Pub. 7 2016 Issue 2

SUMMER 2016 23 West Virginia Banker Our Tax Dollars Hard at Work— SCRA in Congressional Limbo By James McGuire, Compliance Alliance A t midnight on December 31st, 2015, the current version of §533(b) of the Servicemembers’ Civil Relief Act (SCRA), which postponed foreclosure on military members to one year after military service, sunsetted. The puff of smoke created by this provision’s sudden absence inevitably has left both SCRA-covered borrowers and financial institutions blind and befuddled. Although no one is 100% sure of what the correct protection period is now, most feel that since the 2008 HERA amendments that previously set this protection period at 9 months also have expired, the pre- 2008 protection period of three months is now once again the law of the land. It’s important to keep in mind, however, that this reset to three months may prove to be extremely short-lived. With heavy bipartisan support, the one-year protection period looks to return within the next couple of months and be made retroactive—the question is merely when exactly that will happen. On December 15th of last year, perhaps taking note of the urgency that the sunsetting of this issue proposed, the US Senate passed S. 2393, an extension of the one-year protection period which would keep the provision in place for two more years, or until the end of 2017. (The text of the bill can be found at https://www.govtrack. us/congress/bills/114/s2393/text .) This extension was considered such a slam-dunk, it passed quickly and unanimously. The senate bill’s companion in the House of Representatives, however—HR 4252—has not fared nearly as well. It, along with an earlier related bill (HR 189) that would only extend the one-year protection period through the end of 2016, has been languishing in a subcommittee of the House Committee of Veterans Affairs since late December. The sponsor of the Senate bill was a Democrat, and the sponsor of both House bills are Republicans, so clearly there is no issue regarding partisanship over these bills. Nevertheless, for bureau- cratic reasons unknown, the House bills continue to collect dust in subcommittee. The limbo caused by the failure to extend the one-year protection period negatively impacts covered servicemembers in a variety of ways. First of all, a change from one year to three months no longer mirrors the SCRA’s one-year protection period for the 6% interest rate cap on servicemembers (§527(a)(1)(A)), which now forces de- linquent military borrowers to keep track of two different timelines for their loans. Earlier impact studies performed by the General Accounting Office (GAO) have detailed the plight of getting proper SCRA information out to servicemembers in a way that they can readily understand and absorb (see, e.g., GAO-14-221); requiring them to keep track of two different timelines now only makes that problem worse. Secondly, the content provided to servicemembers from the military may not be updated to reflect the current status of the law—note that certain government-run websites, including HUD’s, still list the time period as being one year. (See HUD’s currently-posted official SCRA notice, at http://portal.hud.gov/ hudportal/documents/huddoc?id=92070.pdf, for an example of this.) While these websites tend to mention in passing that the 1 year period expired on January 1st, they do not make absolutely clear that the 1 year provision no longer exists, so delinquent servicemembers scanning these sources quickly might mistakenly believe they have more time to get their financial affairs in order after military service than is actually the case. Finally, in the event a servicemember actually learns that his or her protection period now has shortened from one year to three months, he or she may feel forced to extend his or her military career longer than previously anticipated in order to stave off foreclosure, only to have the one- year protection period return in a few months’ time. Aside from negatively impacting servicemembers themselves, this uncertainty also causes massive frustration for many financial institutions, especially those who are in the process of drafting new SCRA notice letters and amending their SCRA policies for annual board review. The situation presents a unique challenge for policy crafting, as it’s all but certain the one-year extension will pass unanimously and be made retroactive at some point this year, possibly even later this month. (Some institutions have suggested crafting language similar to “three months or as otherwise pre- scribed by federal law” for the foreclosure protection period, which appears to be a good workaround in the interim.) Furthermore, as noted above, the official SCRA notice currently offered on HUD’s website still lists the protection period as one year, so an institution amending a form to instead read “three months” appears to be con- tradicting that form. Compliance Alliance advises that institutions choosing to foreclose on borrowers between three months and one year after the end of military service do so at their own peril. For now, when it comes to the exact length of the foreclosure pro- tection period under the SCRA, it’s a game of ‘wait-and-see.’ If you wish to contact directly any of the congressional parties involved in extending the protection period, the sponsoring congressman of HR 4252 is Rep. Stephen Fincher of Tennessee, and he can be reached at (202) 225-4714. The chairman of the Veterans Affairs Subcommittee on Economic Opportunity (EO) is Rep. Brad Wen- strup of Ohio, and he can be reached at (202) 225-3164. Article Article Update – Since the original submission of this article (March 1, 2016), the SCRA one-year extension (S. 2393) passed the House via a floor vote, and was signed into law by President Obama on March 31st, 2016. The one-year extension now is effec- tive until January 1st, 2018, which provides roughly two more years of stability before the issue again comes up for a vote. n James McGuire has worked as an attorney and legal researcher in the financial industry since 2010. After graduating from the University of Minnesota Law School in 2007, he served as Assistant General CounselfortheTexasAttorneyGeneral intheOpenRecordsDivision, and later worked as a solo practitioner in the Austin area. Prior to joining Compliance Alliance in July of 2015, James assisted a major mortgaging servicer with the OCC’s independent foreclosure audit and was an SEC filing researcher for a major financial and legal research firm. He has extensive first-hand experience with open records, mortgage servicing, consumer law and securities regulation. Please contact Compliance Alliance at (888) 353-3933 or at info@compliancealliance. com with any questions regarding this update, the original article or to learn how to become member.