Navigating the SCRA in a high interest rate environment

By ICE Mortgage Technology
December 18, 2024 - 5 min read

Best practices for mortgage servicers to support active-duty military members

When military members are on active duty, they need to focus on the mission at hand – not their mortgage. As a result, the federal government enacted the Servicemembers Civil Relief Act (SCRA) to provide legal and financial protections to active-duty military members and their families.

One of the primary provisions of the SCRA is that it limits the interest rate that can be charged on certain types of loans, including mortgages, to 6 percent while the servicemember is on active duty. To take advantage of this benefit, servicemembers must notify their creditor in writing and include a copy of their orders to active-duty service or other appropriate evidence of military service, such as a certified letter from their commanding officer, that shows the dates of active duty. Under the protection of the SCRA, mortgage servicers are also prevented from foreclosing on the property of active-duty military personnel without a valid court order, regardless of whether or not the servicemember notifies their lender or servicer of their military status.

The interest rate and foreclosure protections generally apply to pre-active-duty mortgage obligations and are afforded to servicemembers not only while on active duty but also for an additional year after leaving active duty. These protections allow servicemembers to dedicate their full attention to their duties and offer some relief to them and their family members.

With interest rates in 2024 topping out over 7%, it is clear why it’s important for mortgage servicers to evaluate their SCRA procedures and policies. Servicers should take the time to evaluate and update their existing processes, technology and reporting. Automation can play a significant role in helping servicers identify and manage SCRA-protected loans to help prevent interest rate violations and foreclosure missteps.

Failure to comply with the SCRA can result in significant penalties and legal action. Mortgage servicers that are not prepared for compliance with the SCRA may find themselves facing costly fines and legal fees, as well as damage to their reputation and customer relationships.

Who Is eligible for SCRA protection?

The SCRA applies to the following groups:

Active-duty members of the Army, Marine Corps, Navy, Air Force, Space Force, and Coast Guard
Members of the Reserve component when serving on active duty
Members of the National Guard component mobilized under federal orders for more than 30 consecutive days
Active-duty officers of the Public Health Service or the National Oceanic and Atmospheric Administration

Five steps to improve SCRA compliance

Interest rates today are still well above the record lows of the early 2020s, driving a renewed focus on SCRA regulations. Here are steps that mortgage servicers can take to improve SCRA compliance:

Identify borrowers who are eligible for SCRA protections. This requires working with the Department of Defense (DOD) to obtain information about service members who are on active duty. Servicers should use the DOD’s Defense Manpower Data Center (DMDC) to obtain and validate a borrower’s active-duty status and maintain that information in their technology systems to assist with downstream processes for implementing the SCRA requirements.
Establish policies and procedures for complying with the SCRA. Mortgage servicers should evaluate and standardize their policies and procedures to help protect a servicemember’s loan while they are on active duty, and during the grace period thereafter. This should include training for employees who are responsible for compliance, as well as regular audits to confirm that the SCRA policies are being followed.
Leverage automation to streamline management of SCRA loans. Mortgage servicers should explore how their existing mortgage servicing technology can help them track and manage loans belonging to military servicemembers. If additional functionality is needed, servicers should ask their technology providers about what they offer to support SCRA compliance.

For example, MSP®, ICE’s loan servicing system, includes the Military Service Relief (MSR) workstation, designed specifically for servicers to help them better manage their SCRA portfolio. The workstation allows servicers to record deployment order histories and status changes for the life of the loan, providing the transparency servicers need to help them identify, track and properly process SCRA-protected loans.

Automating the management of SCRA-protected loans can help servicers prevent missteps related to fees, interest rates and foreclosures.
Routinely monitor servicing portfolios for the active-duty status of military customers. A servicemember’s active-duty status is likely to change over time. It is not enough for servicers to verify active-duty status once and forget about it. They should routinely check their customers’ eligibility for SCRA benefits and monitor loan activity, interest rates and default status. There are automated portfolio monitoring and reporting solutions available that can help streamline these processes.
Stay up to date with evolving SCRA regulations. Congress has made amendments to the SCRA in recent years, requiring mortgage servicers to stay up to date on current SCRA requirements to maintain compliance. Servicers should have processes in place to monitor legislative changes to the SCRA.

Conclusion:

Taking these steps can help mortgage servicers comply with SCRA regulations to avoid costly penalties, legal action and reputational risk. It is important to proactively prepare for compliance with the SCRA, especially as new loans are originated with higher interest rates. A good place to start is talking with your mortgage technology provider to see if they have tools and professional consultants available to help you streamline and automate SCRA compliance. By doing so, you can protect your business while supporting servicemembers and their families.