The Government Accountability Office (GAO) has issued a report warning that regulatory oversight of compliance relating to the Servicemembers Civil Relief Act (SCRA) has been ‘limited.’
‘At least 15,000 instances of financial institutions failing to properly reduce servicemembers' mortgage interest rates and over 300 improper foreclosures have been identified by federal investigations and financial institutions in recent years,’ says the GAO.
The GAO estimates that from 2007 through 2011, the federal regulators responsible for financial institution oversight reviewed 48% of all banks and credit unions for SCRA compliance. Of these institutions that were reviewed, only about half received examinations that involved testing of compliance by reviewing loan files.
‘Further, GAO found that examiners had only reviewed loans identified by the institution as involving servicemembers and had not independently selected a statistical sample of loan files, which would have provided greater assurance of SCRA compliance,’ the GAO adds. ‘Without more testing, which examination and auditing guidance suggest provides increased verification, regulators are less likely to detect SCRA violations.’
The GAO notes that although the U.S. Department of Justice has explicit SCRA enforcement authority, the department has only brought three cases against mortgage servicers for SCRA violations during the past five years. The GAO also observes that the U.S. Department of Veterans Affairs (VA), the Federal Housing Administration and the Federal Housing Finance Agency respectively obtain SCRA compliance data, but do not share this information among themselves or with the regulatory agencies.
‘VA oversight of mortgage servicers does not specifically review for SCRA compliance,’ the GAO adds. ‘By increasing its SCRA compliance monitoring efforts, VA could better ensure that servicemembers with VA loans are better protected.’
In addition, the GAO determines that the U.S. Department of Defense and the U.S. Department of Homeland Security do not assess the effectiveness of their SCRA education methods, such as by using focus groups of servicemembers or testing to reinforce retention of SCRA information.
‘Without such assessment, they may not be able to ensure that they are informing servicemembers of their rights in the most effective manner,’ the GAO warns.