During the 2012 State of the Union address, President Obama outlined a comprehensive strategy – the Blueprint For an America Built to Last – that was in part designed to encourage conscientious borrowers to purchase homes, as well as support the struggling housing market. Three months later, President Obama followed up the unveiling of the Blueprint with the announcement that his Administration would take two key steps towards assisting servicemembers, veterans, and their families during the home-buying process. These steps would include providing financial relief for servicemembers and veterans and reducing FHA fees for borrowers seeking to refinance their homes.
FINANCIAL RELIEF FOR SERVICEMEMBERS AND VETERANS
The federal government and 49 state Attorneys General reached a historic settlement with major banks in order provide relief to servicemembers and veterans. The settlement sum of over $25 billion was also supplemented by the following actions:
1. The Department of Justice?s Civil Rights Division would oversee an examination of servicemember files, specifically those who suffered foreclosures from 2006 to the present. This examination would assess whether or not these foreclosures were in breach of the Servicemembers Civil Relief Act. If a breach has taken place, the servicemembers would either receive their lost equity, plus interest, and an extra $116, 785, or an amount of equal or greater value to be determined by banking regulators
2. The DOJ?s Civil Right Division would also oversee a review of the files of its servicemembers to see if they were charged an interest rate above 6%, even after the servicemembers put in a valid request for a lower rate. This would also be in violation of the SCRA. Compensation would equal at least four times the amount wrongfully charged.
3. The Department of Defense?s Homeowners? Assistance Program would compensate servicemembers who had to sell their homes at a loss because of a Permanent Change in Station. Servicers would need to provide a short sale agreement and deficiency waver to any servicemember who sold their home for less than what they owe on their mortgage because of a PCS, but who are ineligible for HAP. This would apply to anyone who either purchased homes between July 1, 2006 and December 31, 2008, or who were given a PCS after October 1, 2010.
4. The Veterans Housing Benefit Program Fund would receive $10 million from major banks. This compensation would be used to secure advantageous loans for veterans.
5. According to the SCRA, servicers are not permitted to foreclose on active duty servicemembers without a court order if the loan was secured while the servicemember was on active duty. This benefit would now be extended to all active duty servicemembers, no matter when the loan was secured as long as the foreclosure occurred within nine months of the servicemember receiving Hostile Fire/Imminent Danger Pay. The servicemember would also need to have been stationed away from home during this time.
REDUCED FEES FOR FHA BORROWERS
The FHA would now offer a program that would permit debtors with FHA-secured mortgages to refinance their homes at a reduced rate. They would slash their upfront mortgage insurance premium of 1% down to .01% for all loans secured before June 1, 2009. They would also cut their previous annual rate of 1.15% in half, down to .55%. About 2-3 million FHA borrowers would be eligible for this benefit, and these combined reductions could save the average FHA borrower approximately a thousand dollars a year.
UPDATES IN SERVICEMEMBER/VETERAN HOUSING NEWS
As of October 17, 2012, Veteran Affairs was close to guaranteeing its 20 millionth home loan. The New York Times recently reported that by the end of the fiscal year in September, the number of VA-backed loans rose by 50%, reaching nearly 540,000 loans. This is the highest number of loans guaranteed since 1994.
It?s no surprise that more and more veterans are applying for VA-backed home loans. These loans don?t require a down payment, and they allow for refinancing on existing loans. There?s also no need for mortgage insurance since the federal government is backing the loan. Additionally, all veterans on disability are exempt from paying the 3% funding fee.
CFPB Cracking Down On Predatory Lenders Who Target Veterans
On November 19, 2012, the Consumer Finance Protection Bureau (CFPB) announced that they sent warning letters to 12 mortgage lenders, accusing them of misleading advertisements specifically geared towards veterans. These lenders allegedly offered inaccurate interest rates, gave misleading statements about the cost of reverse mortgages, misrepresented the amount of credit that would be available to the consumer, and used “official-looking logos” that falsely suggested government affiliation. Six companies are currently under investigation for more serious crimes. With no end in sight to predatory lending practices, it’s vital that veterans work directly with their banks to ensure that their VA-backed loans meet their specific requirements.