CFPB, DOJ issue warning for mortgage servicers about military families

The Consumer Financial Protection Bureau and the Justice Department jointly penned a letter to mortgage servicers, reminding them of their obligations to military and veteran families who are exiting forbearance plans.

In particular, active duty military families have extra protections under the Servicemembers Civil Relief Act beyond those Congress enumerated when it created the COVID pandemic forbearance program in the CARES Act, the federal agencies' letter said.

"The illegal foreclosures of military families in the last crisis was one of the financial industry's worst failures," said CFPB Director Rohit Chopra in a press release. "The CFPB will be closely watching mortgage servicers and will hold them accountable for illegal tactics perpetrated against military families."

A separate letter was sent to landlords and other housing providers reminding property owners of legal protections for military tenants.

There were 70 letters sent out in total, including to the 50 largest mortgage servicers, as well as to the largest servicers of Veterans Affairs-guaranteed loans, a CFPB spokesperson said.

“As is evident from our sending this letter to so many servicers, and in particular the largest servicers of VA loans, we took this step with the DOJ to make sure that all servicemembers and their families are not put at risk and receive all the accommodations they are legally entitled to,” the spokesperson said. “Throughout the past year, the CFPB has been actively working to ensure that families impacted by the pandemic are not illegally evicted or foreclosed on,” and the letter is a continuation of that work.

The agency declined to disclose the number of complaints filed or the servicers involved.A separate letter was sent to landlords and other housing providers reminding property owners of legal protections for military tenants.

The National Military Families Association is "very pleased" that the two agencies are reminding both mortgage servicers and landlords of their obligations under the SCRA.

"Hopefully, this will head off any problems in the future," said Kelly Hruska, NMFA government relations director. "If not, they've certainly been put on notice."

Credit reporting errorshave been difficult to correct for many years. "If we can be proactive, to help ensure that those things don't happen, that will help families in the long run," Hruska said.

The organization has heard more complaints regarding landlord-tenant issues than problems with mortgage lenders. Hruska pointed out that even before the pandemic, landlords had been asking military families in their leases to waive their SCRA rights, which while not illegal, is not ethical.

"We worked very hard to make sure there are these protections in place," Hruska said. "When landlords violate it, and ask service members to willingly waive those rights, it is particularly disturbing."

The agency stated 1.25 million borrowers are still in a forbearance program, and many of them are reportedly military families. (The most recent data from Black Knight puts the number at under 900,000 active plans overall.)

Active duty and veteran families have filed complaints over potential mortgage servicing violations, including inaccurate credit reporting, misleading communications to borrowers, and required lump sum payments for reinstating their mortgage loans.

"Such actions, if true, may be in violation of the legal protections under the CARES Act or contrary to administrative guidance issued by federal housing agencies," said the letter, which was signed by Chopra and Kristen Clarke, assistant attorney general for civil rights. "The CFPB is currently reviewing these complaints to determine if further investigation is warranted."

In June, the CFPB put out a final rule on how foreclosures are to proceed as borrowers exit forbearance.

The servicer letter also spelled out the foreclosure protections for active duty military members under the SCRA and that those apply in both judicial and non-judicial states.