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SCRA Letter to Request Cap on Interest Rate

What is a SCRA Letter to Request Cap on Interest Rate?

SCRA Letter to Request Cap on Interest Rate

SCRA Letter to Request Cap on Interest Rate is a letter requesting the lender to limit the interest rate at 6% during the period of military service and one year thereafter for mortgage loans that were obtained before entering the military service. The letter is sent in pursuance of Servicemember Civil Relief Act (SCRA) which requires the servicemember to send in writing a notice for limiting the interest rate. SCRA entitles the servicemembers who are in military service to certain protections and benefits such as interest rate limitations, protections from default judgments and foreclosure, and evictions. One of these protections is the 6% interest rate cap.

Applicable Time Period for 6% Interest Rate Cap

As per §527 of the SCRA, the lender is required to limit the interest rate to 6% when a servicemember is in military service for loans that were obtained before the start of the military service. For mortgage loans, the 6% interest rate cap is applied from the start date of the military service status till one year after the end of the active duty status. For all other loans (non-mortgage loans), the 6% cap is applied during the time period when the servicemember is in military service. The benefit is available when for loans incurred by the servicemember or jointly with the servicemember's spouse.

Source :www.MortgagesAnalyzed.com

Charges Included in Interest Rate Cap

§527 (d) of SCRA defines interest to include service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability. Therefore, interest includes any service fee, account fee, admin fess, or any other charges. Therefore, you should ensure that the system is set up to factor in other fees when applying the 6% cap. However, the 6% cap does not include the premiums for property/homeowners insurance. To avoid fee-related complications most lenders forgive/stop all fees during active duty status and charge interest rate up to 6%.

Charges Included in Interest Rate Cap

SCRA requires interest above 6% interest rate cap be forgiven. There is no deferment or postponement of interest. The change in interest rate is not a subsidy. The interest rate reduction may not be achieved by changing maturity date or other ways to circumvent reduction of interest rate.

Source :www.MortgagesAnalyzed.com

Borrower's Consideration

When Can I Apply for the 6% Rate Cap?

The following conditions must be met in order to avail the 6% cap:

  1. You must be on military service. The rate cap will apply on mortgage loans from date of military service till one year from the end of the military service.
  2. The request for capping the interest rate must be made in writing.
  3. You request must include a copy of the military orders and any orders further extending military service.
  4. Your request to the lender must be made within 180 days of the end of the military service.

Military Service Affecting Ability to Pay Above 6%

One thing to keep in mind is that the SCRA allows a court to exempt the loan from the 6% interest rate cap if the court believes that your ability to pay interest above 6% is not materially affected by reason of your military service. Therefore, you should be prepared to show how the military service is adversely affecting your ability to pay the loan at the note rate.

The lender by itself cannot make the determination that you do not qualify for the 6% cap. They need to approach the court and seek court approval. In practice, majority of the lenders do not pursue such court action or even ask you to show documentation for the inability to pay higher interest. In fact, lenders prefer to provide the rate cap to demonstrate their commitment towards servicemembers. Contact your lender to determine what documentation they require before they extend the SCRA benefits.

Source :www.MortgagesAnalyzed.com

How Do I Apply for the 6% Interest Rate Cap?

Contact the lender or its servicer to identify if they have a specific process for submitting the letter. This may save you time as some lenders allow you to request the SCRA benefits by using their website. Also, confirm the address where the letter needs to be sent.

Once you are ready, complete the SCRA Letter to Request Cap on Interest Rate and include all pertinent attachments. You may use the list below as a checklist when preparing the letter.

  1. Include the SCRA Letter to Request Cap on Interest Rate with the following details:
    1. Your Full Name: If you are a co-borrower on the loan, then provide the names for all other borrowers as well. If you had a different name when you took the loan then provide that name as well.
    2. Loan Number/ Account Number.
    3. of Miliary Service and Request for Interest Cap: A statement that you have been called for active duty and are requesting the interest rate to be capped at 6% interest rate as per SCRA.
    4. Duration of Military Service: The start date and end date of your military service
  2. Include copy of the active duty orders, military orders, or similar documentation. If you do not have the military orders, you may provide the orders from the commanding officer as evidence of military service. This is based on the National Servicing Standards.

