### November 20, 2006

### 

### Mortgagee Letter 2006-28

## TO: ALL APPROVED MORTGAGEES

## ATTENTION: Single Family Servicing Managers

SUBJECT: Mortgage and Foreclosure Rights of Servicemembers under the
Servicemembers Civil Relief Act (SCRA)

This Mortgagee Letter provides information regarding a new legal
requirement to notify homeowners in default of the mortgage and
foreclosure rights of servicemembers and their dependents under the
Servicemembers Civil Relief Act (SCRA). It also provides guidance
regarding the implementation of SCRA requirements in servicing
FHA-insured mortgages. This guidance supersedes prior Mortgagee letters
ML 2003-04, *Soldiers' and Sailors' Civil Relief Act* and ML 01-22, *The
Effect of the Soldiers' and Sailors' Civil Relief Act of 1940 on FHA
Insured Mortgages.* However, the guidance provided in ML 91-20, *Effect
of the Soldiers' and Sailors' Civil Relief Act of 1940* on *FHA Insured
Mortgages* remains valid with respect to the calculation of Section 235
subsidy.

Section 688 of the National Defense Authorization Act for Fiscal Year
2006 (public law

109-163, enacted January 6, 2006) amended the required content of
notifications of homeownership counseling availability under section
106(c)(5)(A)(ii) of the Housing and Urban Development Act (12 U.S.C.
1701x(c)(5)(A)(ii)) and directed HUD to develop and disseminate a format
for the required notice.

## Servicemembers Civil Relief Act Notice

Pursuant to the statutory amendment, HUD has developed, in consultation
with the Departments of Defense and Treasury, the form for the required
notice of servicemember rights (Attachment 1). All mortgage loans,
including conventional mortgages and mortgages insured by HUD are
subject to the notification requirement that became effective June 5,
2006. The notice must:

-   Be sent to all homeowners who are in default on a residential
    mortgage;

-   Include the toll-free Military OneSource number to call if
    servicemembers or their dependents require further assistance
    (1-800-342-9647); and

-   Be made within 45 days from the date a missed payment was due,
    unless the homeowner pays the overdue amount before the expiration
    of the 45-day period.

**[Legal Rights and Protections Under the SCRA Applicable to all
Debts]{.underline}**

The SCRA states that a debt incurred by a servicemember or spouse
jointly, prior to entering military service shall not bear interest at a
rate above six percent per year during the period of military service.
Interest in excess of six percent per year that would otherwise be
incurred during the period of military service is forgiven.
Servicemembers become eligible for the interest rate limitation by
providing to the mortgagee a written notice, a copy of the military
orders calling the servicemember to military service, and any orders
further extending military service, not later than 180 days after the
date of the servicemember's termination or release from military
service*.* Upon receipt, the mortgagee must limit interest on the
obligation to no more than six percent per year effective as of the date
on which the servicemember is called to military service. Only a court
may grant the mortgagee an exception to the interest rate limitation and
then, only if, in the opinion of the court, the ability of the
servicemember to pay interest upon the obligation or liability at a rate
in excess of six percent per year is not materially affected by reason
of the servicemember's military service.

In a legal action to enforce a debt against real estate that is filed
during, or within 90 days after the servicemember's military service, a
court may stop the proceedings for a period of time, or adjust the debt.
In addition, the sale, foreclosure, or seizure of real estate shall not
be valid if it occurs during, or within 90 days after the
servicemember's military service unless the creditor has obtained a
court order approving the sale, foreclosure, or seizure of the real
estate.

The SCRA provides some additional legal protections. HUD is not in a
position to interpret all the various provisions of the SCRA as they may
affect rights between creditors and servicemembers. Such interpretations
should be obtained from the Department of Defense or be determined by
the courts.

#### [Reduction of Monthly Payments on FHA-Insured Loans]{.underline}

When, pursuant to the SCRA, interest must be reduced to six percent on
an FHA-insured loan, the mortgagee may either calculate interest due for
the period of active duty on a per diem basis, or permit the lower
interest rate from the first through the last month of military service.

If notified that a mortgagor is on active military duty, the mortgagee
must advise the servicemember or representative of the adjusted amount
due, provide adjusted coupons or billings, and ensure that the reduced
payments are not returned as insufficient.

If the mortgagee was not notified that the mortgagor is on active
military duty, but receives a reduced payment that approximates an
interest reduction to six percent, an effort should be made to contact
the mortgagor or a representative to determine whether the mortgagor is
on active duty. If an appropriate explanation is not provided, the
mortgagee may return the insufficient payment in accordance with 24 CFR
§ 203.556.

