Alert July 24, 2012

GAO Releases Report on Regulatory Oversight of SCRA’s Foreclosure Protections

The GAO released a report on the regulatory oversight of the Servicemember Civil Relief Act, which provides protections to active duty servicemembers, in the foreclosure context.  Overall, the GAO found a lack of regulatory oversight by the federal banking agencies, and that servicemembers have lost some of the protections afforded to them under SCRA, such as interest rate caps and prohibition against foreclosures without a court order.  In particular, the study found federal banking agencies, the Federal Housing Administration, the Department of Veterans Affairs, and the Federal Housing Finance Agency do not share information on SCRA compliance amongst themselves.  Such sharing, according to the report, “could help them to more quickly identify compliance problems that may adversely affect servicemembers.” The report also noted the challenges to SCRA compliance cited by mortgage servicers (e.g., lack of clarity on military orders), and that federal oversight of SCRA compliance has been limited and varies by year, by federal regulator and by institution.  For example, the FDIC and the FRB reviewed a significantly higher percentage of institutions for SCRA compliance compared with the OCC.

The GAO recommended two executive actions: (1) conduct testing of foreclosure files (and other mortgage loan files); and (2) employ testing methods that provide greater assurance that mortgage servicers are complying with SCRA.  The GAO also recommended that the Secretaries of Defense and Homeland Security determine better ways to educate servicemembers of the protections granted by SCRA.