under something known as the Servicemembers Civil Relief Act or SCRA for short.

At one time, this legislation was known as the Soldiers And Sailors Civil Relief Act, but those protections were re-written and expanded when the legislation was replaced in 2003 by the Servicemembers Relief Act–military members on active duty or called to active duty have protection against loan default, foreclosure and other issues (as described in the act).

Protection under the SCRA is not automatic–military members must notify their creditors in writing using the procedure described in the SCRA to get protections and assistance with debt incurred prior to military service. That would include mortgage loans and other major lines of credit.

But many servicemembers are unaware of the act and how it works, which is one reason why the Department of Housing and Urban Development has announced a revised disclosure notice requirement to emphasize a military member’s rights under SCRA. This applies to mortgage loan default disclosure notices sent to borrowers who are at risk or already in default on their home loans.

According to a HUD press release, when a military home owner who has applied for SCRA protection is notified of a mortgage default, they must receive the new, revised Disclosure Notice.

The press release states, “A written request and a copy of military orders must be sent to a lender in order for a servicemember to get interest rate relief and foreclosure protection under the Act. In its revised form, however, the Notice of Disclosure emphasizes that there is no requirement thereafter for servicemembers to alert their lenders of their military status in connection with a foreclosure. It is the lenders responsibility to make that determination and to send a copy of the Notice of Disclosure to homeowners, who are in default on a mortgage.”

It’s important to remember military members are required to act in order to get SCRA protections. Military people must contact the creditor with a statement of intent to invoke SCRA protection and include a copy of their current orders.

Protections under the SCRA include a cap on credit debt (including FHA mortgages) of six percent. The Servicemembers Civil Relief Act specifically states, “Creditors must reduce (or cap) the interest rate on debts you incurred before active duty to 6 percent per year during your period of military service.”

“If the debt was in the nature of a mortgage, the reduced rate extends for one year after your period of military service. In addition to mortgage-type debts, the cap applies to credit card debts, car loans, business obligations, and other debts, as well as fees, service charges, and renewal fees. It applies only to liabilities incurred before entering active duty, not those incurred while on active duty.”

While that does mean that SCRA cannot be used specifically for VA home loans, the Department of Veterans Affairs does have assistance available for VA borrowers in trouble with their mortgages.

SCRA protections could be quite helpful for VA borrowers looking for financial relief in other areas such as credit card debt, automobile loans and other issues. The financial relief a VA borrower gets from SCRA protection in those areas could help when it comes time to make a monthly VA home loan payment.

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