Saturday, April 26, 2008

Veteran, not victim part 2

Thursday's USA Today has an attention getting headline-

More U.S. troops battle foreclosure

Man, that's terrible. US troops fighting against terrorists around the world but getting their homes foreclosed on at home? There should be a law against that, right?

As the home foreclosure crisis sweeps across America, military and financial aid groups say they are hearing from a rising number of troops who say they are falling behind on their mortgage payments and struggling to keep their homes.

OK, the bursting of the real estate bubble is hitting a lot of people, but we should have some sort of protection for US troops overseas, right? Well, we do. It's called the Servicemember's Civil Relief Act of 2003.

Troops have limited foreclosure protection under the Servicemembers Civil Relief Act. Lenders can seek a court order to foreclose on a house, even if the soldier is in combat, federal housing records show.

That's a clear misrepresentation of the facts. Troops have much more legal protection from foreclosure than does the average citizen, which is how it should be. And yes, technically a lender can seek a court order to foreclose on a soldier in a combat zone. But that lender has a better chance of winning the lottery. Says the law-

Except by court order, a landlord (or another person with paramount title) may not--
(A) evict a servicemember, or the dependents of a servicemember, during a period of military service of the servicemember, from premises--
(i) that are occupied or intended to be occupied primarily as a residence; and
(ii) for which the monthly rent does not exceed $2,400, as adjusted under paragraph (2) for years after 2003 [Note: for 2004, the amount is $2,465.00]; or
(B) subject such premises to a distress during the period of military service.

OK, back to the USA Today story, where they introduce the compelling personal story.

Army Staff Sgt. Daniel Escamilla was on his third combat tour in Iraq last year when he had to negotiate from the battlefield with his lender over disputed penalties for the adjustable-rate loan on his four-bedroom home near Fort Carson, Colo. His payment had ballooned from $967 to more than $3,000.
"Not only do I have to worry about staying alive, but now I got to worry about whether or not my family's going to get kicked out of the house," Escamilla says of the long-distance haggling last fall.

First, let's look at his mortgage. I'm going with an average of $200,000 for a four bedroom house near Fort Carson. In order to get a initial payment of around $970, you have to start with an interest rate of 4%. In order to get to a final payment of near $3000, you have to have an interest rate of 18%. That tells me that either the family didn't read the mortgage before they signed it, or they had problems making payments and were penalized for it. Either way, 4% to 18% is not your average mortgage rate increase.

Second, let's look at his fear-getting kicked out of the house. The law says he can't be evicted if it's his primary residence and the payment is below $2768 (adjusted for inflation, per the law). So he would seem to right on the line. But the Supreme Court has already weighed in on this, saying that the Act must be read with "an eye friendly to those who dropped their affairs to answer their country's call."

In fact, all it took was a call from the reporter to scare the pants of the lender-

After a USA TODAY inquiry last week to the parent company, New York-based Lehman Bros., a corporate officer notified Escamilla that all penalties would be removed and his payment adjusted down to its original amount, Escamilla says. "She was sorry for what happened," the soldier says.

The article implies that they intervened to save this soldier and his family, but more than likely they just reminded the lender of what the law says.

But not satisfied with portraying themselves as the shining White Knight, and not understanding the basics of why we have a mortgage crisis, USA Today decides that what we really need is an exponential increase in the VA home loan program benefit.

The foreclosure problem underscores what lawmakers say are major flaws in the VA's ability to help. Current law makes it difficult for servicemembers and veterans to refinance costly mortgages into VA-guaranteed loans, VA spokesman Steve Westerfeld says.

The intent of the VA home loan was and is very simple. Help veterans buy their first home. The biggest hurdle to home ownership in America has always been the down payment. Prior to about 5 years ago, most lenders required a minimum of 10% of the price of the home as a down payment. The VA let you get around that with a zero down payment loan, by giving lenders a guarantee-if the veteran defaults, the VA will bite the bullet. This was never intended as a recurring lifetime benefit. The intention was to help a veteran get into their first home. After that, the equity that you build should cover the down payment for the next house you want to buy.

But USA today wants you to think that the VA is skimping on veterans because they have tight rules against refinancing. Let's be honest folks, the majority of people who refinanced in the last 5 years did so to take equity out of their house. That runs exactly counter to what the intent of the VA home loan program is. Rather than understanding that easy refinancing was a key cause of the mortgage crisis, USA Today wants the VA to jump feet first into making the problem worse.

US troops, especially those serving overseas, shouldn't have to worry about losing their homes to foreclosure. But US troops, even those serving overseas, still need to be held responsible for making bad financial decisions.

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