Mortgage Foreclosures: Regulatory Oversight of Compliance with Servicemembers Civil Relief Act Has Been Limited
Released: 2012-07-17T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: SCRA protects servicemembers whose active duty military service prevents them from meeting financial obligations, by allowing interest rates on certain debts to be reduced and requiring a court order before certain foreclosures on their homes can occur. With foreclosures rising, reports surfaced of instances in which financial institutions failed to comply with SCRA. GAO examined the (1) eligibility for SCRA protections and extent of SCRA mortgage-related violations by depository institutions, (2) SCRA compliance oversight by prudential regulators and other federal agencies, and (3) the military services’ efforts to educate servicemembers on SCRA. GAO collected data on populations eligible for SCRA from DOD and SCRA violations from banking and law enforcement agencies and reviewed a stratified random sample of prudential regulators’ examinations of banks and credit unions. GAO also interviewed regulators, law enforcement and military officials, and military service organizations.

section_title: What GAO Found
paragraphs: Certain protections under the Servicemembers Civil Relief Act (SCRA) only apply to those servicemembers who obtained mortgages prior to becoming active duty, but at least 15,000 instances of financial institutions failing to properly reduce servicemembers’ mortgage interest rates and over 300 improper foreclosures have been identified by federal investigations and financial institutions in recent years. Additional independent reviews of financial institutions’ compliance are under way, and staff from some of these institutions told GAO that they have implemented improved practices—such as creating single points of contact familiar with military issues for borrowers—to better comply with SCRA.

Federal regulators’ oversight of SCRA compliance has been limited. GAO estimates that from 2007 through 2011 prudential depository institution regulators—the Federal Deposit Insurance Corporation, Federal Reserve Board, National Credit Union Administration, and Office of the Comptroller of the Currency—reviewed 48 percent of all banks and credit unions for SCRA compliance. Of these institutions that were reviewed for SCRA compliance, only about half received examinations that involved testing of compliance by reviewing loan files. Further, GAO found that examiners had only reviewed loans identified by the institution as involving servicemembers and had not independently selected a statistical sample of loan files, which would have provided greater assurance of SCRA compliance. Without more testing, which examination and auditing guidance suggest provides increased verification, regulators are less likely to detect SCRA violations. Various other federal agencies are involved in SCRA compliance oversight. The Department of Justice has explicit SCRA enforcement authority and since 2007 has brought three cases against mortgage servicers for violations. The Department of Veterans Affairs (VA), Federal Housing Administration, and Federal Housing Finance Agency—which regulates the government-sponsored enterprises—all obtain information about SCRA compliance at the servicers that participate in the mortgage programs they administer or regulate, but the agencies and the prudential regulators do not share such information among themselves. Collaboration among these agencies could lead to more effective supervision and improve their awareness of potential problems with SCRA compliance. Further, VA oversight of mortgage servicers does not specifically review for SCRA compliance. By increasing its SCRA compliance monitoring efforts, VA could better ensure that servicemembers with VA loans are better protected.

SCRA requires that the Department of Defense (DOD) and Department of Homeland Security (DHS)—which oversees the Coast Guard—inform servicemembers of their SCRA rights. The military services provide this information in various forms, such as briefings and websites. However, some military officials said that servicemembers—particularly members of the National Guard and reserve—often receive SCRA information as part of briefings with numerous other topics prior to deployment and do not always retain the necessary awareness when they need it later. DOD and DHS do not assess the effectiveness of their SCRA education methods, such as by using focus groups of servicemembers or testing to reinforce retention of SCRA information. Without such assessment, they may not be able to ensure that they are informing servicemembers of their rights in the most effective manner.

section_title: What GAO Recommends
paragraphs: Prudential regulators should conduct more extensive loan file testing for SCRA compliance. Regulators and other agencies that oversee mortgage activities should also explore opportunities for information sharing on SCRA compliance oversight, and VA should expand its SCRA compliance monitoring efforts. Finally, DOD and DHS should assess the effectiveness of their efforts to provide SCRA information to servicemembers. The agencies generally agreed and noted actions responsive to GAO’s recommendations.

section_title: Letter
paragraphs: The Servicemembers Civil Relief Act (SCRA) is intended to provide  protections to servicemembers in the event that their military service  prevents them from meeting financial obligations. The intent of the act is  to allow servicemembers to focus on their duties without having to  experience difficulties in their financial affairs as a result of their service.  The act provides numerous protections to servicemembers serving on  active duty, including prohibiting mortgage servicers—entities  responsible for administering home-mortgage loans—from foreclosing on  their homes without court orders, capping the interest rate and fees on  their mortgages at 6 percent, and prohibiting adverse credit reporting for  servicemembers who invoke their SCRA rights. In order to be eligible for  some of these protections, servicemembers must have incurred their  mortgage prior to their active duty service.

In addition to landmark civil cases against mortgage servicers by  servicemembers, record numbers of foreclosures and allegations that  mortgage servicers did not ensure that all foreclosure documents were  properly signed or notarized in recent years caused federal agencies to  pay increased attention to servicing activities. At the end of 2010, federal bank regulators conducted reviews of foreclosure processing at 14  federally regulated mortgage servicers. These reviews identified  instances in which servicemembers who were protected by SCRA had  been foreclosed upon and led to numerous additional inquiries to  determine the extent to which servicemembers’ SCRA rights had been  violated. For example, in 2011, some of the nation’s largest mortgage  servicers—Chase Home Finance, LLC; BAC Home Loans Servicing, LP;  and Saxon Mortgage Services Inc.—settled lawsuits for millions of dollars  for faulty mortgage servicing and foreclosure practices that included  allegedly foreclosing on and charging excess interest and fees to  servicemembers in violation of SCRA.

In response to these identified instances of SCRA violations,  congressional requesters asked us to examine various aspects of federal  oversight of SCRA compliance. This report discusses (1) what is known  about SCRA eligibility, the number of violations that have occurred, and  practices financial institutions use to comply with SCRA, (2) what  oversight financial regulators and other federal agencies have taken to  help ensure financial institutions’ compliance with the act, and (3) actions  the Department of Defense (DOD), Department of Homeland Security  (DHS), Department of Veterans Affairs (VA), and others have taken to  ensure that servicemembers and others are informed of protections  provided under the act. As agreed with your staff, the scope of our review  includes primarily SCRA protections related to servicemembers’  residential mortgages.

To describe what is known about the practices financial institutions use to  comply with SCRA, we interviewed representatives, from a non- generalizable sample of 4 of the 10 largest mortgage servicers based on  unpaid principal balance of mortgages serviced, about their SCRA  compliance practices and challenges and reviewed relevant policies and  procedures. We also interviewed representatives of financial industry  associations, including those that represent the mortgage industry and  financial institutions with a large military customer base. We reviewed  letters from 10 mortgage servicers on their SCRA compliance history and  activities, which were written in response to an investigation by the U.S.  House of Representatives Committee on Oversight and Government  Reform. We also reviewed data on SCRA violations found during bank  and credit union examinations conducted between 2007 and 2011 by the  prudential depository institution regulators—the Board of Governors of the  Federal Reserve System (Federal Reserve), the Federal Deposit  Insurance Corporation (FDIC), the National Credit Union Administration  (NCUA), and the Office of the Comptroller of the Currency (OCC)—as  well as data from Department of Justice (DOJ) enforcement actions and a  recent class action settlement against a large mortgage servicer.

To assess the oversight financial regulators have taken to help ensure  financial institutions’ compliance with SCRA, we reviewed prudential  regulators’ examination policies and procedures and interviewed officials  from these agencies. To assess the extent to which prudential regulators  examined banks and credit unions for SCRA compliance, we selected a  stratified random sample of 160 depository institutions (40 from each of  the four prudential regulators) and reviewed the workpapers for each of  the examinations from 2007 through 2011 for 152 of these institutions.  Our sample included only institutions that hold mortgages in their loan  portfolios and service those loans themselves or institutions that service  mortgages for other institutions. We analyzed the examination  workpapers to estimate the percentage of institutions for which prudential  regulators conducted SCRA compliance reviews and determine the  frequencies with which different examination procedures were used for  these reviews. To describe the SCRA oversight activities of other federal  agencies, we reviewed SCRA oversight policies and procedures for DOJ,  the Federal Housing Administration (FHA), government-sponsored  enterprises (the enterprises)—Fannie Mae and Freddie Mac—and VA.  We reviewed SCRA cases DOJ settled from 2007 through 2011 and  SCRA compliance oversight policies and procedures of FHA, Fannie  Mae, Freddie Mac, and VA, and we interviewed officials from these  agencies.

To determine what actions DOD, DHS, VA, and others have taken to  ensure servicemembers are informed of their SCRA rights, we reviewed  the act to determine what it requires agencies to do and interviewed two  SCRA experts. We also reviewed DOD and DHS policies and procedures  and interviewed officials from DOD’s Office of Legal Policy, DHS, and the  National Guard Bureau. To determine what actions other agencies,  including VA, Consumer Financial Protection Bureau (CFPB), and FHA,  were taking to inform servicemembers and others of SCRA protections,  we reviewed notifications they provide to mortgage servicers on SCRA  compliance and interviewed officials at these agencies. To determine how  servicemembers learn about their SCRA protections and what challenges  they face asserting those protections, we selected six military installation  legal assistance offices (one for the Army, Navy, Marine Corps, and  Coast Guard and two for the Air Force) based on a geographic  distribution of states with high numbers of foreclosures and large active  duty and reservist populations, and interviewed the legal assistance  attorneys who work directly with servicemembers who visit these offices.  We reviewed examples of SCRA training and outreach that these offices  develop and distribute to servicemembers. We also interviewed two legal  assistance attorneys from the reserve components who were  recommended during our interviews with legal assistance attorneys, as  well as representatives from seven military servicemember groups that  were selected based on their broad representation of servicemembers.  See appendix I for more information on our objectives, scope, and  methodology.

We conducted this performance audit from August 2011 to July 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Congress passed the Soldiers’ and Sailors’ Civil Relief Act in 1940 to  provide servicemembers protections to help them meet the unique  circumstances they face when serving their country. In response to the  increased use of Reserve and National Guard military units in the Global  War on Terrorism, Congress enacted SCRA in December 2003 as a  modernized version of the Soldiers’ and Sailors’ Civil Relief Act. In  addition to providing protections related to residential mortgages, the act  covers other types of loans, such as credit card and automobile and a  variety of other issues, such as rental agreements, eviction, installment  contracts, civil judicial and administrative proceedings, motor vehicle  leases, life insurance, health insurance, and income tax payments.

SCRA provides the following mortgage-related protections to  servicemembers: Interest Rate Cap. Servicemembers who obtain mortgages prior to  serving on active duty status are eligible to have their interest rate  capped at 6 percent for the duration of their active duty status and for  12 months after returning from active duty service. Interest above 6 percent is to be forgiven by the servicer. Servicemembers are  required to inform their servicer of their active duty status in order to  avail themselves of this provision.

Foreclosure Proceedings. A servicer cannot sell, foreclose, or seize  the property of a servicemember for breach of a pre-service obligation  unless a court order is issued prior to the foreclosure on the  property. This protection is effective until 9 months after the term of  active duty service ends. If the servicer files an action in court to  enforce the terms of the mortgage, the court may stay any  proceedings or adjust the obligation to preserve the interests of the  parties.

Mortgage prepayment penalties. A court may decide that  servicemembers who have mortgages that impose penalties for  paying off the balance early are not subject to these penalties if the  servicemember incurs such fees due to military service and the ability  of the servicemember to pay the fees is materially affected by military  service. change-of-station order to relocate to another area may receive a  court order that waives the penalty for selling his or her home and  paying off the mortgage early.

For example, a servicemember who receives a permanent

Adverse credit reporting protections. A servicer may not report  adverse credit information to a credit reporting agency solely because  a servicemember exercises his or her SCRA rights, including a  request to have his or her mortgage interest rate and fees be capped  at 6 percent.

50 U.S.C. app. §523(b).

In addition to SCRA, the Housing and Urban Development Act of 1968  includes a requirement applicable to institutions that service mortgages.  This act requires that all mortgage servicers that service home loans  provide notification of the availability of homeownership counseling  offered by the lender to eligible homeowners who fail to pay any amount  by the due date. In 2006, changes were made to the homeownership  counseling notice requirement. Mortgage servicers are required to alert  borrowers of SCRA protections if they are in default on their mortgage,  and the notice instructs borrowers to notify their servicer if they believe  they are eligible for SCRA protections. Servicers must provide the  notification within 45 days from the date a payment was missed by a  borrower. The Department of Housing and Urban Development (HUD)  developed and disseminated the format for this notice.

SCRA provides protections to active duty servicemembers in all five of  the military services—Army, Navy, Air Force, Marine Corps, and Coast  Guard—as well as members of each of these services’ reserve   These components include the Army Reserve, Navy  component. Reserve, Marine Corps Reserve, Air Force Reserve, Coast Guard  Reserve, Army National Guard, and Air National Guard.

In 2010, active  duty servicemembers comprised 63 percent of the military’s force, and  the reserve components represented the remaining 37 percent of the  military force. Figure 1 shows the distribution of the military population  and shows that the Army constitutes the greatest percentage of both  active duty servicemembers and the reserve forces.