#### [Section 235 Mortgage Insurance and Assistance Payments Program]{.underline}

A few Section 235 mortgages still have assistance payments from HUD
applied to them on behalf of lower-income mortgagors. Assistance for
these mortgages may be affected by the six percent interest rate
limitation. On all accounts receiving assistance when the note rate of
interest exceeds six percent, the amount of assistance must be
reanalyzed, and the subsidy amount must be recalculated using the full
mortgage payment at a six percent rate when determining the amount of
assistance. For some accounts, the interest rate deduction will cause
the suspension of assistance for the period of active duty. Whenever an
interest rate reduction is made with retroactive effect and the Section
235 assistance is reduced, any over-billed subsidy must be returned to
HUD as a refund or adjustment to the subsequent Section 235 monthly
billing. When active duty terminates and the note rate resumes, the
assistance must be recalculated and restored in accordance with the
usual procedures. Any income recertification requests received from
mortgagors in accordance with 24 CFR § 235.355 must be processed
expeditiously. Please also reference ML 91-20, *Effect of the Soldiers'
and Sailors' Civil Relief Act of 1940* on *FHA Insured Mortgages* for
additional guidance in calculating Formula 2 subsidy.

#### [HUD Relief Provisions for Servicemembers]{.underline}

FHA regulations contain special relief provisions authorizing
postponement of principal payments and foreclosure proceedings for
mortgagors in active duty military service as defined in the SCRA.
Pursuant to 24 CFR 203.610, the mortgagee shall specifically give
consideration to affording the mortgagor relief authorized by 24 CFR
203.345 and 203.346 and covered under the following two paragraphs.

##### 

##### **Postponement of Principal Payments**

Under 24 CFR 203.345, the mortgagee may, by written agreement with the
mortgagor, postpone for the period of military service and for 3 months
thereafter any part of the monthly mortgage payment which represents
amortization of principal. The agreement shall contain a provision for
the resumption of monthly payments after such period in amounts that
will completely amortize the mortgage debt within the maturity as
provided in the original mortgage. This agreement does not affect the
amount of the annual Mortgage Insurance Premium (MIP) that will continue
to be calculated in accordance with the original amortization provisions
of the mortgage.

##### **Postponement of Foreclosure**

Under provisions of 24 CFR 203.346, the period during which the
mortgagor is in military service shall be excluded in computing the
period during which the mortgagee shall commence foreclosure or acquire
the property by other means. Further, postponement or delay in
prosecuting foreclosure proceedings during the period the mortgagor is
in military service shall not be construed as a failure of the mortgagee
to exercise reasonable diligence.

###### Loss Mitigation

Mortgagees must consider all FHA home retention loss mitigation options
for active duty military persons who are in default on an FHA insured
loan. These options, including special forbearance, loan modification,
and partial claim help protect the servicemember against the risk of
foreclosure after the period of service is completed. Mortgagees must
also provide delinquent servicemembers with information about
pre-foreclosure sale and deed-in-lieu of foreclosure options.

##### **Claims for FHA Insurance Benefits**

##### 

##### Debenture interest will not be curtailed because of SCRA-caused delays in initiating or prosecuting foreclosure proceedings. On conveyance claims involving loans subject to SCRA provisions, the Department will pay the applicable debenture interest rate from the date of default to the date the claim is paid unless interest must otherwise be curtailed pursuant to 24 CFR 203.402(k).

##### 

##### **Reimbursement of Issuers for Interest Shortfalls on Eligible Loans in Ginnie Mae Mortgage-Backed Securities**

Ginnie Mae will reimburse issuers for interest shortfalls attributable
to SCRA for all eligible loans. To receive a reimbursement of interest,
an issuer must demonstrate that the borrower meets the criteria for a
reduction in interest rate. Mortgagees should refer to Chapter 34,
Section 34-3 of Ginnie Mae Mortgage-Backed Securities Guide 5500.3, Rev.
1 for further information on obtaining such reimbursement. Links to each
chapter of the Ginnie Mae MBS Guide are available at:
<http://www.ginniemae.gov/guide/guidtoc.asp?subTitle=Issuers>

###### Verification of Military Service

Mortgagees who are otherwise unable to verify a defendant mortgagor's
military status

may request and obtain a statement as to military service from the
Department of Defense pursuant to 50 U.S.C. App. § 582 of the SCRA. To
facilitate SCRA searches, the Department of Defense's Manpower Data
Center (DMDC) has developed a secure public Internet access system
through which any requester can quickly determine whether an individual
is currently in the armed forces. The URL for SCRA queries is
<https://www.dmdc.osd.mil/owa/scra/home>. The requester must provide a
Social Security number (SSN) and a last name. First name, middle name,
birth year, and birth month are optional.

