Mortgage Foreclosures:

Regulatory Oversight of Compliance with Servicemembers Civil Relief Act Has Been Limited

GAO-12-700: Published: Jul 17, 2012. Publicly Released: Jul 17, 2012.

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What GAO Found

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.

Why GAO Did This Study

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.

What GAO Recommends

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.

For more information, contact Mathew Scirè at (202) 512-8678 or sciremj@gao.gov.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To better ensure SCRA compliance oversight, 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 should 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.

    Agency Affected: Federal Reserve System: Board of Governors

    Status: Open

    Comments: In June 2013, Federal Reserve officials explained that they look at Servicemembers Civil Relief Act (SCRA) during each exam during the initial risk scoping portion of an examination. Based on this risk assessment, examiners decide to do a further review of SCRA compliance during the examination. Officials also stated that they issued guidance in April 2013 on minimum standards for handling borrower files with imminent scheduled foreclosure sale. These procedures call for each imminent foreclosure file to be reviewed for SCRA eligibility. As a result, Federal Reserve examiners are beginning to hold more in-depth discussions with institutions about their compliance with these new procedures, including the requirements to check for SCRA eligibility before proceeding with a foreclosure. With the more intense focus on servicing issues lately, their examiners will interview bank staff to understand the institution's means for complying with the Act, and if the staff cannot describe a sound process, then their examiners will likely do a deeper look including test of loan files, at the institution. They also follow up any complaints the institution has received.

    Recommendation: To better ensure SCRA compliance oversight, 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 should 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.

    Agency Affected: Federal Deposit Insurance Corporation

    Status: Closed - Implemented

    Comments: FDIC officials explained that during each examination of a financial institution, examiners review all of an institution's risk factors for high profile areas, of which Servicemembers Civil Relief Act (SCRA) is one. If the review of high risk areas reveals potential problems with an institution's compliance, examiners will pull a sample of files and review that area further. In addition, they explained that examiners always conduct transaction testing on certain consumer compliance laws (e.g., Truth in Lending, Federal Credit Reform Act, etc). During transaction testing of these laws, examiners look for potential problems with all other consumer laws, including SCRA. If potential SCRA problems were identified during the review of other consumer laws, the examiners would conduct additional transaction testing of files to check for SCRA compliance. In addition, after issuance of our report in July 2012, FDIC held a conference call with all of its examiners reemphasizing the importance of reviewing for SCRA compliance.

    Recommendation: To better ensure SCRA compliance oversight, 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 should 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.

    Agency Affected: National Credit Union Administration

    Status: Open

    Comments: As of August 2013, specific actions being taken by NCUA are not known.

    Recommendation: 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.

    Agency Affected: Department of Veterans Affairs

    Status: Open

    Comments: As of August 2012, specific actions being taken by agencies are not known.

    Recommendation: 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.

    Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency

    Status: Open

    Comments: As of August 2012, specific actions being taken by agencies are not known.

    Recommendation: 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.

    Agency Affected: Federal Reserve System: Board of Governors

    Status: Open

    Comments: In September 2012, the Federal Reserve System hosted an interagency webinar titled "Servicemember Financial Protection." The webinar involved representatives from the Federal Reserve, Consumer Financial Protection Bureau, Department of Justice, Department of Treasury, Federal Housing Finance Agency, FDIC, National Credit Union Administration, and the Office of the Comptroller of the Currency. However, the intent of the webinar was to provide information to industry participants, and not a forum in which federal agencies could share information related to Servicemembers Civil Relief Act (SCRA) compliance.

    Recommendation: 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.

    Agency Affected: Federal Deposit Insurance Corporation

    Status: Open

    Comments: The FDIC officials explained that they have talked with the Federal Financial Institutions Examination Council about a forum for more information sharing regarding SCRA. They also participated in a webinar that was hosted by the federal financial regulatory agencies on servicemember financial protection in September 2012. The webinar involved representatives from the Federal Reserve, Consumer Financial Protection Bureau, Department of Justice, Department of Treasury, Federal Housing Finance Agency, FDIC, National Credit Union Administration, and the Office of the Comptroller of the Currency. However, the intent of the webinar was to provide information to industry participants, and not a forum in which federal agencies could share information related to Servicemembers Civil Relief Act (SCRA) compliance.

    Recommendation: 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.

    Agency Affected: National Credit Union Administration

    Status: Open

    Comments: As of August 2013, specific actions being taken by NCUA are not known.

    Recommendation: 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.

    Agency Affected: Federal Housing Finance Agency

    Status: Open

    Comments: As of August 2013, specific actions being taken by FHFA are not known.

    Recommendation: 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.

    Agency Affected: Department of Housing and Urban Development

    Status: Open

    Comments: As of August 2012, specific actions being taken by agencies are not known.