While the Army Reserve, the Navy Reserve, the Marine Corps Reserve,  and the Air Force Reserve are federal entities, the Army National Guard  and the Air National Guard (known collectively as the National Guard)  have both federal and state missions. Members of the National Guard  who are eligible for SCRA protections are those who have been called  into federal active duty service. In addition, members of the National  Guard recalled for state duty are also eligible for SCRA protections under  certain circumstances.

The responsibility of extending mortgage-related SCRA protections to  eligible servicemembers often falls to mortgage servicers. While some  institutions that originate home mortgage loans hold the loans as assets  on their balance sheets, institutions generally sell them to other financial  institutions or the enterprises—Fannie Mae or Freddie Mac. The  enterprises purchase mortgages from primary mortgage lenders. They  hold some of the mortgages they purchase in their portfolios, but they  package the majority into mortgage-backed securities and sell them to  investors in the secondary mortgage market. The enterprises guarantee  these investors the timely payment of principal and interest. If a mortgage  originator sells its loans to either an investor or to an institution that  securitizes them, another financial institution or other entity is appointed  as the mortgage servicer to manage payment collections and other  activities associated with these loans. Mortgage servicers, which can be  large mortgage finance companies, commercial banks, or small specialty  companies unaffiliated with a larger financial institution, earn a fee for  duties they perform, such as sending borrowers monthly account  statements, answering customer-service inquiries, collecting monthly  mortgage payments, maintaining escrow accounts for property taxes and  hazard insurance, and forwarding proper payments to the mortgage  owners. Other mortgage lenders that hold the mortgages they originate  may service the loans internally or outsource this function.

In the event that a borrower becomes delinquent on loan payments, the  mortgage servicer must decide whether to pursue a home retention  workout or foreclosure alternative, such as a short sale, or proceed with  foreclosure. If the mortgage servicer determines that foreclosure is the  most appropriate option, it follows one of two foreclosure methods,  depending on state law. In a judicial foreclosure, a judge presides over  the process in a court proceeding. Mortgage servicers initiate a formal  foreclosure action by filing a lawsuit with a court. A nonjudicial foreclosure  process takes place outside the courtroom and is typically conducted by a  trustee named in the deed-of-trust document that accompanied the  mortgage. Trustees, and sometimes mortgage servicers, generally send a  notice of default to the borrower and publish a notice of sale in area  newspapers or legal publications.

Prudential regulators—FDIC, Federal Reserve, NCUA, and OCC—have  the authority to conduct reviews of any aspect of banks’ activities,  including compliance with applicable consumer protection laws, such as  SCRA. OCC charters and supervises national banks and federal thrifts.  The Federal Reserve supervises state-chartered banks that opt to be  members of the Federal Reserve System, bank holding companies, thrift  holding companies, and the nondepository institution subsidiaries of those  institutions. FDIC supervises FDIC-insured state-chartered banks that are  not members of the Federal Reserve System, as well as federally insured  state savings banks and thrifts. NCUA charters and supervises federally  chartered credit unions and insures savings in federal and most state- chartered credit unions. OCC regulates the vast majority of mortgage  servicing in the United States. For example, OCC-regulated servicers  accounted for close to 80 percent of the unpaid principal balance on  serviced mortgages in the third quarter of 2011. The prudential regulators  conduct risk-based examinations of the institutions they oversee on a  routine basis. Because examinations are risk-based and there are a  number of consumer compliance laws for which examiners assess  compliance during an examination, SCRA compliance is not assessed  during every examination.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) established CFPB and provided it with the authority to regulate  mortgage servicers with respect to federal consumer financial law.  Consumer financial protection functions from seven existing federal  agencies were transferred to the new agency. For mortgage servicers  that are depository institutions with more than $10 billion in assets or their  affiliates, CFPB will have exclusive supervisory authority and primary  enforcement authority to ensure compliance with federal consumer  financial law. Additionally, if a mortgage servicer is a nondepository  institution, CFPB will have both supervisory and enforcement authority to  ensure compliance with federal consumer financial law. Finally, CFPB  will have rulemaking authority with respect to mortgage servicers,  including authority that transfers from other federal agencies such as the  Federal Reserve and the Federal Trade Commission. SCRA, however,  was not one of the enumerated laws for which oversight transferred to  CFPB. The prudential regulators remain responsible for overseeing  compliance with the law for any of the entities they supervise that are  servicing mortgages.

Other federal agencies are involved in the mortgage market by operating  mortgage programs aimed at expanding homeownership for populations  who may encounter difficulties in obtaining mortgages. For example, FHA  has played a large role in assisting minority, lower-income, and first-time  homebuyers in obtaining mortgages. FHA’s program insures private  lenders against losses from borrower defaults on mortgages that meet  FHA criteria for properties with one to four housing units. As of  September 2011, almost 3,700 lending institutions were approved to  participate in FHA’s mortgage insurance programs for single-family  homes. FHA also offers special protections for servicemembers who have  FHA-insured loans. For example, FHA-approved lenders are authorized  to postpone principal payments and foreclosure proceedings for  servicemembers on active duty who have FHA-insured mortgages.

VA is also active in the mortgage market through its Home Loan Guaranty  program, which provides lenders a guaranty on a portion of mortgage  loans for eligible veterans, active duty servicemembers, surviving  spouses, and members of the reserve components in recognition of their  service. According to VA, the program operates by substituting the federal  government’s guaranty for a down payment that might otherwise be  required. VA guarantees a portion of the mortgage loan in the event that  borrowers default, providing lenders with substantial financial protections  against some of the losses that may be associated with extending such  mortgage loans. In 2011, VA guaranteed over 350,000 loans to veteran  borrowers.

The Housing and Economic Recovery Act of 2008 created the Federal  Housing Finance Agency (FHFA) and gave it responsibility for, among  other things, the supervision and regulation of the housing-related  enterprises: Fannie Mae, Freddie Mac, and the 12 federal home loan  banks.each of the regulated entities operates in a safe and sound manner,  including maintenance of adequate capital and internal controls, and  carries out its housing and community development finance mission.  FHFA has no direct authority over mortgage servicers, but does have  authority to ensure that the housing enterprises are being run safely and  soundly, as well as the power to impose operational, managerial, and  internal control standards on the companies.

section_title: SCRA Eligibility, Violations, and Compliance
subsections: section_title: SCRA Requirements Limit Eligibility for Mortgage Protections
paragraphs: The total number of servicemembers eligible for the mortgage protections  provided by SCRA is not known, but the size of this population is likely  limited because the act provides protections only to servicemembers who  meet certain eligibility requirements. The maximum number of  servicemembers potentially eligible for mortgage protections under SCRA  at any one time includes those servicemembers on active duty service  and those who have recently left it. According to DOD, between 2007  and 2010 about 2 million servicemembers, including those activated from  the reserve components, were on active duty.servicemembers who may actually qualify for the SCRA mortgage  protections is a smaller portion of this population because some of the  act’s protections only extend to servicemembers who obtained their  mortgages prior to entering active duty service or servicemembers whose  military service materially affects their ability to pay their mortgage.  However, representatives from all the mortgage servicers with whom we  spoke stated that they do not assess whether a servicemember’s ability to  pay has been materially affected by their active duty status and that they  provide eligible servicemembers SCRA protections regardless of whether  their ability to pay is materially affected or not.

However, the number of  According to DOD officials, representatives from industry trade groups,  SCRA experts, and military service organizations, the servicemembers  most likely to be eligible for SCRA mortgage protections are members of  the reserve components. These servicemembers are more likely to have  had mortgages prior to entering active duty service and some may  potentially experience a decline in their incomes as they leave their  civilian employment and begin receiving their military pay. We have  previously reported, however that servicemembers belonging to the  reserve components on average earn more income while activated.  According to DOD officials, the number of servicemembers activated from  the reserve components from 2007 through 2010 was approximately  576,500.

The maximum number of servicemembers who are eligible for SCRA  mortgage protections is also a smaller portion of the total military  population because many do not own homes for which they have taken  out mortgage loans. According to the Census Bureau, the U.S.  homeownership rate was about 67 percent in 2010. However, research  shows that servicemembers are generally less likely to own their own  homes. surveys—surveys that DOD sends annually to active duty  servicemembers and members of the reserve components to evaluate  various programs and policies and their impact on servicemembers—only  34 percent of active duty servicemembers and 55 percent of reserve  component servicemembers reported that they owned or made mortgage  payments on a home in the previous 12 months. However, even those  military families who have mortgages may not be eligible for SCRA  protections. First, some SCRA mortgage protections only apply to  servicemembers who took out their mortgage before being placed on  active duty. Also, given that mortgage interest rates have been at historic  lows in recent years, servicemembers who took out mortgage loans  during this period before being placed on active duty may be likely to  have loans with rates lower than the SCRA-mandated level of 6 percent.

Census computes the homeownership rate by dividing the number of owner-occupied  housing units by the number of occupied housing units or households.

section_title: Thousands of Mortgage- Related SCRA Violations Have Been Identified to Date
paragraphs: Although the total number of SCRA violations is not known, thousands of  SCRA violations have been identified from a number of sources. First,  DOJ—which is responsible for enforcing SCRA—settled investigations in  2011 with two mortgage servicers and identified 165 instances of active  duty servicemembers who had their homes foreclosed upon without the  mortgage servicer seeking the proper court order as required by the act.  Second, in July 2011, as part of its investigation into SCRA violations, the  U.S. House of Representatives Committee on Oversight and Government  Reform sent letters to 10 large mortgage servicers requesting them to  identify the total number of improper foreclosures and interest-rate and  fee violations they had committed. In their responses, 6 mortgage  servicers reported having conducted a total of at least 148 improper  foreclosures against servicemembers and failing to reduce interest rates  or fees on the mortgages for over 14,000 servicemembers since 2005.  Third, as the result of a class-action lawsuit filed by several  servicemembers, as of January 2012, Chase Home Finance, LLC had  issued refunds to approximately 13,500 borrowers for interest and fees  charged in excess of SCRA protections since 2005. Many of the  mortgage servicers involved in these investigations are among the largest  in the industry and service millions of loans. Table 1 summarizes the  various SCRA violations identified by these sources to date.

Through their compliance examinations, prudential regulators identified  251 instances of SCRA compliance problems at depository institutions  between 2007 and 2011. FDIC identified the vast majority—230—of these  issues, with Federal Reserve staff identifying 16, OCC staff identifying 4,  and NCUA staff identifying 1 instance. However, these SCRA compliance  issues may not specifically concern mortgages—for example, they may  have involved non-mortgage-loan products, such as credit card loans.

A more complete picture of the extent of SCRA violations may result from  three large-scale federal agency reviews that are ongoing. Recent  enforcement actions taken by DOJ, Federal Reserve, and OCC require  mortgage servicers to conduct historical reviews of their mortgage loan  files to determine if servicemembers who were eligible for the SCRA  mortgage protections received them, among other things. If violations are  identified, the mortgage servicers are required to provide compensation to  the servicemembers. Appendix II contains a detailed explanation of these  reviews.

In the wake of identified SCRA violations, some mortgage servicers have  implemented procedures to enhance their compliance with SCRA. Some  large mortgage servicers have instituted several military status checks  during the foreclosure process. For example, one large mortgage servicer  now requires its foreclosure counsel to check a customer’s military status  prior to the initiation of foreclosure proceedings, 1 week prior to a  foreclosure sale, and 1 day prior to the scheduled sale date. Some  mortgage servicers have also created dedicated customer service  support for military servicemembers, including telephone hotlines and  websites. For example, representatives from one mortgage servicer told  us that they had developed a dedicated team that is staffed with former  servicemembers to assist customers with SCRA requests. These  customer-support representatives also receive training on military  financial issues and serve as the points of contact for any problems with  delinquency, remediation, and foreclosure.

Finally, as a result of identified violations and SCRA investigations, some  servicemembers will be receiving SCRA protections that go beyond those  stated in the act. For example, three mortgage servicers that responded to  the House Committee on Oversight and Government Reform letters noted  that they have reduced the interest rate they charge on servicemembers’  mortgages to 4 percent—which is below the 6 percent required in SCRA.  Additionally, the National Mortgage Settlement between the federal  government, 49 state attorneys general, and five large mortgage servicers  that occurred in February 2012 requires the five mortgage servicers to  implement new mortgage servicing standards. These new standards  expand protections to certain servicemember customers of these five  mortgage servicers beyond those provided in SCRA. For example, the new  standards extend foreclosure protections to any servicemember— regardless of whether their mortgage was obtained prior to active duty  status—who is receiving Hostile Fire/Imminent Danger Pay or is serving at  a location more than 750 miles away from their home. This means that any  servicemember meeting these conditions and living in a nonjudicial state  who obtained a mortgage after obtaining active duty status could not be  foreclosed upon without a court order. More information on the National  Mortgage Settlement is contained in appendix II.

section_title: Mortgage Servicers and Others Cited Challenges to Complying with SCRA
paragraphs: Representatives from some mortgage servicers and industry associations  cited challenges that make complying with SCRA difficult. First, mortgage  servicers may not know at the time a mortgage is originated whether a  borrower will be eligible for SCRA protections in the future. For example,  a borrower would become eligible for SCRA mortgage protections after  obtaining his or her mortgage by joining the active duty military or being  called into active duty service while serving as a member of the reserve  components. Therefore, mortgage servicers may not be able to flag loans  at origination that could potentially become eligible for SCRA protections  at a later date. Second, representatives from some mortgage servicers  and industry associations also noted that military orders, which  servicemembers must provide to their mortgage servicers in order to  receive the SCRA interest rate protection, can be difficult to interpret. In  particular, a representative from one mortgage servicer noted that the  orders do not always clearly specify the start and end dates of active duty  service and that the format and content of these orders can vary  considerably across services, which may lead to mistakes by mortgage  servicer personnel responsible for determining eligibility. Further, a DOD  official explained that in some instances, military orders may not be  available in a timely manner. For example, he stated that members of the  reserve components may be alerted that their unit is being mobilized on a  certain date; however, the servicemembers may not get the actual military  orders until weeks later. This delay could lead to problems for both a  servicemember and a mortgage servicer. For example, if a  servicemember has been deployed, he or she may encounter difficulties  sending orders to his or her mortgage servicer. Without the orders, a  mortgage servicer may encounter difficulties verifying the  servicemember’s active duty start date in order to appropriately adjust  their payment amounts.

