Ed. note: this was also posted at the Consumer Financial Protection Bureau's blog.
Our military families make many sacrifices for our nation, and not just when a servicemember goes into combat. Military families also face challenges when a servicemember receives orders for a Permanent Change of Station (PCS) move to another base, and the family has to decide whether to go along or live apart. Unfortunately, for many military families, this challenge has become more difficult in the wake of the housing market downturn. This is because like other Americans, many military homeowners are currently underwater on their mortgage. Because their home’s value has decreased since they purchased it, these servicemembers may not be able to sell their home at a price that will pay off their mortgage, and they may not be able to rent out their home at a price that will cover their monthly mortgage payments. These military homeowners also may get a lower housing allowance at their new duty station, and may face additional loss of income while their spouse looks for a new job. Suddenly, military homeowners who have been faithfully paying their mortgage on time face a real risk of falling behind.
In the last few weeks, Treasury and the Office of Servicemember Affairs at the CFPB have worked together to address this issue. And, as a result, Treasury is making important changes to its Home Affordable Modification Program (HAMP) that will provide more opportunities for mortgage assistance to military homeowners.
Many underwater military homeowners have looked for help from mortgage assistance programs to no avail. If they move, they may be told that they are not eligible to modify the mortgage on their home because it’s no longer their primary residence. And they may not qualify for assistance because they are still current on their mortgage or their income has not changed, so they are not considered to have a “verifiable financial hardship,” despite the fact that they now have to pay for housing in two locations. The financial difficulties are stressful enough, but for military homeowners, becoming delinquent on their mortgage can also put their security clearance at risk. If they show a negative change to their credit rating, it not only hurts their ability to get credit, but can actually cause them to lose the security clearance they must have to do their job.
Under recently announced changes to HAMP, which will go into effect June 1, military homeowners and other families who are permanently displaced by a job-related move may still qualify as owner-occupants, which means they may still qualify for a HAMP mortgage modification. The new criteria states that a borrower may qualify if he or she:
Is displaced due to an out-of-area job transfer such as PCS orders and was occupying the home as a principal residence immediately prior to the displacement;
Intends to return to the home at some point in the future; and
Does not own any other single-family real estate.
Military and other families who do own other residential properties may still qualify for a HAMP modification under expanded opportunities available for rental properties announced by Treasury in January. They also may qualify for a short sale through Treasury’s Home Affordable Foreclosure Alternatives Program (HAFA).
Our servicemembers deserve our full support. We don't want any member of our military to be forced by financial challenges to leave their family behind. This would be a heartbreaking decision for any family, but it’s especially tough for military families, who often face long periods of separation during deployment. These changes to HAMP are one way Treasury and the CFPB are working together to support military families and the many other hardworking families struggling to maintain homeownership.
Tim Massad is the Assistant Secretary for Financial Stability at the U.S. Department of the Treasury and Holly Petraeus is the Assistant Director for Servicemember Affairs at the Consumer Financial Protection Bureau (CFPB).