    Recommendation: 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.

    Agency Affected: Department of Veterans Affairs

    Status: Open

    Comments: VA officials led the effort to create the Joint Federal Housing Agencies task force, which consists of the Department of Agriculture, Department of Housing and Urban Development, Consumer Financial Protection Bureau and VA. The task force coordinates to improve housing programs and met 6 times between May 2012 and December 2012. Servicemembers Civil Relief Act (SCRA) issues were listed on the May 2012 meeting agenda. While these actions partially address our recommendation, this task force does not include the prudential bank regulators noted in our recommendation--Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation--which play a fundamental role in ensuring SCRA compliance.

    Recommendation: 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.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: As of September 2013, DOD was in the process of undertaking surveys on the overall financial well-being of military families. The surveys are being administered to three groups: 1) servicemembers, 2) military financial counselors, and 3) military legal assistance attorneys. While the surveys are not focused solely on Servicemembers Civil Relief Act (SCRA), they do take into account all financial products, including mortgages and student loans, which are covered by SCRA. DOD officials explained that the purpose of the surveys is to use the results, including suggestions from legal assistance attorneys to adjust training and education for SCRA, should such issues be identified.

    Recommendation: 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.

    Agency Affected: Department of Homeland Security

    Status: Open

    Comments: In August 2013, Coast Guard officials reiterated the steps the agency takes to ensure that its members are aware of their Servicemembers Civil Relief Act (SCRA) benefits and rights. Coast Guard's response stated that Coast Guard officials feel that to effectively measure the effectiveness of their SCRA efforts, the Coast Guard would need to charter/conduct a study or survey servicewide to tally responses, analyze the findings, and disseminate the results and that the Coast Guard doesn't possess the resources and/or manpower to dedicate to such an initiative. On August 27, 2013 we spoke with a Coast Guard official and explained that actives that the Coast Guard could take to better understand how effective their SCRA educations methods are need not be resource intensive. We provided the official with several examples of activities that Coast Guard could take that would be in the spirit of our recommendation and would be considered responsive. We agreed to follow-up in six months to see if any further actions have been taken.

    Recommendation: 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.

    Agency Affected: Department of Veterans Affairs

    Status: Closed - Implemented

    Comments: VA officials have developed a checklist that their staff have begun using to conduct servicer monitoring reviews. The checklist includes seven questions related to assessing servicers' Servicemembers Civil Relief Act (SCRA) activities. VA officials stated that one servicer monitoring review was conducted in fiscal year 2012 and that two reviews are planned for fiscal year 2013. To incorporate oversight of SCRA into its Adequacy of Servicing reviews and supplemental servicing activities, VA issued guidance to its loan officers on August 3, 2012 to help them assess if servicers acted to appropriately to provide SCRA mortgage protections to eligible borrowers. The guidance instructs loan officers to include an additional question during Adequacy of Servicing reviews to determine if the reviewed servicer information provides an indication that a servicemember may be eligible for SCRA.

    Recommendation: 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.

    Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency

    Status: Open

    Comments: In May 2013, OCC officials stated that OCC participates in the Federal Financial Institutions Examination Council (FFIEC), and that they share information with the agencies in this organization on anything they believe to be an emerging risk. However, the Department of Housing and Urban Development and the Department of Veterans Affairs are not part of the FFIEC and, thus OCC has not any interactions with either agency on SCRA issues.

    Recommendation: To better ensure SCRA compliance oversight, 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 should 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.

    Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency

    Status: Closed - Implemented

    Comments: OCC implemented new Servicemembers Civil Relief Act (SCRA) examination procedures in January 2013. The procedures require that, at a minimum, examiners must review financial institutions' policies, procedures, and processes for servicemember requests for protections under SCRA during each examination. Based on this review, examiners make a determination as to whether or not to conduct transaction testing to test for various aspects of SCRA compliance (e.g., reduction of interest rate, forgiveness of interest, and retroactive interest rate reduction). The procedures also require that for each examination, regardless of the outcome of the examiner's review of the institution's SCRA policies and procedures, that a statistical sample of foreclosure mortgage files be tested to determine how the institution determined if borrower was eligible for SCRA protections and if court orders were obtained before foreclosing.

    Recommendation: 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.

    Agency Affected: Department of Housing and Urban Development

    Status: Open

    Comments: In May 2013, HUD officials said that they were not aware of any formal meetings among the agencies listed in our recommendation to coordinate on Servicemembers Civil Relief Act (SCRA) compliance. They were also unaware of any active initiatives to coordinate on SCRA compliance policies. They added that legal barriers exist in sharing information in terms of their ability to provide any personal information regarding loans. However, they stated that there are no legal restrictions on sharing generic information.

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