One of the primary tools mortgage servicers use to comply with SCRA is  a website operated by DOD’s Defense Manpower Data Center (DMDC)  that allows mortgage servicers and others to query DMDC’s database to  determine the active duty status of a servicemember. DMDC collects,  archives, and maintains DOD personnel data. Representatives from  mortgage servicers indicated that they use this website to confirm if a  borrower is an active duty servicemember and may be eligible for SCRA  protections and that they rely on the site to confirm if a servicemember is  on active duty status prior to conducting a foreclosure. Representatives  from one mortgage servicer also noted that they use the website to  confirm the period of time that borrowers are eligible for the SCRA  interest rate protections. The website is an important compliance tool  because servicemembers are eligible for the foreclosure protections even  if they do not notify their mortgage servicers that they are serving on  active duty.

However, many representatives from mortgage servicers and industry  associations with whom we spoke cited challenges with the usability of  the website. Moreover, confusion appears to exist in the mortgage  servicing industry about the availability of information in the database. For  example, prior to April 2012, the website only allowed mortgage servicers  to inquire about borrowers’ active duty status one individual at a time. The  inability to test large numbers of borrowers simultaneously—known as  batch testing—made confirming borrowers’ SCRA eligibility difficult given  the large volumes of mortgages that some institutions service.  Representatives from some mortgage servicers also indicated that  sometimes the personnel information available from DMDC is not  complete or accurate and that the database may produce a false-negative  result. That is, it will indicate that servicemembers were not on active duty  status when in fact they were. DMDC officials explained that information  contained in the database depends on information provided to DMDC by  the various services. Therefore, if a service has not reported a  servicemember to DMDC as being on active duty status, the database will  report that the servicemember is not on active duty. Additionally,  representatives from mortgage servicers told us that they believe some  servicemembers are not listed in the database. For example, one  explained that, in some instances they have received orders from  servicemembers, but when they query the database to confirm the active  duty status, the servicemembers are not listed as on active duty. Other  mortgage servicer representatives believed that some servicemembers  may not be listed in the database for national security reasons, such as  those serving in the Special Forces. However, DMDC officials told us that  active duty status is updated for all servicemembers, including those on  special operations.

To help address these challenges, DOD is working with the mortgage  servicing industry and industry associations to improve both the usability  of the website and the readability of military orders. First, to aid mortgage  servicers’ ability to query the database, DMDC has developed and  implemented a way for mortgage servicers and others to conduct batch  queries of the database from the website for up to 250,000  servicemembers at a time.to develop the capability of the database to query historical information  and also to distinguish between those active duty periods for  servicemembers in the National Guard that provide SCRA protections  and those that do not.

DOD officials also noted that they are trying  Second, DOD has collaborated with the financial industry through the  Financial Services Roundtable’s Housing Policy Council—a consortium of  financial institutions that provide mortgage credit—to develop an  alternative military order form that servicemembers can attach to or  provide in lieu of their military orders when requesting relief under SCRA  from their mortgage servicers. This form is intended to be easier for  mortgage servicers to interpret as it is shorter and more standardized  than official orders, which can vary by service. According to DOD officials,  this alternative form was approved by DOD in December 2011 and has  been distributed to the military services as well as to financial institutions  and is being used by servicemembers.

section_title: Federal Regulators’ Oversight of SCRA Compliance Has Been Limited
subsections: section_title: Prudential Regulators Examine for SCRA Compliance Based on Risk Factors
paragraphs: Prudential regulators—FDIC, Federal Reserve, NCUA, and OCC—are  responsible for supervising depository institutions’ compliance with  various federal consumer laws including SCRA. Consumer compliance  examinations are one of the primary tools regulators use to assess this  compliance. Prudential regulators all use a risk-based approach to  consumer compliance examinations to determine which areas to target,  with areas of higher risk receiving greater focus during examinations. For  example, according to the FDIC consumer compliance examination  manual, riskier areas may include ones that involve regulatory changes or  complex products. Regulatory officials also told us that because of this  risk-based approach, SCRA may not be included or fully addressed within  the scope of an examination. For example, officials from one regulator  told us that when deciding to include SCRA in an examination they may  consider, among other things, consumer complaints, internal audit results  of the institution’s compliance management system, and problems raised  in the media. Regulators also use the risk-based approach to determine  the specific examination procedures they use to assess compliance.  Areas of higher risk would be subject to more extensive review  procedures, while areas of lower risk would receive less extensive review.  For example, according to OCC’s examination manual, areas of greater  risk may involve more extensive testing of loan transactions for  compliance.

In 2009, the regulators developed interagency examination procedures  related to SCRA through the Federal Financial Institutions Examination  Council (FFIEC), including a specific checklist that examiners can use in  their examinations. The interagency SCRA procedures and checklist  indicate that examiners should determine whether depository institutions  applied and properly calculated interest-rate reductions, whether any  foreclosures were conducted without a court order, and whether any  servicemember requests for SCRA protection were inappropriately  reported as adverse information to a credit reporting agency. Additionally,  the interagency procedures suggest, among other things, that examiners  (1) consider reviewing SCRA policies, procedures, and account  documentation when assessing the adequacy of the institution’s internal  controls and (2) review whether the depository institution’s compliance  reviews and audit materials include transaction testing of samples  covering relevant product types. The checklist contains a series of  questions related to different sections of SCRA, including the ones that  apply to residential mortgages.

In addition to routine risk-based consumer compliance examinations,  prudential regulators conduct targeted reviews of areas of high concern.

For example, FDIC, Federal Reserve, and OCC conducted an interagency  review of the foreclosure policies and practices of 14 mortgage servicers in  late 2010, in response to the large number of foreclosures since 2007 and  continued weaknesses in the mortgage market. The examiners evaluated  the adequacy of each mortgage servicer’s operating procedures and  controls and preparation of foreclosure documentation, among other things.  Although the interagency review was not intended to directly assess SCRA  compliance, during the course of this effort, two mortgage servicers  nonetheless identified SCRA compliance problems. Additionally, in June  2011, OCC issued guidance to all of its regulated institutions that required  them to conduct self-assessments of their foreclosure management  practices. OCC examiners will review the self-assessments in the  subsequent examination of the institutions.

section_title: Oversight of SCRA Compliance Varied by Institution, Year, and Regulator
paragraphs: The extent to which SCRA was reviewed varied by the size of the  depository institution, the year in which the examination took place, and  the regulator that conducted the examination from 2007 through 2011.  Based on our review, we estimate that from 2007 through 2011,  prudential regulators reviewed SCRA compliance in at least one  examination for 48 percent of all the institutions they oversaw that  serviced mortgages. This estimate includes documentation of an SCRA  review for any type of loan product (e.g., residential mortgage, credit card,  automobile, and other types of products). Some of the reasons bank  examiners cited for including SCRA in the scope of an examination  included the need to follow up on previous violations and deficiencies,  changes in regulatory requirements, and identification of SCRA loans  being serviced. To determine the extent to which SCRA compliance was  included in examinations of depository institutions and the procedures  examiners used to assess SCRA compliance, we reviewed workpapers  for examinations conducted by FDIC, Federal Reserve, NCUA, and OCC.  We reviewed the workpapers for examinations from 2007 to 2011 for a  sample of 152 institutions that service mortgages they hold in their loan  portfolios or service mortgages for other institutions. The 152 institutions  represented a stratified random sample of institutions based on size and  regulator examined from 2007 through 2011. Because officials from some  regulators told us that they may not conduct an examination for every  institution every 12 months, and because SCRA might not be covered in  each risk-based examination, we looked at examinations spanning a 5- year period.

Based on our sample, we found that prudential regulators included a  review of SCRA compliance in at least one examination for a greater  percentage of large institutions than all other institutions. In this report,  the 40 large institutions are comprised of the 10 largest mortgage  servicers regulated by each of the four prudential regulators. Specifically,  we found that about 70 percent of these large institutions were reviewed  for SCRA compliance at least once from 2007 through 2011 compared  with an estimated 48 percent of all other institutions for the same period. Officials from one regulator indicated that one reason for this difference  might be that the larger institutions conducted more mortgage lending  than smaller institutions; therefore, examiners may be more likely to  review SCRA compliance at larger institutions.

We reviewed examinations for all 40 of the large institutions, and therefore the  percentage presented is the percentage of these 40 large institutions, and is not an  estimate. For our estimates of the remaining institutions, we are 95 percent confident that  the actual population of these institutions that were examined for SCRA is between 45  percent and 52 percent. occurred in an estimated 26 percent of all institutions, compared with  2007 when about 4 percent of all institutions were reviewed for SCRA.  Figure 2 shows the distribution in the percentage of institutions examined  for SCRA compliance for each year from 2007 through 2011. Some of the  regulatory officials told us that reasons for the differences by year may  include the adoption of SCRA interagency examination procedures in  2009 and increased attention to the impacts of the financial crisis on  servicemembers in recent years.

We also found that among just the 40 large institutions, a greater  percentage had an SCRA compliance review in 2010 and 2011 compared  with earlier years:  in 2010 and also in 2011, about 40 percent of the institutions had an  SCRA review, about 13 percent of these institutions were reviewed for SCRA about 23 percent of these institutions were reviewed for SCRA  compliance in 2008, and  in 2007, 10 percent were reviewed for SCRA compliance.

Our analysis also revealed differences by regulator in the extent to which  SCRA was reviewed for compliance. Figure 3 shows that both FDIC and  Federal Reserve reviewed a significantly higher percentage of institutions  for SCRA compliance compared with NCUA and OCC. It also shows that  OCC reviewed a greater percentage of institutions than NCUA. NCUA  officials explained that the agency does not have a separate consumer  compliance examination function and that consumer compliance is part of  its overall evaluation of the safety and soundness of institutions. The  officials said that given the recent economic crisis, the agency has placed  more focus on the safety and soundness of credit unions than on  compliance with consumer regulations. They said that this is part of the  reason the percentage of credit unions that received an SCRA  compliance review is so low. However, our prior work has found that  mortgage servicing problems, including inadequate controls over  foreclosure processes, have led to risks to the safety and soundness of  depository institutions.

For the estimated 52 percent of institutions that were not examined for  SCRA compliance from 2007 through 2011, examiners did not document  their reasons for excluding SCRA for at least 95 percent of these  institutions. In our review, we found four examinations for which  examiners had documented in the workpapers a reason for not including  SCRA compliance. For three of these examinations, the reason cited was  that examiners had recently examined for SCRA compliance and found  no violations, deficiencies, or other concerns. The fourth examination  reviewed the depository institutions’ progress in addressing consumer  compliance issues identified in the previous examination and because  SCRA compliance was not one of the issues of concern identified in the  previous examination, it was excluded from the examination we reviewed.

Regulatory officials offered a few reasons to explain why an examiner  may not include SCRA compliance in an examination. For example,  officials from one regulator said that some depository institutions might  not serve large military populations. Therefore, examiners might not  consider compliance with SCRA mortgage protections a substantial risk  to these institutions. Additionally, officials from one prudential regulator  indicated that examiners may choose to exclude SCRA compliance from  an examination if the institution had received few complaints concerning  SCRA-related issues. The regulators indicated that they had received  very few SCRA complaints related to residential mortgages between 2007  and 2011 compared with the number of consumer complaints they  received overall during this period.

section_title: Examiners Generally Used Limited Loan Testing
paragraphs: As part of our review of examination workpapers for the 152 institutions in  our sample, we collected information on the procedures examiners used  to assess compliance with SCRA if an examination reviewed residential  mortgage loans or if the workpapers did not specify the loan product  being addressed. We included examinations in which the loan product  was not specified to help ensure that we reviewed any examination  procedures that may have addressed residential mortgages. Our review  found a total of 83 institutions for which examiners either reviewed SCRA  compliance for residential mortgage loans or did not specify the loan  product being reviewed. The figures presented for this analysis are not  generalizable to the population of institutions that service mortgages.  After reviewing examination guidance and auditing standards, we  grouped examiners’ documented examination procedures into three  categories based on our professional judgment as to the extent that each  type of procedure would provide assurance that financial institutions were  complying with SCRA:  Interviews with depository institution personnel. This category  includes activities in which examiners interviewed staff at the  depository institution for information on, among other things, their  compliance management systems and whether the institution services  loans to servicemembers eligible for SCRA protections.

