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Congress Eases Mortgage Modification Rules for Military


As of mid 2012, some four or five years into the spectacular collapse of the mortgage/real estate bubble, some 23 percent of mortgages are still upside-down. That is, the home is worth less than the balance on the mortgage. This makes it very difficult to sell a home, since unless the lender agrees to concessions, the seller must come up with enough cash at closing to pay off the rest of the loan.

For military buyers, that’s a tough nut to crack. Unlike civilians, military members have to move at least every three years. They have no choice, until their enlistments run out.

It’s no big deal for most civilians to be upside down on their mortgages for a while. It’s not unusual. But if you just live in the house long enough, and keep up with the payments, the situation will eventually resolve itself.

The Military Conundrum

That’s not an option for active duty military. Many military families who buy homes find that when they are underwater three years later, they can’t sell them when they have to move, because they don’t have the cash to pay off the loan at closing when their homes are upside down.

Congress recently made life a little easier for these strapped military homeowners. A federal initiative, called the Home Affordable Refinance Program (HARP), was working with struggling homeowners to restructure mortgages to help families stay in their homes. But the eligibility criteria didn’t translate well to servicemembers:

For starters, to qualify for help, you had to be the occupant in your own home. This was impossible for military families who have gone through PCS moves, though some made do by separating.

Next, you also had to show that you had undergone a substantial pay cut. But military members, no matter how badly they needed the help, also kept their base pay.

The New Rules

The new rules, however, allow you to qualify for assistance under HARP if you moved because of a job transfer, and you were occupying the house immediately prior to the transfer. The rules, naturally, include military PCS moves. Indeed, the new rules were largely drafted with PCS moves in mind.

As long as you don’t own other single-family real estate (the HARP program isn’t designed to bail out real estate investors – just homeowners) and as long as you intend to return to the home at some point in the future, you may be able to qualify for HARP.

This program may qualify you for a special modification to your mortgage to get payments below 31 percent of your income – either through an interest rate reduction or an extension of the period of the loan.

If you are military and you do own other investment properties, you might be able to qualify under the Home Affordable Modification Program, or HAMP, however.

For more information about the Homeowners Affordable Refinance Program, call 888-995-HOPE (4673).

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