Monday, July 2, 2012

Mortgage Servicing Practices: Change of Station Orders

On June 21, 2012, federal regulators issued joint guidance aimed at addressing mortgage servicer practices that may pose risks to certain homeowners who are serving in the military.

Regulators issuing the guidance included the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency (the “Agencies”). The guidance pertains to risks related to military homeowners who have informed the servicer that they have received Permanent Change of Station (PCS) orders.

PSC orders occur when servicemembers are ordered by the military to relocate to a new duty station or base. Regulators issued the guidance to address risks and to ensure compliance with applicable consumer laws and regulations.

For military homeowners, PCS orders to move to a new duty station present unique challenges.

Although PCS orders are non-negotiable and operate under short, strict timelines, military homeowners with PCS orders remain obligated to honor their financial obligations, including their mortgages. If their homes have declined in value, 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.

PCS orders to move to a new duty station present unique challenges for military homeowners, particularly in cases where their homes have declined in value.

Training, Policies, Procedures


Misleading and harmful mortgage servicing practices include:

  • Failing to clearly and timely communicate available assistance options, provide a reasonable means to learn the status of requests, and providing timely decisions on requests for assistance with reasons for any denial;

  • Asking homeowners with PCS orders to waive legal rights in order to be evaluated for assistance; and

  • Advising homeowners to skip payments to create the appearance of financial difficulty to qualify for assistance for which they would not otherwise qualify.

  • Financial institutions that engage in residential mortgage servicing should maintain appropriate policies, procedures, and training commensurate with the institution's customer base and the size and complexity of its operations, to ensure that their employees respond appropriately to requests for assistance from military homeowners receiving PCS orders.


The Agencies have concerns about the following types of practices which have the potential to mislead or otherwise cause harm to military homeowners receiving PCS orders:

    • Failing to provide homeowners with PCS orders who notify their servicers of such orders with accurate, clear, and readily understandable information about available assistance options for which the homeowner may qualify based on the information known to the mortgage servicer.  The options should be consistent with the servicer’s public representations and agreements with government agencies and others regarding the servicer’s intent to offer such assistance to all qualified homeowners.  These options include the Making Home Affordable Program and programs offered by or through Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Department of Agriculture-Rural Development (USDA-RD).

    • Asking homeowners with PCS orders to waive their legal rights under the Servicemembers Civil Relief Act (SCRA) or any other law as a prerequisite to the mortgage servicer either providing information to the homeowner about available options or evaluating the homeowner’s eligibility for assistance.
      • [50 U.S.C. app. §§ 501-597b.  Among the protections under SCRA are restrictions on foreclosures of servicemembers’ property securing pre-military-service mortgages for which the servicemember is still obligated, while the servicemember is in “military service,” as that term is defined in § 511(2), or within nine months thereafter.  The period of nine months will revert to 90 days after December 31, 2012.]

    • Advising homeowners 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 that they are having financial difficulties in order to obtain assistance for which they would not otherwise qualify.  Providing accurate, factual information to a homeowner about available loss mitigation programs for delinquent homeowners is not a practice that raises this concern.

    • Failing to provide a reasonable means for homeowners with PCS orders to obtain information on the status of their request for assistance.

    • Failing to timely communicate the servicer’s decision regarding requests for assistance from homeowners with PCS orders and failing to include an explanation of the reason for the denial, where required, so that the homeowner has an opportunity to address any deficiencies, if applicable.  Timeliness will be judged on all of the facts and circumstances.

    Training, Policies, Procedures

    Mortgage servicers should ensure that their employees are adequately trained about the options available for homeowners with PCS orders.  Information provided to homeowners with PCS orders regarding any available assistance options, such as the Making Home Affordable Program and other programs offered by or through Fannie Mae, Freddie Mac, the FHA, the VA, and the USDA-RD, should be accurate and readily understandable.  The Agencies expect the institutions they supervise will maintain mortgage servicing policies and procedures appropriate to achieve these objectives, commensurate with the institution’s customer base and the size and the complexity of its operations.


    If the Agencies determine that a servicer has engaged in any acts or practices that are unfair, deceptive, or abusive, or that otherwise violate Federal consumer financial laws and regulations, the Agencies will take appropriate supervisory and enforcement actions to address violations that harm consumers and seek all appropriate corrective actions, including requiring the mortgage servicer to strengthen its programs and processes. 


    Law Library Image

    Interagency Guidance on Mortgage Servicing Practices
    Concerning Military Homeowners with Permanent Change of Station Orders

    June 21, 2012