Assessments of depository institutions’ compliance management  systems. This category includes instances in which examiners  documented that they reviewed the quality of depository institutions’  compliance management systems, such as reviewing institutions’  SCRA policies and procedures, internal controls, and training  programs.

Testing loan files for SCRA compliance. This category includes  activities such as testing a limited number of loan files the institution  identified as SCRA-eligible or conducting more comprehensive  testing, such as reviewing a statistical sample of loan files.

Of these categories, the first category—interviews with depository  institution personnel—provides the least assurance of SCRA compliance  because the examiner would be relying primarily on assertions provided  by institution personnel rather than an independent assessment or  verification of these assertions. The second category—assessments of  institutions’ compliance management systems—provides greater  assurance of SCRA compliance because these procedures require  examiners to independently assess the quality of the depository  institutions’ procedures and internal controls. The final category—testing  of loan files—provides even greater assurance of SCRA compliance  because examiners can independently verify whether the institution’s  personnel provided all necessary SCRA protections.

Although in many examinations examiners documented that they used an  assortment of examination procedures from different categories to assess  compliance with SCRA, we categorized each of the 83 institutions whose  SCRA compliance was assessed during the 5-year period of our review  by the highest assurance level of the examination procedures that were  used in any of the examinations done of that institution from 2007 through  2011. Based on this analysis, we found that only about half of these  institutions had any testing conducted during this 5-year period.  Specifically, of these 83 institutions, we found that

6 institutions had examinations during this period that relied on  interviews of depository institution staff to assess SCRA compliance  as their highest category of examination procedure,

36 institutions had examinations in which the highest category of  examination procedure used to assess SCRA compliance was to  review the institution’s compliance management system, and

41 institutions had examinations that involved testing of loan files as  the highest category of examination procedure—the examination  procedure category that provides a greater level of assurance for  SCRA compliance than the previous two categories.

However, at the 41 institutions at which examiners tested loan files, we  found that the type of testing conducted was limited. Examiners can  choose from different types of testing methods that provide differing levels  of assurance that an institution is complying with SCRA. For example,  within the testing category, testing a limited sample of loan files that  depository institutions identified as SCRA-eligible provides less  assurance of compliance because it relies on assertions by depository  institutions of SCRA eligibility, whereas testing a statistical sample of  loans provides greater assurance because it allows examiners to  independently select files for testing, and the results would be  representative of the institution’s compliance. In the examinations we  reviewed, the examiners mostly tested a limited sample of loans that the  depository institution had identified as SCRA-eligible and, therefore,  provided less assurance that the institution was complying with SCRA.  We found no instances between 2007 and 2011 in which examiners  tested a statistical sample of either loans in foreclosure or mortgage loan  files in general, which would have provided the greatest assurance of an  institution’s SCRA compliance. By testing only foreclosure files or  mortgage loan files that the depository institution had identified as SCRA- eligible, examiners cannot fully determine if the institution has  appropriately identified all eligible servicemembers. By expanding the  scope of testing to include a larger sample of foreclosure and mortgage  loan files, beyond just those files that the depository institution had  identified as SCRA-eligible, examiners could better ensure that  institutions are appropriately identifying eligible servicemembers and  providing them all of the protections to which they are entitled. To  minimize the burden on institutions and examiners, such reviews could be  conducted as part of samples of loans drawn for examining compliance  with other regulatory requirements.

section_title: Coordination of SCRA Oversight Lacking
paragraphs: In addition to the prudential regulators, other federal agencies conduct  oversight of SCRA compliance. SCRA authorizes DOJ to commence a  civil action against any person who engages in a pattern or practice of  violating the act or if a violation of the act raises an issue of significant  public importance. DOJ staff indicated that they consider military  attorneys to be the most likely staff to help ensure that a servicemember  is afforded their SCRA protections. For cases in which a military attorney  is unable to obtain voluntary compliance from a mortgage servicer or  other person or entity doing business with a servicemember, DOJ has a  system in place to receive referrals for these cases and to open  investigations. DOJ officials told us and military attorneys confirmed that,  in most cases, military attorneys are able to resolve SCRA matters  without referring them to DOJ. DOJ also receives referrals for SCRA  investigations from private attorneys and individual servicemembers and  their families. When DOJ receives an SCRA referral, officials investigate  the matter and determine if a full investigation should be opened.Investigations can result in DOJ filing a civil action against the party in  court for alleged SCRA violations, or a resolution with the party may be  reached without filing the case in court.

DOJ filed a total of five cases in court from 2007 through 2011 for SCRA  violations. Two of these cases—BAC Home Loans Servicing, LP and  Saxon Mortgage Services, Inc.—involved SCRA violations regarding  servicemembers’ mortgages. In May 2011, DOJ took enforcement actions  against both mortgage servicers for wrongfully foreclosing upon active  duty servicemembers without obtaining court orders. DOJ alleged that  both mortgage servicers did not consistently check the military status of  borrowers on whom they foreclosed, resulting in 165 improper  foreclosures between 2006 and December 2010 (as listed previously in  table 1). In its enforcement actions, DOJ required each of these mortgage  servicers to pay damages to servicemembers and conduct a variety of  remedial actions. For example, BAC Home Loans Servicing agreed to  pay at least $20 million to resolve the lawsuit, and Saxon Mortgage  Services agreed to pay at least $2.35 million. The mortgage servicers  were also required to, among other things, (1) implement revised SCRA  policies and procedures for using the DMDC website, (2) implement a  foreclosure monitoring program, (3) provide SCRA compliance training to  all applicable employees, and (4) conduct reviews to identify additional  servicemembers who may have had their SCRA rights violated and  compensate them. Appendix II discusses these reviews in more detail. In  addition to the 5 SCRA cases DOJ filed in court, DOJ opened 45  additional SCRA investigations from referrals it received between 2007  and 2011, 9 of which involved servicemembers’ mortgages. One of  these referrals involved a servicemember’s request to waive the  prepayment penalty on her mortgage when she received a permanent  change-of-station order and sold her home to move closer to the new  base. DOJ was able to reach a resolution with the mortgage servicer  without trying the case in court. Another investigation involved allegations  of a mortgage servicer charging interest in excess of the SCRA maximum  of 6 percent. DOJ officials stated that this investigation was resolved in  favor of the servicemember. Finally, in February 2012, DOJ settled with  five of the nation’s largest mortgage servicers for a variety of improper  mortgage servicing procedures, including allegations of SCRA violations.  More information on the National Mortgage Settlement is contained in  appendix II.

Other federal agencies that operate mortgage programs also oversee  certain aspects of SCRA compliance. For example, to participate in FHA’s  mortgage programs, mortgage servicers must comply with the agency’s  program requirements, which include complying with all applicable laws  and regulations, including SCRA. FHA officials explained that they use a  risk-based approach to monitor the institutions that service the loans the  agency insures. Officials told us that from 2007 through 2011, FHA  conducted about 200 mortgage servicer monitoring reviews. They  explained that each review consists of a sample of the mortgage  servicer’s loan files and FHA staff use a checklist to help ensure that the  mortgage servicer is in compliance with a variety of servicing  requirements for each loan in the sample. One of the requirements  reviewed for each loan is the distribution of the HUD counseling notice  that includes information on SCRA eligibility to borrowers who are at least  45 days delinquent. Agency officials explained that a more thorough  review of SCRA compliance is conducted if a mortgage servicer has  identified that the borrower is an active duty servicemember. For loans  that a mortgage servicer has marked with a code to indicate that the  borrower is an active duty servicemember, FHA staff conduct additional  steps to better ensure that the mortgage servicer has provided the  servicemember appropriate SCRA protections, as well as additional  protections that FHA provides to active duty servicemembers who have  FHA-insured loans. These steps include ensuring that the interest rate  has been appropriately adjusted and that foreclosure was postponed.  FHA officials stated that they rely on mortgage servicers to appropriately  identify active duty servicemembers. Although they may review SCRA  compliance on specific loans, FHA officials told us that their reviews are  not intended to assess the adequacy of the mortgage servicers’ SCRA  compliance policies and procedures or to determine whether these  policies are functioning for all of a servicer’s activities. As a result of  FHA’s servicer monitoring reviews, some SCRA compliance problems  have been identified. For example, FHA officials told us that between  2007 and 2011 the agency found two instances of SCRA noncompliance  during its mortgage servicer monitoring reviews. One of these instances  involved a mortgage servicer failing to send the HUD counseling notice  that includes information on SCRA eligibility to borrowers delinquent 45 or  more days, and the other violation involved a mortgage servicer failing to  verify a borrower’s active duty status prior to foreclosure.

Although VA interacts with mortgage servicers as part of its Home Loan  Guaranty Program, VA officials explained that the program currently does  not conduct in-depth reviews of mortgage servicers’ policies and  procedures and loan files to review overall compliance with SCRA  mortgage protections. The officials explained that they are in the process  of finalizing a program that will conduct on-site audits of mortgage  servicers’ functions and that they expect the program to be implemented  in late 2012. VA officials explained that this program will include reviews  of servicers’ loan files and policies and procedures for monitoring and  identifying SCRA-eligible borrowers to determine servicers’ overall  compliance with SCRA mortgage protections. Officials explained that in  the wake of recently identified SCRA violations, they conducted a review  of all VA loan files that were in foreclosure from October 2009 to January  2011 to determine if any of the borrowers were possibly eligible for SCRA  mortgage protections. The officials said that they identified approximately  30,000 borrowers in foreclosure during that period and that they  conducted an in-depth review of 47 loans that were potentially eligible for  SCRA mortgage protections. VA determined that none of these borrowers  were improperly foreclosed upon. They have recently expanded this  review to include a longer time period, but as of June 2012, they had not  completed the review to determine if any borrowers were improperly  foreclosed upon.

VA officials explained that they do conduct reviews of the adequacy of  servicing being conducted by servicers. These reviews—Adequacy of  Servicing reviews—are conducted on all loans over 120 days delinquent  to determine if servicers have provided adequate servicing to borrowers,  but according to VA officials, they are intended to explore loss mitigation  options and not to examine for SCRA compliance. The officials explained  that during these reviews, VA reviews mortgage servicers’ notes on the  account to determine if they have provided adequate servicing to the  borrower. Specifically, they check to see if the mortgage servicer has  contacted the borrower, if a reason for default has been determined, if  loss mitigation options have been considered, and why any loss  mitigation options that were considered were not completed. Officials  explained that if the mortgage servicer has taken the appropriate steps,  VA would determine that the servicing provided was adequate. If VA  determines that the servicing being provided was not adequate, or if the  servicer was unable to contact the borrower, it conducts supplemental  servicing on the loan and works with the borrower directly to explore loss  mitigation options. According to VA officials, they may learn during these  reviews that the loan involves an active duty servicemember. However,  the Adequacy of Servicing reviews currently do not evaluate the extent to  which servicers have assessed whether borrowers are eligible for SCRA  mortgage protections. They also explained that while their procedures for  conducting these reviews do not address reviewing for compliance with  SCRA mortgage protections, VA loan technicians encourage borrowers to  review their SCRA mortgage protections with military attorneys.  Additionally, VA officials explained that they do not have a mechanism for  tracking if these reviews have identified SCRA-eligible borrowers. As part  of VA’s mission to serve servicemembers, VA officials told us that they try  to ensure that servicemembers have received every opportunity to keep  their homes and avoid foreclosure. VA officials explained that they rely on  federal regulators to investigate and enforce statutory requirements, such  as SCRA. However, given that VA staff also oversee servicers’ activities,  they do have the opportunity to review servicers’ efforts to determine  SCRA eligibility, such as by making an inquiry with the servicer of the  loan or consulting DOD records to determine if the borrower is an active  duty servicemember. Without such a review, the extent to which the  agency is ensuring servicemembers are receiving all protections to which  they are entitled is not clear.

The enterprises—Fannie Mae and Freddie Mac—also conduct SCRA  compliance monitoring at the mortgage servicers that service loans on  their behalf. This monitoring focuses on enforcing contractual  requirements between the enterprises and mortgage servicers to ensure  that mortgage servicers are following the servicing guidelines issued by  the enterprises. The servicing guidelines outline mortgage servicers’  compliance obligations for several different laws and regulations,  including SCRA. The SCRA components of the guidelines include  information for mortgage servicers on, among other things, how SCRA  relief is initiated and how interest rates are reduced, as well as  foreclosure proceedings and credit reporting. Enterprise officials  explained that SCRA compliance is not included in each review  conducted. If it is included, Fannie Mae officials explained that examiners  seek to understand how a mortgage servicer checks for SCRA  compliance and conducts testing of the servicers accounting methods for  SCRA compliance. For example, if a servicemember has an interest  rate that is greater than 6 percent, examiners test to ensure that interest  rate and payment amounts have been properly reduced. Freddie Mac  officials told us they assess the mortgage servicer’s understanding of  SCRA and the procedures in place to ensure compliance. The  enterprises’ SCRA compliance monitoring efforts have identified some  instances of noncompliance. For example, Fannie Mae identified 13  instances of noncompliance with its SCRA guidelines between 2007 and  2011, and Freddie Mac has identified 2 instances. These instances of  noncompliance involved issues such as mortgage servicers not having  comprehensive SCRA compliance policies and procedures and mortgage  servicers not properly verifying the active duty status of servicemembers.  Officials from FHFA—the enterprises’ regulator—stated that its  supervisory focus for SCRA compliance is to confirm that the enterprises  are taking steps to ensure that the mortgage servicers with which they  have contracts comply with the contracts’ requirements which include  compliance with applicable laws.