A report is executed by clicking the "LookUp" tab on the query form. If
the provided SSN and other identifying information match the name of a
person currently on active duty, the DMDC response report will provide
the named individual's branch of military service and \"begin date\" of
Active Duty status. If the provided SSN is matched to the name of a
person on active duty but the last name and/or birth date entered do not
match information recorded for that individual, the DMDC response report
page states:

> "Based on the social security number you have provided, the individual
> is currently on Active Duty. However, the name or partial DOB, or both
> provided do not match the individual against whom the social security
> number is assigned."

If the DMDC does not have information regarding whether the name of the
identified person is on active duty, the response report will only list
the supplied name with the text:

> "Based on the information you have furnished, the DMDC does not
> possess any information indicating the individual is currently on
> active duty."

There is no charge for the online SCRA queries and no authorization,
user ID or password is required. Should you require assistance, you may
fax a SCRA request to DMDC at 703-696-4156 or call 703-696-6762.

The information collection requirements contained in this document have
been approved by the Office of Management and Budget (OMB) under the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB
Control Number 2502-0565. In accordance with the Paperwork Reduction
Act, HUD may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless the collection displays a
currently valid OMB Control Number.

Any questions regarding this Mortgagee Letter may be directed to HUD\'s
National Servicing Center through its toll-free number 1-888-297-8685.

> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> Brian D. Montgomery
>
> Assistant Secretary for Housing-
>
> Federal Housing Commissioner

Attachment

# Attachment 1

# 

# United States Department of Housing and Urban Development 

# Servicemembers Civil Relief Act Notice

# 

# [Legal Rights and Protections Under the SCRA]{.underline}

Servicemembers on "active duty" or "active service," or a dependent of
such a servicemember may be entitled to certain legal protections and
debt relief pursuant to the Servicemembers Civil Relief Act (50 USC App.
§§ 501-596) (SCRA).

# [Who May Be Entitled to Legal Protections Under the SCRA?]{.underline} 

-   Active duty members of the Army, Navy, Air Force, Marine Corps,
    Coast Guard, and active service National Guard;

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-   Active service members of the commissioned corps of the National
    Oceanic and Atmospheric Administration;

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-   Active service members of the commissioned corps of the Public
    Health Service;

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-   United States citizens serving with the armed forces of a nation
    with which the United States is allied in the prosecution of a war
    or military action; and

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-   Their spouses.

**[What Legal Protections Are Servicemembers Entitled To Under the
SCRA?]{.underline}**

-   The SCRA states that, a debt incurred by a servicemember, or
    servicemember and spouse jointly, prior to entering military service
    shall not bear interest at a rate above 6 percent during the period
    of military service.

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-   The SCRA states that, in a legal action to enforce a debt against
    real estate that is filed during, or within 90 days after the
    servicemember's military service, a court may stop the proceedings
    for a period of time, or adjust the debt. In addition, the sale,
    foreclosure, or seizure of real estate shall not be valid if it
    occurs during, or within 90 days after the servicemember's military
    service unless the creditor has obtained a court order approving the
    sale, foreclosure, or seizure of the real estate.

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-   The SCRA contains many other protections besides those applicable to
    home loans.

# [How Does A Servicemember or Dependent Request Relief Under the SCRA?]{.underline}

-   A servicemember or dependent, or both, may request relief under the
    SCRA by providing the lender a written notice with a copy of the
    servicemember's military orders. (Note: [Lender should place its
    name, address and contact information here)]{.underline}.

# [How Does a Servicemember or Dependent Obtain Information About the SCRA?]{.underline} 

-   The U. S. Department of Defense's information resource is "Military
    OneSource." Website:
    [http://www.militaryonesource.com](http://www.militaryonesource.com/skins/MOS/home.aspx).
    The toll-free telephone numbers for Military OneSource are: From the
    United States: 1-800-342-9647. From outside the United States (with
    applicable access code): 800-3429-6477. International collect:
    (through long distance operator) 1-484-530-5908.

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-   Servicemembers and dependents with questions about the SCRA should
    contact their unit's Judge Advocate, or their installation's Legal
    Assistance Officer. A military legal assistance office locator for
    each branch of the armed forces is available at:
    <http://legalassistance.law.af.mil/content/locator.php>.