The Unique Mortgage Struggles Of Military Servicemembers

Homeowners who are part of the U.S. armed forces face special challenges when it comes to paying their mortgages. Like other homeowners in recent years, many servicemembers were hammered by falling home values and found themselves with underwater properties. But unlike civilians, they don't have the luxury of simply staying put and waiting for home values to recover – every two or three years, or sometimes even more frequently, servicemembers typically receive what the military calls permanent change of station (PCS) orders to move to a new location.

In 2009, Congress expanded the Homeowners Assistance Program (HAP) – not to be confused with the Home Affordable Refinance Program (HARP) – to help servicemembers who received PCS orders between Feb. 1, 2006, and Sept. 30, 2010. To be eligible for PCS assistance, servicemembers must have owned the home before July 1, 2006, and property values in their local housing market must have fallen at least 10% while they owned the home.
HAP also covers homeowners who were impacted by the military's Base Realignment and Closure (BRAC) program, which was announced on May 13, 2005. Eligible servicemembers must have been the owner-occupant of their primary residence before the date of the BRAC 2005 announcement and to have suffered a decline of at least 10% in home value from the date of purchase to the date of sale.

Under HAP, the government can reimburse homeowners for part of their loss, help them pay off their mortgage after their home sale, or purchase the home from them and later resell it. According to the U.S. Department of Defense (DOD), the program received 11,514 applications and granted benefits to 8,107 applicants as of April 20, including 7,682 with PCS orders, 237 applicants at bases being closed, 160 injured servicemembers, and 28 surviving spouses. It has acquired 3,131 homes, sold 3,086 homes, and granted approximately $1.46 million in benefits.

But according to Mike Hayden, deputy director of government relations for the Military Officers Association of America (MOAA), many military families were ineligible for HAP if they purchased a home after July 1, 2006. Servicemembers who bought homes in the late summer or fall of that year – when the housing market was still being touted as healthy – were out of luck, even though their home values fell drastically.

‘We had a little bit of a problem with the dates when it first came out,’ Hayden says, adding that the MOAA advocated extending eligibility dates through September or October of 2006.
President Obama alluded to extending HAP in a March 6 announcement, stating that servicers at the five banks in the National Mortgage Settlement will provide short sale agreements and deficiency waivers to servicemembers who are not eligible for HAP and had to sell their homes for less than their mortgage amounts due to PCS orders.

‘This means that the benefits of that program will finally be extended to servicemembers who bought their homes between July 1, 2006, and Dec. 31, 2008, or who received a PCS after Oct. 1, 2010,’ said the president.

However, Hayden points out that the president was only announcing that servicemembers are eligible for short sales because of the foreclosure settlement.

‘It misled some of the servicemembers into thinking that there was an extension,’ Hayden says. ‘This is not an extension. There is no new money.’

Indeed, the DOD received so many telephone calls from servicemembers with problematic mortgages that it needed to create a recorded message that said, ‘If you are calling regarding the March 6 announcement by the White House, at this time the program has not been extended or expanded.’
Rep. Gerald ‘Jerry’ Connolly, D-Va., has proposed a bill that gives the DOD authority to expand the program. However, the bill gives no additional funding to HAP. Nonetheless, the MOAA is supporting that bill and is pressing for additional funding – which is no easy task in today's congressional environment.

‘I can't say we're getting any kind of traction on it,’ Hayden says, adding that the MOAA also wants HARP to grant an exemption to servicemembers who had PCS orders and rented out their homes.

Even if that's not done, other laws protect military homeowners against foreclosure. The Servicemembers Civil Relief Act (SCRA) prohibits foreclosures on servicemembers without court orders on mortgages that were originated before military service began. The National Mortgage Settlement extends that protection to all servicemembers, regardless of when their mortgages were secured, if they were receiving hostile fire/imminent danger pay, and whether they were stationed away from their home within nine months of the foreclosure.

Eric Selk, deputy director for HOPE NOW, a nonprofit mortgage industry alliance, observes that mortgage problems are part of a larger financial struggle for military homeowners. For instance, Selk notes, a family loses a spouse's income when they move, and finding a new job in a new location is difficult in today's economy.

HOPE NOW has increased its efforts to educate servicemembers about their homeownership and mortgage options. The alliance has held meetings with servicemembers at military installations around the country; at two of the larger meetings, mortgage servicers met with almost 300 families at Fort Gordon in Georgia and Fort Jackson in South Carolina.
Meeting face-to-face with counselors gives servicemembers a measure of relief, Selk observes, noting that counselors urge military homeowners to start thinking about their choices – especially since options like short sales are time-consuming.

‘I think sometimes it's hard,’ he says. ‘They have a lot of things on their minds.’

Despite efforts of the government and servicers, military homeowners continue to struggle. Sometimes the servicemember that is ‘PCS-ed’ moves alone and leaves his or her family behind to fend for themselves. Sometimes the servicemember rents out his or her home, only to find that the income doesn't cover the mortgage payment.

‘There is risk associated with all PCS – it's part of the ride,’ Hayden says, glumly. ‘Homeownership while you're in uniform is a crapshoot. When they're done with a 20- or 25-year career, very few walk out with any kind of home equity built up.’

(Michael Kling is a former editor of Secondary Marketing Executive and a financial journalist based in Stratford, Conn.)


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