Although the prudential regulators, FHA, VA, and FHFA all have a role in  helping ensure that mortgage servicers provide appropriate SCRA  protections to eligible servicemembers, currently none of these entities  share information related to SCRA compliance with one another. While  the extent of oversight conducted by these entities varies, they do review  for some of the same SCRA provisions, such as those related to interest  rate reductions and foreclosures. Furthermore, some of the mortgage  servicers that participate in FHA’s and VA’s loan programs and service  loans on behalf of the enterprises are also subject to oversight by one of  the prudential regulators, which review for SCRA compliance during their  examinations. Although these agencies obtain SCRA-related information  about many of the same institutions, FHA, VA, and FHFA officials stated  that they have not coordinated with the prudential regulators on SCRA  compliance issues. Further, FHFA officials stated that while they  participate in some forums with the prudential regulators to coordinate on  various issues, they were not aware of any coordination related to SCRA  compliance.

GAO, Financial Market Regulation: Agencies Engaged in Consolidated Supervision Can  Strengthen Performance Measurement and Collaboration, GAO-07-154 (Washington,  D.C.: Mar. 15, 2007). information about their fair lending oversight programs. For example, the  agencies established the Interagency Fair Lending Task Force to develop  a coordinated approach to address discrimination in lending and adopted  a policy statement on how the various agencies were to conduct oversight  and enforce the fair lending laws. At that time, federal officials said that  coordinating on fair lending issues allows the agencies to exchange  information on a range of common issues, informally discuss fair lending  policy, and confer about current trends or challenges in fair lending  oversight and enforcement. FHFA officials explained that the agency has  existing memorandums of understanding with prudential regulators and  HUD that establish the protocols they use to discuss trends, risks, and  other emerging issues on a variety of topics with these other agencies,  but that SCRA has not been a topic during these discussions. FHFA does  not currently have a memorandum of understanding with VA to share  information, but the officials explained that they have worked with the  agency in the past on issues such as appraisals and that they have done  so through letter arrangements that allow them to share information.  These existing arrangements could provide a mechanism for SCRA  information to be shared between FHFA and the prudential regulators,  FHA, and VA. However, currently no such sharing arrangements exist  between the prudential regulators, FHA, and VA. Although FHA, VA, and  the enterprises that FHFA oversees have identified limited instances of  SCRA violations in recent years, the sharing of information related to  SCRA trends, emerging risks, or types of weaknesses found in mortgage  servicers’ policies among all agencies that play a role in SCRA  compliance oversight could increase awareness of potential problems  and improve their ability to identify SCRA violations.

section_title: Challenges in Ensuring Servicemembers’ Awareness of SCRA Protections
subsections: section_title: DOD and DHS Education Efforts
paragraphs: Under SCRA, DOD services’ Secretaries and the Secretary of Homeland  Security have the primary responsibility for ensuring that servicemembers  receive information on their SCRA rights and protections.  Servicemembers are informed of their SCRA rights in a variety of ways.  For example, briefings are provided on military bases and during  deployment activities; legal assistance attorneys provide counseling; and  a number of outreach media, such as publications and websites, are  aimed at informing servicemembers of their SCRA rights. According to  DOD officials, the legal assistance attorneys are primarily responsible for  leading the military’s SCRA education efforts. Each of the military  services, including the Coast Guard under DHS, operates a number of  legal assistance offices throughout the country. Legal assistance offices  are operated by military and civilian legal assistance attorneys who are  responsible for providing support to servicemembers on a variety of legal  issues, including family law and estate planning. As part of their  responsibilities, they inform servicemembers about their rights and  benefits under SCRA.

Legal assistance attorneys provide SCRA support to servicemembers  using various methods. We spoke with legal assistance attorneys at six  military installations across the five services. They told us that they  provide servicemembers with information on SCRA during routine  briefings on military installations, in handouts, and during one-on-one  sessions with individual servicemembers. Two legal assistance attorneys  told us that they alert installation staff, including unit commanders, to  direct servicemembers to their legal assistance offices if they have a  problem. Legal assistance attorneys also told us that they will contact  depository institutions on behalf of servicemembers to help them receive  their SCRA protections. Some legal assistance attorneys also told us that  they provide templates of letters for servicemembers to send to their  mortgage servicer to request a reduction in their mortgage interest rate.  Additionally, legal assistance attorneys told us that they will refer  servicemembers to the American Bar Association’s (ABA) Military Pro  Bono Project if they are unable to resolve an SCRA matter for a  servicemember. ABA’s program connects active duty servicemembers to  pro bono attorneys who assist them with civil legal problems.

SCRA requires that servicemembers be informed of the rights and  protections available under SCRA upon entry into the military, during  initial orientation training, and, in the cases of members of the reserve  components, when called to active duty for a period of more than 1   Predeployment briefings generally occur at the military installation year. that deploys the servicemember and, in addition to SCRA, cover a range  of other legal and financial issues, such as the preparation of wills and  powers of attorney. According to DOD officials, members of the reserve  components may receive this briefing numerous times at their home  station prior to deployment. Servicemembers are also provided with an  additional opportunity to learn about their rights under SCRA upon  returning from deployment. According to DOD officials, because some  SCRA protections extend for a 9- or 12-month period beyond  servicemembers’ active duty service, obtaining information at the end of  deployment is critical for those servicemembers who will no longer be on  active duty and will lose access to military-provided legal assistance. As a  result, the Army reserve component—which includes the Army Reserve  and Army National Guard and is the largest portion of the reserve  components—requires that members receive standardized post- deployment training on SCRA.

DOD and DHS use a number of other methods to deliver SCRA  information to servicemembers, including military training courses,  publications, websites, and other family support services. For example,  DHS officials told us that all Coast Guard members are informed of their  SCRA rights during basic training. Some others may receive additional  SCRA training during their initial officer training at the Coast Guard  Academy or other advanced classes. DOD also publishes general articles  in newsletters and installation publications explaining servicemembers’  SCRA rights and more specific articles on the relationship between  mortgage difficulties and SCRA. Additionally, several military websites  contain information on SCRA, including websites for individual services  and military installations and sites such as Military OneSource—a DOD  online resource that is staffed with counselors who offer assistance to  servicemembers on a variety of topics, including financial counseling.  DOD also provides financial management and family support services  through the family readiness centers located at military installations.  These centers provide general financial management counseling on  topics such as reducing debt and saving for college to servicemembers’  families during periods of deployment and also share information on  SCRA and refer family members to the legal assistance office if they have  an SCRA issue.

section_title: Other SCRA Outreach Efforts
paragraphs: Other federal agencies also provide SCRA outreach and support to  servicemembers and financial institutions in a variety of ways, including  oral briefings, written notifications, and websites. For example, VA  officials told us that some servicemembers who leave active duty service  participate in a multiday briefing conducted in partnership with VA, DOD,  and the Department of Labor. This briefing discusses reentering civilian  life, SCRA protections, and veterans’ benefits. Additionally, both VA and  FHA provide SCRA-related outreach to the institutions that participate in  their mortgage programs. For example, VA periodically sends written  notifications to all of its loan servicers reminding them of their compliance  responsibilities and alerts them to changes in the act when they occur.  FHA also provides information to its mortgage servicers on SCRA. Its  website contains a list of questions and answers for mortgage servicers  on SCRA, servicemembers’ eligibility criteria, and FHA policies with  respect to servicing FHA-insured mortgages in compliance with SCRA.

The Consumer Financial Protection Bureau (CFPB) has an Office of  Servicemember Affairs that also plays a role in providing SCRA outreach  to servicemembers and mortgage servicers responsible for complying  with the act. As of May 30, 2012, CFPB officials had conducted 37 visits  to military installations and National Guard units and met with legal  assistance attorneys to discuss consumer protection issues  servicemembers have been facing, including SCRA. CFPB also sent  letters to 25 large mortgage servicers in 2011 alerting them of  servicemembers’ rights under SCRA and their responsibilities to comply  with the act. The letters specifically urged mortgage servicers to educate  their employees about SCRA and review their loan files to ensure  compliance with the law. Additionally, CFPB has held meetings in which  representatives from DOD and DHS and other federal agencies, financial  institutions, and trade associations discussed issues related to SCRA  compliance. CFPB officials also held a forum in which financial institutions  discussed activities—some that go beyond those required by SCRA— they were undertaking to assist servicemembers’ with their mortgages. In  July 2011, CFPB and the Judge Advocate Generals of the Army, Marine  Corps, Navy, Air Force, and Coast Guard developed a joint statement of  principles to provide stronger protections for servicemembers in  connection with consumer financial products and services. Finally,  through its consumer response function, CFPB also works directly with  servicemembers by collecting consumer complaints against depository  institutions and coordinating those complaints with servicemembers’  depository institutions and if necessary, the appropriate legal assistance  offices.

Finally, military servicemember groups also assist servicemembers with  SCRA issues. Organizations such as the National Military Family  Association, the Military Officers Association of America, the Reserve  Officers Association, and others provide information on SCRA to their  members in a variety of ways. A representative from one military  servicemember group explained that its website—which contains  background information on SCRA and legal reviews of specific SCRA  provisions—is the group’s primary means of providing information to  servicemembers and the public on SCRA issues. Other representatives  with whom we spoke said that they provide information to their members  when changes to SCRA have occurred. For example, one military  servicemember group highlights applicable legislative changes in weekly  electronic notifications to its members.

section_title: Servicemembers Face Challenges Asserting Their SCRA Protections, Raising Questions about Training Effectiveness
paragraphs: DOD officials, legal assistance attorneys, and representatives of military  servicemember groups with whom we spoke noted a number of  challenges with ensuring that servicemembers are aware of their SCRA  protections. One main challenge cited was servicemembers’ retention of  the SCRA information they receive from DOD and DHS. Attorneys at  each of the six legal assistance offices told us that servicemembers are  not aware of the full extent of their SCRA rights. In addition, several  military servicemember group representatives, a National Guard Bureau  official, and an SCRA expert told us that despite available information on  SCRA, servicemembers are not adequately prepared to invoke their  rights when needed.

According to DOD officials, the bulk of the SCRA education provided to  servicemembers occurs at military installations that focus on regular  active duty servicemembers. However, members of the reserve  components—those most likely to qualify for SCRA’s mortgage  protections—may not be located at military installations and, therefore,  have less access to these services and trainings. One DOD official told us  that members of the reserve components may receive SCRA briefings at  their home station. However, legal assistance attorneys at five of the six  legal assistance offices with whom we spoke told us that members of the  reserve components have limited access to legal assistance offices on  military installations when they are not on active duty. Having this limited  access to legal assistance could affect reserve components members’  ability to avail themselves of their SCRA protections when needed.  Additionally, some members of the reserve components face geographic  challenges with accessing legal assistance offices due to their distance  from military installations. About half of the military installations in the  United States are located in just 10 states, while members of the reserve  components live throughout the country. For example, the Chief Legal  Assistant for the Ninth Coast Guard District explained that the legal  assistance office for that district is located in Cleveland, Ohio, but the  office provides legal services to the entire Great Lakes Region.

Another challenge in ensuring that servicemembers are aware of their  SCRA protections when needed is the effectiveness of the educational  briefings provided by DOD and DHS. As discussed above, SCRA  requires that servicemembers receive SCRA training upon entry into the  military, during initial orientation training, and, for members of the reserve  components, when called to active duty for a period of more than 1 year.  However, legal assistance attorneys who conduct this training and military  servicemember groups explained that its effectiveness is diminished  because of the volume of information presented, the timing of the training,  and the availability of legal assistance resources. For example, four  military officials told us that during predeployment activities and annual  National Guard weekend training activities, servicemembers attend  multiple, back-to-back briefings, which cover a variety of legal and  financial issues that are focused on a number of important topics, such as  family law and estate planning. One military attorney referred to these  briefings as “baptism by a fire hose” when trying to illustrate the volume of  information provided to servicemembers at these critical times. Further,  military attorneys with whom we spoke told us that the amount of time  legal assistance attorneys are able to spend with servicemembers during  pre- and postdeployment activities is limited due to the volume of  servicemembers deploying and returning from deployment. For example,  one military attorney told us that legal assistance attorneys might assist  250 deploying servicemembers with their legal affairs prior to deployment  and that during deployment there is limited time available to provide legal  assistance. Another legal assistance attorney stated that it would be  beneficial for members of the reserve components to have more time to  access military legal assistance resources when they return from  deployment because of concerns that they do not retain the information  they receive during postdeployment briefings. One legal assistance  attorney that assists members of the reserves specifically explained that  when he provides SCRA-related briefings to deployed servicemembers  who should have received SCRA briefings prior to deployment; many  seem like they are hearing the information for the first time. He suggested  that servicemembers’ retention of information could be improved if  deploying servicemembers receive more comprehensive briefings with  smaller groups of servicemembers. Additionally, a National Guard Bureau  official told us that predeployment briefings contain too much information  for servicemembers to absorb, including the relatively small portions of  the briefings that include information on SCRA. These methods of  providing SCRA information to servicemembers raise concerns about  their ability to retain the information they receive during these trainings.

