Many military homeowners who saw their homes plummet in value in the financial crisis still can’t get relief from “under water” mortgages that leave families owing more to loan servicers than their homes are worth.
The situation is especially difficult for the military where families must move every two to four years. Some affected members, on receiving orders to new assignments, are leaving families behind in these homes to avoid a hard hit to family finances or loan defaults, which would harm credit ratings.
Holly Petraeus, head of the Office of Servicemember Affairs in the new Consumer Financial Protection Bureau, explained in a phone interview that the burden of under water mortgages remains a major issue for families as she discovered this past year during visits to 15 military communities.
Petraeus, wife of retired Army Gen. David Petraeus, former commander of allied forces in Iraq and Afghanistan, and current director of the Central Intelligence Agency, noted that many military bases are in states hardest hit by collapse of the housing market, including California, Nevada and Florida, so many members bought homes at prices current markets won’t support.
“I was in Florida recently and had about 300 people at the town halls I did,” Holly Petraeus said. “I asked informally how many were homeowners and about half of them raised their hands. I asked, ‘How many of you now owe more than the home is worth?’ And two thirds of the hands stayed in the air.”
Their biggest fear, she said, are permanent change-of-station orders.
“What then? There are no easy answers. They can’t sell their house for enough money to pay off their mortgage. They have had trouble getting access to some assistance programs,” she said. Unless they are delinquent in paying mortgages, “they can’t do a short sale or a loan modification.”
Military folks who don’t pay their mortgages and lose their homes to foreclosure put at risk their security clearances and possibly their careers.
Petraeus is tasked with educating and empowering military people to make better decisions on financial products and services. Her office also monitors military consumer complaints and coordinates all federal and state consumer protection efforts on behalf of military personnel and their families.
Petraeus said she has seen “some movement” to help families with under water mortgages.
“Fannie Mae and Freddie Mac have now changed their guidance to servicers to say that a military move is a qualifying hardship that should allow people to access some of the assistance programs,” she explained.
Treasury officials also changed criteria so military people can qualify for incentives to conduct short sales or other alternatives to foreclosure under the Home Affordable Foreclosure Alternatives program. Military no longer need to show a drop in income to qualify.
Her office and the CFPB are still in start-up mode. But spurred on by military people seeking greater consumer protection, Petraeus has spoken out on their biggest consumer concerns including aggressive marketing by for-profit colleges, abuses by payday lenders and internet-based loan sharks and product scammers including those with bogus cars for sale.