One of the more common themes in the National Mortgage Settlement has been increased attention on documentation. In our recent webinar series, Beyond the Numbers: The Impact to the Industry of the Multistate/National Mortgage Settlement, we spoke to how the new requirements are going to drastically change how servicers implement and monitor compliance with the Servicemembers Civil Relief Act, including the documentation to do so.

The National Mortgage Settlement expands the foreclosure protection to include certain active duty personnel who are deployed to combat destinations. However, the servicer has to comply only if it can determine, based on a servicemember’s military orders (or a letter from the servicemember’s Commanding Officer), together with any other documentation provided by or on behalf of the servicemember that is satisfactory to the servicer, that the servicemember is eligible for hostile fire/imminent danger pay and servicing at a location outside the United States or at least 75 miles from the secured property. The Settlement does not specify what constitutes “satisfactory” or what other documentation servicers need to look for.

At this time, it appears logical to assume that eligible servicemembers are likely to notify a servicer of an upcoming scheduled deployment, but does a simple verbal or even written notification of an impending deployment “satisfy” the servicer that the borrower is eligible for hostile fire/imminent danger pay?

In our experience, hostile fire/imminent danger pay is typically categorized as a line item on a servicemember’s leave earnings statement. To truly document eligibility, it seems that a servicer would have to request that the borrower submit a leave earnings statement with the itemized hostile fire/imminent danger pay. This creates both a documentation issue and the potential for communication issues.

Take the example of an enlisted member of the U.S. Navy who receives orders to a ship. The active duty orders are to the ship itself, not to a particular location. A sailor, attached to any one of the fleet vessels based in Norfolk Virginia might deploy 3 or more times to a combat destination during a three year tour on board. None of those deployments are reflected on their traditional “military orders.”  Further, a ship can go underway at any time, with very little notice. Once underway, the hostile fire/imminent danger pay is not initiated until the ship arrives into geographically designated waters. So, the trip across the Atlantic and into the Mediterranean Sea, is not entitled to hostile fire/imminent danger pay, but once they cross into certain parts of the Mediterranean, or more likely, once arriving into the Persian Gulf, all personnel on board receive hostile fire/imminent danger pay. An underway deployment may be scheduled in advance to last approximately six months, but a final return date is not set and any deployment can be shortened or extended pursuant to the military’s needs. The return trip works the same way. The sailor is entitled to hostile fire/imminent danger pay until crossing back over into specified waters, at which time normal pay resumes. From this point, the sailor is entitled to foreclosure protection for an additional nine months, unless he or she goes underway to a combat destination again.

So, a mortgage servicer is now charged with determining at what point the pay eligibility period ended and when the nine months expire after that. It appears that this would necessitate the servicer requesting updated pay statements from the sailor. This defeats the purpose of the protection. Again, we have a situation where the sailor is deployed, trying to perform his or her duties and is having to provide periodical documentation to a mortgage servicer. Alternatively, if the servicer just waits until it believes the deployment has ended and then tries to contact the borrower, if the borrower fails to acknowledge such requests, can the servicer assume that the eligible pay period has ended?  If the servicer forecloses nine months later, will it violate the agreement if the sailor’s deployment had been extended, such that the protection period had not actually ended at the time the servicer foreclosed?  At what point can the servicer reasonably say that it “confirmed” that the sailor was not longer entitled to protection?

The fall out of the National Mortgage Settlement remains to be seen, but in the mean time, it is pretty clear that this specific protection is going to be a documentation challenge for mortgage servicers.