Without adequate awareness, servicemembers may not take full  advantage of their protections under SCRA. As discussed above, the  methods of SCRA training and outreach provided by DOD and DHS to  regular active duty servicemembers and members of the reserve  components may not be adequate to ensure that these servicemembers  are aware of and benefiting from the full protections provided by the act.

In 2008, DOD asked in its annual Status of Forces Surveys if active duty  servicemembers and members of the reserve components had received  SCRA trainings. Forty-seven percent of members of the reserve  components—including those who had been activated in 2008—reported  in the survey that they had received SCRA training and only 35 percent of  regular active duty servicemembers reported that they had received  training. While these numbers may not reflect the number of  servicemembers who received SCRA training, they do provide an  indication as to the number of servicemembers who recalled receiving  such training. DOD also surveys servicemembers on a variety of issues  related to their benefits; however, according to DOD officials who conduct  these surveys, servicemembers have not been surveyed on the  effectiveness of DOD’s SCRA educational efforts. DHS officials also told  us they have not evaluated the effectiveness of their SCRA education  methods to members of the Coast Guard and Coast Guard Reserve. In  addition to surveying servicemembers on the effectiveness of SCRA- related education methods, DOD and DHS could use other techniques to  assess the effectiveness of their education efforts. For example,  servicemembers could be tested after a period of time to determine how  much information they retained from the SCRA component of their  predeployment briefings. Additionally, focus groups could be held with  servicemembers to review the understandability of written materials  provided on SCRA. Without understanding the extent to which existing  SCRA educational efforts are effective, DOD and DHS are not able to  determine if their methods are adequate to ensure that servicemembers  avail themselves of the benefits to which they are entitled.

section_title: Conclusions
paragraphs: Ensuring that mortgage servicers fully comply with SCRA can protect  servicemembers from undue financial harm. Our analysis of risk-based  compliance examinations conducted by the four prudential regulators  estimated that about half of all the depository institutions that serviced  mortgages were reviewed for SCRA compliance from 2007 through 2011.  However, during these examinations, examiners only conducted testing of  loan files at 41 of the 83 institutions for which we reviewed the procedures  used by examiners over the 5-year period to verify that mortgage  servicers’ SCRA compliance processes and controls were functioning  properly. For these 41 institutions, examiners did not use the testing  procedures most likely to detect instances of noncompliance.  Examination guidance and auditing standards suggest that testing is a  part of effective monitoring. Furthermore, additional testing of loan files  using methods that provide greater assurance of compliance is warranted  given that thousands of violations at some large mortgage servicers have  been documented through federal agencies’ targeted reviews and  mortgage servicers’ own internal reviews, but not through the prudential  regulators’ routine compliance examinations. Without additional testing of  foreclosure files and, as appropriate, other mortgage loan files not  identified by the depository institution as SCRA-eligible, and without  employing testing methods that provide greater assurance of compliance,  prudential regulators may not be able to determine whether these  institutions are extending protections to all eligible servicemembers.

Although not a direct regulator of financial institutions that service  mortgages, VA does interact with mortgage servicers as part of its Home  Loan Guaranty program and therefore has an interest in ensuring that  these institutions are complying with SCRA. However, the current level of  monitoring that VA conducts of mortgage servicers that participate in its  program provides little assurance that eligible servicemembers with VA- guaranteed loans are receiving their full SCRA mortgage protections. By  not routinely reviewing mortgage servicers’ overall compliance with SCRA  mortgage protections, the agency cannot be assured that mortgage  servicers participating in its program have policies and procedures that  function properly to provide these protections. The agency’s development  of a new program to conduct on-site audits of mortgage servicers’ overall  operations provides a good opportunity for the agency to expand its  efforts related to SCRA compliance. Further, if VA determines that  servicers’ loss mitigation efforts have either not been successful or  adequate during its Adequacy of Servicing reviews, it provides  supplemental servicing on loans. During its Adequacy of Servicing  reviews and while conducting supplemental servicing, VA would have the  opportunity to take steps to determine if servicers assessed whether  borrowers were eligible for SCRA protections. Because the agency’s  entire mission is dedicated to benefiting individuals who have served the  country through military service, expanding its procedures to review for  SCRA compliance at mortgage servicers that participate in its mortgage  program could help the agency achieve its mission and better ensure that  servicemembers are receiving all benefits to which they are entitled.

Because multiple federal agencies’ play a role in ensuring that mortgage  servicers provide SCRA protections to eligible servicemembers, sharing  information on SCRA compliance could benefit these agencies’  respective SCRA oversight efforts. Most agencies responsible for SCRA  oversight conduct risk-based reviews and therefore do not always include  SCRA compliance in their reviews. Sharing information on SCRA  compliance issues could alert agencies to potential problems and improve  agencies’ ability to identify SCRA violations. We have previously found  that collaboration among supervisory agencies can lead to more effective  supervision and that such collaboration does occur for certain consumer  compliance laws. However, no such sharing of information related to  SCRA compliance information currently takes place routinely between the  prudential regulators, FHA, VA, and FHFA. Further, because these  entities monitor SCRA compliance at many of the same institutions, the  sharing of information could help them to more quickly identify  compliance problems that may adversely affect servicemembers. Many of  these agencies already have existing mechanisms for sharing information  that could be used or expanded to periodically share information on  SCRA compliance.

The Secretaries of the Army, Navy, Air Force, and Homeland Security are  responsible for educating servicemembers on their SCRA rights. DOD and  DHS provide this information through a variety of methods throughout  servicemembers’ military careers. However, servicemembers may often be  unaware of their SCRA rights for a variety of reasons, such as the volume  and variety of information they must retain from educational briefings.  Members of the reserve components in particular face unique challenges  that can affect whether they learn of and are able to obtain assistance with  SCRA protections because they have more limited access to military legal  assistance locations and to SCRA-related training opportunities.  Additionally, the recently created CFPB’s Office of Servicemember Affairs  has been working with DOD and DHS to identify opportunities to increase  servicemembers’ awareness of SCRA protections and its results could  provide useful information to assist in this effort. While DOD has surveyed  servicemembers on whether they had received SCRA training, neither  DOD nor DHS has assessed the effectiveness of their educational methods  to determine if better ways exist to ensure that servicemembers retain the  information they receive on SCRA and can recall it when they need it.  Without such an assessment, such as by using focus groups of  servicemembers or testing to reinforce retention of SCRA information, DOD  and DHS may not be able to ensure they are reaching servicemembers in  the most effective manner.

section_title: Recommendations for Executive Action
paragraphs: To better ensure SCRA compliance oversight, we recommend that the  Comptroller of the Currency, the Chairman of the Board of Governors of  the Federal Reserve System, the Chairman of the Federal Deposit  Insurance Corporation, and Chairman of the National Credit Union  Administration take steps to increase the frequency with which examiners  (1) conduct testing of foreclosure files and as applicable, other mortgage  loan files; and (2) employ testing methods that provide greater assurance  that mortgage servicers are complying with SCRA.

To help ensure that VA assists servicemembers with remaining in their  homes and avoiding foreclosure, the Secretary of Veterans Affairs should  ensure that a review for SCRA compliance is included in the department’s  new mortgage servicer monitoring program and that additional steps to  assess SCRA compliance are taken by VA staff during its Adequacy of  Servicing reviews and while conducting supplemental servicing.

Additionally, to increase agencies’ awareness of potential problems with  SCRA compliance, the Comptroller of the Currency, the Chairman of the  Board of Governors of the Federal Reserve System, the Chairman of the  Federal Deposit Insurance Corporation, the Chairman of the National  Credit Union Administration, the Acting Director of the Federal Housing  Finance Agency, the Secretary of Housing and Urban Development, and  the Secretary of Veterans Affairs should explore options to use existing  mechanisms or develop new ones to share information related to SCRA  compliance oversight.

Finally, the Secretary of Defense—through the Secretaries of the Army,  Air Force, and Navy—and the Secretary of Homeland Security should  assess the effectiveness of their efforts to educate servicemembers on  SCRA to determine better ways for making servicemembers aware of  their SCRA rights and benefits, including improving the ways in which  members of the reserve components obtain such information.

section_title: Agency Comments and Our Evaluation
paragraphs: We requested comments on a draft of this report from CFPB, DHS, DOJ,  DOD, FDIC, Federal Reserve, FHFA, HUD, NCUA, OCC, and VA. We  received formal written comments from DHS, DOD, FDIC, Federal  Reserve, FHFA, HUD, NCUA, OCC, and VA; these are presented in  appendixes III through XI, respectively. We also received technical  comments from CFPB, DOJ, DOD, FDIC, Federal Reserve, FHFA, OCC,  and VA, which we incorporated as appropriate.

Federal Reserve, NCUA, and OCC agreed to take actions in response to  our recommendations that they increase the frequency with which their  examiners conduct testing of mortgage and foreclosure files and employ  testing methods that will provide greater assurance of mortgage servicers’  compliance with SCRA.

The Federal Reserve’s Director of the Division of Consumer and  Community Affairs noted that Federal Reserve examiners apply  interagency examination procedures to test the sufficiency of a  depository institution’s program for ensuring its employees provide  appropriate protections to active duty servicemembers, and that it will  work with the other federal financial regulators to consider appropriate  ways to update the interagency SCRA examination procedures. The  Director’s letter notes that Federal Reserve considers interviews with  bank staff and reviews institutions’ compliance management systems  to be types of examiner testing. Although our report acknowledges  that such steps can provide useful information regarding an  institution’s SCRA compliance, we recommended that the regulators  provide greater assurance of SCRA compliance by increasing the  frequency of loan file testing.

NCUA’s Executive Director agreed that additional testing of loan files  would provide greater assurance of SCRA compliance. His letter also  notes that NCUA has made recent changes to its examination  process to raise the importance of consumer protection issues, noting  that beginning with its 2011 examinations, staff separate from safety  and soundness examiners review the lending practices of federal  credit unions to ensure compliance with SCRA. Further, NCUA noted  that it has also incorporated reviews for SCRA compliance into its  analysis and investigations of complaints.

The Comptroller of the Currency noted that OCC will update its  examination guidelines to ensure that a review of SCRA compliance is  conducted during each supervisory cycle for its regulated institutions,  and that such reviews will include the testing of loan files selected  using an appropriate methodology to assess compliance with SCRA.

FDIC’s Director of their Division of Depositor and Consumer Protection  did not comment on our recommendation but agreed that testing a  representative sample of loans for compliance with SCRA is an effective  tool to assess compliance with SCRA for large mortgage servicers.  However, his letter also noted that having examiners interview bank  employees also serves as an effective tool for assessing compliance with  consumer protection laws and regulations, and that such interviews are  often used to verify that the depository institution is conducting sufficient  employee training and is enforcing its policies and procedures. We agree  that conducting interviews of depository institution personnel can be a  useful procedure to examine for SCRA compliance, but supplementing  such actions with increased testing of loan files provides an even greater  level of assurance that an institution is complying with SCRA.

VA concurred with our recommendation that they ensure that a review for  SCRA compliance is included in its new mortgage servicer monitoring  program and also indicated their staff would be taking additional steps to  assess SCRA compliance during Adequacy of Servicing reviews and  while conducting supplemental servicing. In a written response, VA’s  Chief of Staff noted several activities the agency conducts to help ensure  that veterans are aware of their SCRA protections. He stated that VA will  revalidate and, as necessary, revise its focus and procedures to ensure  veteran borrowers are receiving all SCRA protections to which they are  entitled. Additionally, he noted that VA will include in its mortgage servicer  monitoring program a review to ensure that servicers’ appropriately afford  SCRA-eligible borrowers their mortgage protections as part of their loss  mitigation efforts. Finally, he said that VA will incorporate additional steps  into its Adequacy of Servicing reviews to assess whether the servicer  appropriately provided SCRA mortgage protections to eligible borrowers.

Federal Reserve, FHFA, HUD, NCUA, OCC, and VA agreed with our  recommendation that the federal agencies involved in overseeing  mortgage servicers’ SCRA compliance should explore using existing  mechanisms or developing new ones to share information related to  SCRA compliance oversight.

Federal Reserve Division of Consumer and Community Affairs  Director noted that additional interagency collaboration related to  SCRA compliance trends and emerging risks may be appropriate and  useful in improving supervisory practices related to SCRA  compliance, and she agreed to explore other opportunities to share  information related to SCRA compliance with other federal agencies.  She stated that their staff are currently planning an interagency  servicemember financial protection webinar for financial industry  participants that is to include panelists from the federal supervisory  agencies, as well as representatives from other agencies with SCRA  oversight responsibility.

FHFA’s Deputy Director for the Division of Enterprise Regulation also  agreed that increased information sharing among supervisors of  mortgage lending industry participants could assist in identifying  potential compliance problems and in some cases could improve the  identification of SCRA violations. He noted that FHFA’s supervision  function will consider whether the agency’s existing memorandums of  understanding are sufficient or should be expanded to cover more  types of information or more agencies to broaden information sharing  on issues of supervisory concern, including SCRA compliance. He  also noted that the supervision function would consider whether  compliance oversight would be improved by developing processes for  more frequent routine communications with supervisors of other  market participants subject to mortgage lending compliance  requirements.

HUD’s Acting Assistant Secretary for Housing-Federal Housing  Commissioner agreed that HUD should participate in agencies’  discussions to explore options to share information related to SCRA  compliance, noting that HUD’s should be a participatory role rather  than a leadership one because it does not have responsibility for  overseeing SCRA. Her letter also notes they believe that the scope of  such collaboration should be broadened beyond just SCRA  compliance to include all agencies’ mutual interests in single family  housing issues, which we agree could be useful.

The NCUA Executive Director’s letter notes that NCUA will use its  participation in FFIEC and other interagency working groups to share  information regarding the supervision of financial institutions and  compliance concerns, and that it currently shares information with  CFPB regarding consumer compliance oversight and is working with  federal financial regulators to develop tools to facilitate information  sharing.

The Comptroller of the Currency stated in his response that OCC will  continue to be an active member of the FFIEC Task Force on  Consumer Compliance, which is an interagency organization that  works collectively to develop examiner guidance and examination  procedures and to discuss emerging risks or trends regarding new  products and services. He also noted that OCC, the other prudential  regulators, and CFPB have signed a memorandum of understanding  on supervisory coordination that outlines the coordination of  examinations and the sharing of compliance oversight information,  including information on SCRA.

VA’s Chief of Staff noted that VA will collaborate with the agencies  involved in SCRA compliance oversight to share information related to  SCRA compliance.

FDIC did not comment on this recommendation.

DHS concurred and DOD partially concurred with our recommendation  that they assess the effectiveness of their efforts to educate  servicemembers on SCRA to determine better ways for making  servicemembers aware of their SCRA rights and benefits, including  improving the ways in which members of the reserve components obtain  such information. DHS’s Director of Departmental GAO-OIG Liaison  Office noted that the Coast Guard strives to keep all its members fully  aware of SCRA benefits and rights and that it will explore measures to  assess the effectiveness of these efforts in the future. DOD’s Office of  Legal Policy Director stated that the education and protection of  servicemembers is DOD’s highest priority and that it continuously  evaluates the effectiveness of training to servicemembers on their  protections under SCRA and that it will continue to do so bearing our  recommendation in mind. His letter also notes that DOD recently testified  before Congress on efforts to conduct a survey on financial issues  affecting servicemembers which will further inform DOD’s efforts.

We are sending copies of this report to appropriate congressional  committees, the Chairman of the Board of Governors of the Federal  Reserve System, the Secretary of Defense, the Chairman of the Federal  Deposit Insurance Corporation, the Acting Director of the Federal  Housing Finance Agency, the Secretary of Homeland Security, the  Secretary of Housing and Urban Development, the Chairman of the  National Credit Union Administration, the Comptroller of the Currency, the  Secretary of Veterans Affairs, the Director of the Consumer Financial  Protection Bureau, and the U.S. Attorney General. The report also is  available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-8678 or sciremj@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made major contributions to this report  are listed in appendix XII.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to examine (1) what is known about Servicemembers  Civil Relief Act (SCRA) eligibility, the number of violations that have  occurred, and practices financial institutions use to comply with SCRA; (2)  what oversight financial regulators and other federal agencies have taken  to help ensure depository institutions’ compliance with the act; and (3)  actions the Department of Defense (DOD), Department of Homeland  Security (DHS), Department of Veterans Affairs (VA), and others have  taken to ensure that servicemembers and others are informed of  protections provided under the act. With the exception of our regulatory  compliance review, the scope of our review includes only SCRA  protections related to servicemembers’ residential mortgages.
subsections: section_title: SCRA Compliance
paragraphs: To describe what is known about the practices depository institutions use  to comply with SCRA, we interviewed representatives from a non- generalizable sample of four large mortgage servicers and one national  consumer credit reporting agency about their SCRA compliance practices  and challenges and reviewed relevant policies and procedures. We  selected 4 mortgage servicers that were among the 10 largest based on  data from the Consolidated Reports of Condition and Income (Call  Reports) on the unpaid principal balance of residential mortgages  institutions own and service, plus mortgage loans they service on behalf  of other institutions, and mortgage servicers that had participated in either  the prudential regulators’ interagency review of foreclosure policies and  practices or the U.S. House of Representatives Committee on Oversight  and Government Reform’s investigation. We interviewed representatives  of financial industry trade associations, including those that represent the  mortgage industry, depository institutions with a large military customer  base, and the credit reporting industry. We also interviewed officials from  DOD’s Defense Manpower Data Center, which operates the website that  depository institutions and others use to verify the active duty status of  servicemembers. To determine what is known about SCRA violations that  have occurred we reviewed letters from 10 large mortgage servicers  written in response to a House of Representatives Committee on  Oversight and Government Reform investigation on mortgage servicers’  SCRA compliance history and practices. We also reviewed data on SCRA  violations found during bank and credit union examinations conducted  from 2007 through 2011 by the prudential regulators—the Board of  Governors of the Federal Reserve System (Federal Reserve), the Federal  Deposit Insurance Corporation (FDIC), the National Credit Union  Administration (NCUA), and the Office of the Comptroller of the Currency  (OCC). We also reviewed available information from legal actions taken  by the Department of Justice (DOJ) against two mortgage servicers for  SCRA violations and a class action settlement against a large mortgage  servicer for SCRA violations. Finally, we reviewed DOJ, Federal Reserve,  and OCC enforcement actions against mortgage servicers for, among  other things, foreclosure documentation problems that require the  mortgage servicers to conduct reviews, which are currently ongoing, to  determine historical SCRA violations.

section_title: SCRA Compliance Oversight
paragraphs: To assess the oversight prudential regulators have taken to help ensure  depository institutions’ compliance with SCRA, we reviewed their  examination policies and procedures and interviewed agency officials  about their oversight activities related to SCRA. We also reviewed  interagency examination procedures and checklists the regulators  developed in 2009 to aid their oversight of SCRA. To assess the extent to  which prudential regulators examined for SCRA, we selected a stratified  random sample of 160 institutions from the population of all depository  institutions that serviced mortgages as of November 2011 for institutions  regulated by FDIC, Federal Reserve, and OCC, and September 2011 for  institutions regulated by NCUA. We developed a certainty stratum  composed of the 10 largest institutions regulated by each of the four  prudential regulators—FDIC, Federal Reserve, NCUA, and OCC—for a  total of 40 institutions. The remaining 120 institutions comprised an  additional four strata of institutions of varying sizes—one stratum per  prudential regulator. We used the Call Reports to identify mortgage  servicers based on data the institutions reported on the unpaid principal  balance of residential mortgages they own and service, plus mortgage  loans they service on behalf of other institutions. We selected credit  unions that service mortgage loans using data from the SNL Financial  Database on the unpaid principal balance of real estate loans owned and  serviced, plus those serviced on behalf of other institutions. We  confirmed our use of the relevant mortgage variables with the SNL  Financial Database with NCUA. We excluded any depository institutions  that did not service mortgages. We then used these data to select a  stratified random sample from the population of depository institutions  that service mortgages. While we initially selected a sample of 160  institutions (40 for each regulator), we excluded 8 of the selected  institutions from our analysis. Three institutions regulated by the Federal  Reserve were excluded because they were recently chartered and  therefore had not had an examination. We also excluded five credit  unions because they were state-chartered, meaning that state  supervisory authorities and not NCUA served as the primary regulator for  these institutions. Table 2 provides more detail on the population, sample,  and sample disposition by stratum.

To determine the extent to which prudential regulators included SCRA  compliance within the scope of their examinations, we requested SCRA- related examination workpapers, as well as documents examiners  prepare to determine the scope of their examinations for all consumer  compliance examinations the prudential regulators conducted from 2007  through 2011. We reviewed examinations conducted over a 5-year period  because regulatory officials told us that they may not conduct an  examination for a particular institution every 12 months, and because  SCRA might not be covered in each risk-based examination. We relied on  the examination documentation provided to us by the prudential  regulators to represent the full universe of examinations that were  conducted for each institution in our sample between 2007 and 2011. We  did not independently verify that the examination documentation they  provided to us represented the full universe of examinations they  conducted over this period. We reviewed the documents we received and  developed a data collection instrument (DCI) to capture the information  we found in the examination documentation in a consistent manner. We  determined that a depository institution had received an SCRA  compliance review if examination workpapers revealed an SCRA  compliance review for any type of loan product covered by the act (for  example, residential mortgages, automobile loans, or credit cards loans).  We aggregated this examination-level data to the institution level and  used the data to produce estimates of the percentage of all institutions for  which the prudential regulators included an SCRA compliance review  within an examination at least once during the 5-year period.  Because we followed a probability procedure based on random  selections, our sample of institutions is only one of a large number of  samples that we might have drawn. Since each sample could have  provided different estimates, we express our confidence in the precision  of our particular sample’s results as a 95 percent confidence interval (for  example, plus or minus 10 percentage points). This is the interval that  would contain the actual population value for 95 percent of the samples  we could have drawn. For estimates used in this report, we report the 95  percent confidence intervals along with the estimates themselves. We  also report percentages based on the 10 largest institutions per regulator.  Since these percentages are based on the total population of such  institutions, they have no sampling error and consequently confidence  intervals are not reported for these percentages.

We reviewed examination workpapers and used our DCI to document the  procedures examiners indicated they used to assess SCRA compliance.  We only noted the examination procedures for SCRA compliance reviews  that involved residential mortgage loans or did not specify the type of loan  product covered. Eighty-three institutions in our sample met these criteria.  SCRA examination procedures for exams that solely focused on other  loan products, such as credit cards and automobile loans, were outside  the scope of our review. We then grouped the data we collected on  examination procedures into four categories:

Requests for information from depository institutions. This includes  activities such as requests for institutions’ internal audit results,  policies and procedures, SCRA complaints, and lists of SCRA loans.

Interviews with depository institution personnel. This includes  activities in which examiners interviewed staff at the depository  institution for information on, among other things, their compliance  management systems and whether the institution services SCRA  loans.

Assessments of depository institutions’ compliance management  systems. This category includes instances in which examiners  documented that they reviewed the quality of depository institutions’  compliance management systems, such as reviewing institutions’  SCRA policies and procedures, internal controls, and training  programs.

Testing loan files for SCRA compliance. This category includes  activities such as testing a limited or statistical sampling of loans the  institution identified as SCRA-eligible or conducting more  comprehensive testing, such as reviewing a statistical sample of loan  files.

Table 3 provides additional detail on the individual examination activities  that comprise each of these categories.

We reviewed prudential regulators’ examination guidance and  government auditing standards, which note that various activities can  provide increasing levels of assurance that reviewed entities are following  their stated policies and procedures and that internal controls are  functioning. Based on this review, we grouped examiners’ documented  examination procedures into four categories based on our professional  judgment as to the extent to which the examination activities involved  verification of assertions made by the depository institution regarding  compliance with SCRA. For example, based on our categories, category  1—requests for information from depository institutions—provides the  least assurance of SCRA compliance because it does not involve an  assessment of compliance, but rather the collection of information.  Category 2—interviews with depository institution personnel—also  provides less assurance because it relies primarily on assertions provided  by the institution. Whereas category 4—testing of loan files—provides the  greatest assurance of SCRA compliance within our categories because  testing loan files allows examiners to independently verify whether an  institution’s compliance procedures are functioning properly and whether  SCRA protections are being appropriately extended to eligible borrowers.  Examination guidance from three of the four prudential regulators cite the  testing of individual loan transactions as the most extensive level of  review for assurance that a depository institution is complying with laws  and regulations. They also indicate that testing a larger sample of loans,  including a statistical sample, provides a fuller assessment of compliance  than testing a limited sample. We placed institutions in each of the four  categories based on the highest level of examination activity conducted  from 2007 through 2011. The figures presented for this analysis are not  generalizable to the population of institutions that service mortgages.

To describe the SCRA compliance oversight activities of other federal  agencies, we reviewed DOJ’s policies and procedures for receiving  SCRA referrals and investigating SCRA cases and interviewed agency  officials. We also reviewed DOJ enforcement actions and investigations  that DOJ was able to resolve without filing a court case related to  servicemembers’ mortgages from 2007 through 2011. We also reviewed  the SCRA compliance monitoring activities and policies and procedures  of other federal agencies that play a role in the mortgage market. These  agencies include the Federal Housing Administration (FHA), the Federal  Housing Finance Agency (FHFA), and VA. We also reviewed the SCRA  compliance monitoring efforts of two government-sponsored  enterprises—Fannie Mae and Freddie Mac. We reviewed the guidance  these agencies and enterprises provide to mortgage servicers  participating in their programs and interviewed agency officials.

section_title: Servicemember Education and Awareness
paragraphs: To determine what actions DOD, DHS, VA, and others have taken to  ensure servicemembers are informed of their SCRA rights, we reviewed  the act to determine what it requires agencies to do and interviewed two  SCRA experts. To describe what actions individual agencies were taking to  inform servicemembers of their rights, we reviewed DOD and DHS policies  and procedures and SCRA training materials and publications, and  interviewed representatives from these agencies, including officials from  DOD’s Office of Legal Policy, DHS, and the National Guard Bureau. We  also reviewed DOD’s Status of Forces surveys to active duty  servicemembers and members of the reserve components to determine  efforts DOD has taken to assess the effectiveness of its methods of  educating servicemembers about SCRA benefits. We selected six military  installation legal assistance offices (one for the Army, Navy, Marine Corps,  and Coast Guard and two for the Air Force) based on a geographic  distribution of states with high numbers of foreclosures and large active  duty and reservist populations and interviewed legal assistance attorneys  who work in these offices to learn how the attorneys teach servicemembers  about their SCRA protections and discuss the challenges servicemembers  face asserting those protections. The six installations were: Fort Drum,  New York; Randolph Air Force Base, San Antonio, Texas; Fort Sam  Houston, San Antonio, Texas; Marine Corps Recruit Depot, San Diego,  California; Coast Guard 9th District Command Center, Ohio; and Naval Air  Station Pensacola, Florida. We reviewed examples of SCRA training and  outreach that these offices develop and distribute to servicemembers. To  learn about the specific challenges that members of the reserve  components face, we also spoke with legal assistance attorneys from the  Naval Reserves and the Ohio National Guard who were recommended to  us by legal assistance attorneys with whom we spoke.

To determine what actions other agencies, including VA, the Consumer  Financial Protection Bureau, and FHA were taking to inform  servicemembers and others of SCRA protections, we reviewed  notifications they provide to mortgage servicers on SCRA compliance and  interviewed officials at these agencies. We also interviewed  representatives from the American Bar Association’s Legal Assistance for  Military Personnel program to learn how they coordinate with legal  assistance attorneys and assist servicemembers with SCRA issues.  Finally, we interviewed representatives from seven military  servicemember groups whose memberships represent a broad population  of servicemembers and their families. These groups included the Reserve  Officers Association, National Military Family Association, Military Officers  Association of America, Air Force Sergeants Association, National Guard  Association of the United States, Naval Enlisted Reserve Association,  and Retired Enlisted Association.

We conducted this performance audit from August 2011 to July 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

section_title: Appendix II: Oversight of Mortgage Servicers’ Servicemembers Civil Relief Act Compliance
paragraphs: As of June 2012, three federal agency reviews were under way to  determine if servicemembers who were eligible for SCRA mortgage- related protections received them. A total of 14 mortgage servicers are  involved in these reviews as a result of recent enforcement actions taken  by the Office of the Comptroller of the Currency (OCC), the Board of  Governors of the Federal Reserve System (Federal Reserve), and the  Department of Justice (DOJ). While each review is separate, some  overlap exists in the institutions and timeframes being reviewed.  However, officials from DOJ told us they are coordinating the reviews to  eliminate unnecessary duplication and overlap at institutions. DOJ also  completed one review of a mortgage servicer—Saxon Mortgage  Services—in May 2012.
subsections: section_title: Federal Reserve and OCC Enforcement Actions
paragraphs: In response to deficiencies in the foreclosure process that various  mortgage servicers publicly announced beginning in September 2010,  OCC and the Federal Reserve conducted a coordinated (interagency) on- site review of 14 mortgage servicers to evaluate the adequacy of controls  over their foreclosure processes and their policies and procedures for  compliance with applicable federal and state laws. This review identified  various weaknesses and deficiencies in these mortgage servicers’  foreclosure operations, including violations of SCRA. As a result of these  reviews, OCC and the Federal Reserve issued consent orders to the 14  mortgage servicers and their affiliates in April 2011, requiring these  institutions to make various corrective actions. One of these actions  required each of the mortgage servicers to retain a third-party consultant  to conduct independent reviews of foreclosure actions that were initiated,  pending, or completed on primary residences from January 1, 2009  through December 31, 2010, to identify borrowers who suffered financial  injury as a result of errors, misrepresentations, or other deficiencies in  foreclosure actions, and to remediate those borrowers, as appropriate. As  part of these independent reviews, the consultants are required to review  100 percent of the foreclosure actions during 2009 and 2010 that involved  servicemembers who may have been protected under SCRA.

Because examiners reviewed a relatively small number of foreclosure  files during the original interagency review, the reviews required by the  consent orders are intended to be more comprehensive. The consent  orders require the third-party consultants to develop detailed sampling  methodologies for identifying foreclosure actions to include in the review.  These methodologies are subject to OCC’s and the Federal Reserve’s  approval. OCC officials told us that, in conjunction with DOD and DOJ,  they have worked with the third-party consultants to develop a process to  access the Department of Defense’s Defense Manpower Data Center’s  database with custom queries in order for the third-party consultants to  accurately identify the pool of potential SCRA-eligible borrowers. To  supplement the independent reviews, the regulators also required  mortgage servicers and consultants to establish an outreach process for  borrowers, including servicemembers, who believe they were financially  harmed by improper foreclosure practices to request a review of their  foreclosure case. These requests for review must be submitted to the  mortgage servicers by September 30, 2012. According to officials from  OCC and the Federal Reserve, as of May 2012, preliminary results from  this review on instances of SCRA noncompliance were not available.

section_title: DOJ Enforcement Actions
paragraphs: On May 26, 2011, DOJ settled two cases against Saxon Mortgage  Services and BAC Home Loans Servicing for allegations of violations of  SCRA’s foreclosure provision.cases dictated that damages be paid to affected servicemembers and  remedial actions be taken by the mortgage servicers. BAC Home Loans  Servicing agreed to pay at least $20 million to resolve the lawsuit, and  Saxon Mortgage Services agreed to pay at least $2.35 million. The  consent orders also required the mortgage servicers to, among other  things, (1) implement revised SCRA policies and procedures specifically  about querying the Department of Defense’s Defense Manpower Data  Center database that contains information on servicemembers’ active  duty status, (2) implement a foreclosure monitoring program, (3) provide  SCRA compliance training to all applicable employees, and (4) conduct  reviews to identify additional servicemembers who may have had their  SCRA rights violated and compensate them. The reviews required by the  consent orders included the following:   The consent orders for each of these

Saxon Mortgage Services was required to review all nonjudicial  foreclosures conducted from January 1, 2006, through December 31,  2010, to determine compliance with SCRA. This review was  completed in May 2012 and a total of 22 servicemembers were  identified as having been improperly foreclosed upon.

BAC Home Loans Servicing is required to conduct reviews for both  the foreclosure and interest-rate provisions of SCRA. Specifically,  BAC Home Loans Servicing is to review all nonjudicial foreclosures it  conducted from January 1, 2006, through December 31, 2010, for  SCRA compliance. For the interest-rate review, the consent order  required BAC Home Loans Servicing to retain an independent  accounting firm to review a statistically valid sample of home  mortgage files from January 1, 2008, through December 31, 2010,  and issue a report on whether the mortgage servicer appropriately  applied interest rates and fees to servicemembers’ mortgages as  required by SCRA.

DOJ officials told us that, as of June 2012, the BAC Home Loans  Servicing review is ongoing.

section_title: National Mortgage Settlement
paragraphs: In February 2012, DOJ and 49 state attorneys general settled with five of  the largest national mortgage servicers for a variety of improper mortgage  servicing procedures, including allegations of SCRA violations. The $25  billion settlement was one of the largest financial recoveries obtained by  the attorneys general in history and contains a number of provisions  related to SCRA designed to protect servicemembers’ rights and to  provide them additional benefits. To resolve allegations of liability that  have not previously been settled, five mortgage servicers—Ally Financial  Inc., Bank of America Corp., Citigroup Inc., JPMorgan Chase Bank, N.A.,  and Wells Fargo & Company—agreed to conduct a full review, overseen  by DOJ’s Civil Rights Division, to determine whether any servicemembers  were foreclosed on in violation of SCRA since January 1, 2006.  Additionally, four of the mortgage servicers— Ally Financial Inc., Bank of  America Corp., Citigroup Inc., and Wells Fargo & Company—agreed to  conduct a thorough review of mortgage loans to determine whether any  servicemember, since January 1, 2008, was charged interest in excess of  6 percent after submitting a valid request to lower the interest rate. The  agreement also specifies compensation above the $25 billion settlement  amount for any SCRA foreclosure or interest-rate violations. Compliance  with the SCRA provisions of the settlement will be overseen by DOJ’s  Civil Rights Division. Table 4 summarizes these three reviews.

section_title: Appendix III: Comments from the Department of Homeland Security

section_title: Appendix IV: Comments from the Department of Defense

section_title: Appendix V: Comments from the Federal Deposit Insurance Corporation

section_title: Appendix VI: Comments from the Board of Governors of the Federal Reserve System

section_title: Appendix VII: Comments from the Federal Housing Finance Agency

section_title: Appendix VIII: Comments from the Department of Housing and Urban Development

section_title: Appendix IX: Comments from the National Credit Union Administration

section_title: Appendix X: Comments from the Office of the Comptroller of the Currency

section_title: Appendix XI: Comments from the Department of Veterans Affairs

section_title: Appendix XII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Cody Goebel, Assistant  Director; Meghana Acharya; Rachel Batkins; Rudy Chatlos; Christine  Houle; John McGrail; Mark Ramage; and Jennifer Schwartz made key  contributions to this report.


Question-summary annotations: questions: question: What oversight of SCRA has there been?
answer: Federal regulators’ oversight of SCRA compliance has been limited.

question: What has been reviewed for SCRA compliance?
answer: GAO estimates that from 2007 through 2011 prudential depository institution regulators—the Federal Deposit Insurance Corporation, Federal Reserve Board, National Credit Union Administration, and Office of the Comptroller of the Currency—reviewed 48 percent of all banks and credit unions for SCRA compliance.
child_questions: question: What were limited institutes tested additionally for?
answer: Of these institutions that were reviewed for SCRA compliance, only about half received examinations that involved testing of compliance by reviewing loan files.

question: To what extent was the examination of loans sufficient?
answer: Further, GAO found that examiners had only reviewed loans identified by the institution as involving servicemembers and had not independently selected a statistical sample of loan files, which would have provided greater assurance of SCRA compliance.

question: What does the lack of oversight mean for SCRA practices?
answer: Without more testing, which examination and auditing guidance suggest provides increased verification, regulators are less likely to detect SCRA violations.

question: What other parties are involved in SCRA compliance oversight?
answer: Various other federal agencies are involved in SCRA compliance oversight.
child_questions: question: How has the Department of Justice considered SCRA violations?
answer: The Department of Justice has explicit SCRA enforcement authority and since 2007 has brought three cases against mortgage servicers for violations.

question: How do other federal agencies handle SCRA compliance information?
answer: The Department of Veterans Affairs (VA), Federal Housing Administration, and Federal Housing Finance Agency—which regulates the government-sponsored enterprises—all obtain information about SCRA compliance at the servicers that participate in the mortgage programs they administer or regulate, but the agencies and the prudential regulators do not share such information among themselves.

question: How could these agencies improve their oversight?
answer: Collaboration among these agencies could lead to more effective supervision and improve their awareness of potential problems with SCRA compliance. Further, VA oversight of mortgage servicers does not specifically review for SCRA compliance. By increasing its SCRA compliance monitoring efforts, VA could better ensure that servicemembers with VA loans are better protected.

questions: question: How are servicemembers informed of their SCRA rights?
answer: SCRA requires that the Department of Defense (DOD) and Department of Homeland Security (DHS)—which oversees the Coast Guard—inform servicemembers of their SCRA rights.
child_questions: question: How is this information distributed?
answer: The military services provide this information in various forms, such as briefings and websites.

question: What concern is there about the distribution of SCRA information?
answer: However, some military officials said that servicemembers—particularly members of the National Guard and reserve—often receive SCRA information as part of briefings with numerous other topics prior to deployment and do not always retain the necessary awareness when they need it later.

question: How effective is DOD and DHS's assement of their SCRA education methods?
answer: DOD and DHS do not assess the effectiveness of their SCRA education methods, such as by using focus groups of servicemembers or testing to reinforce retention of SCRA information.
child_questions: question: What does this lack of assessment mean?
answer: Without such assessment, they may not be able to ensure that they are informing servicemembers of their rights in the most effective manner.

questions: question: What is the purpose of the SCRA?
answer: SCRA protects servicemembers whose active duty military service prevents them from meeting financial obligations, by allowing interest rates on certain debts to be reduced and requiring a court order before certain foreclosures on their homes can occur.
child_questions: question: Why is SCRA being reviewed?
answer: With foreclosures rising, reports surfaced of instances in which financial institutions failed to comply with SCRA.

question: What is the GAO covering in their review?
answer: GAO examined the (1) eligibility for SCRA protections and extent of SCRA mortgage-related violations by depository institutions, (2) SCRA compliance oversight by prudential regulators and other federal agencies, and (3) the military services’ efforts to educate servicemembers on SCRA.

question: What information did the GAO collect for this report?
answer: GAO collected data on populations eligible for SCRA from DOD and SCRA violations from banking and law enforcement agencies and reviewed a stratified random sample of prudential regulators’ examinations of banks and credit unions. GAO also interviewed regulators, law enforcement and military officials, and military service organizations.

questions: question: How should  regulators improve their SCRA practices?
answer: Prudential regulators should conduct more extensive loan file testing for SCRA compliance. Regulators and other agencies that oversee mortgage activities should also explore opportunities for information sharing on SCRA compliance oversight, and VA should expand its SCRA compliance monitoring efforts.

question: How should DOD and DHS improve their SCRA practices?
answer: Finally, DOD and DHS should assess the effectiveness of their efforts to provide SCRA information to servicemembers.

question: How did the agencies respond to these GAO recommendations?
answer: The agencies generally agreed and noted actions responsive to GAO’s recommendations.