Mail the letter at the lender's/servicer's address using certified mail or a courier with tracking number to ensure you have proof of mailing.

Source :www.MortgagesAnalyzed.com
 

Lender's Consideration

Reviewing the Request

You should have policy and procedures for handling requests from Servicemembers for limiting their interest rate. The primary processing requirement is to verify the active duty status of the servicemember. This can be done by obtaining SCRA Certificate. SCRA Certificate is the evidence of your active duty and is issued by the Department of Defense (DOD) from its SCRA Website. Alternatively, you may rely on the copy of the orders from the commanding officer, which the borrower has provided, as evidence of military service.

Setting and Capping Interest Rate

Once you are satisfied that the request is properly made and the active duty status is verified, you need to set the interest rate to cap at 6%. Most loan servicing systems contain a flag for active duty servicemembers which automates the setting of the interest rate cap and preventing fees. The servicing system should be set up to apply the rate cap from the start date of the military service status till one year after the end of the active duty status.

Multiple Accounts

The request from the servicemember applies to all loans with the lender, consumer or commercial purpose. The borrower is not required to make a separate request for each account level. Therefore, you need to implement the 6% interest cap for each loan account held by the borrower, whether the loan is a mortgage loan or any other type of loan.

Recordkeeping

Record retention period is not specified by SCRA. However, for audit and compliance purposes, you should keep the request letter, military orders, SCRA Certificates, and other pertinent documents for at least till the end of the interest rate cap period.

If you are denying any SCRA benefits then you should maintain the copies for the request and the documentation or information that you relied upon to deny the request. You should seek advice from legal and compliance departments for the record retention period.

Source :www.MortgagesAnalyzed.com

Frequently Asked Questions

Should I request the interest rate cap only when the rate is above 6%?

The purpose of the letter is request limiting the interest rate at 6%. If your loan is below 6%, you may be tempted to not send the letter to the lender, especially when you have a fixed rate loan. However, we recommend sending in the request when called for military service in all cases for the following reasons:

  • Future Rate Increases: For Adjustable Rate Mortgages, including HELOCs, you should send the letter even when the current interest rate is below 6%. This will protect you from future rate changes that increase interest rate above 6%.
  • Reduction in Fee: Some lenders do not charge any account fee, service charge, or similar fees for servicemembers on military service. This is an additional benefit you may get by sending this letter.
  • Foreclosure Protection: The letter will inform the lender of your military service status. During periods of military service the lender cannot foreclosure your property without a court order.

What is Military Service?

Military Service covered under SCRA is the active duty as per Title 10 of the United States Code (10 USC § 101(d) (1)). It covers active duty performed by the uniformed services that include Army, Navy, Marine Corps, Air Force, Coast Guard and the commissioned corps National Oceanic and Atmospheric Administration (NOAA) and Public Health Service. SCRA extends coverage to include activation of a National Guard member for service authorized by the President or the Secretary of Defense under 32 USC § 502(f) for purposes of responding to a national emergency declared by the President and supported by federal funds. National Guard members that are activated to support a State and funded by State funds are not covered under Active Duty and for protections under SCRA.

Source :www.MortgagesAnalyzed.com
 

Document Summary

 
SCRA Letter to Request Cap on Interest Rate
Purpose
SCRA Letter to Request Cap on Interest Rate is a letter requesting the lender to limit the interest rate at 6% when a servicemember is in military service for loans obtained before the start of the military service.
Use in Mortgages
The letter is sent in pursuance of SCRA which requires the servicemember to send in writing a notice for limiting the interest rate.
Other Names
Notice to Cap Interest Rate at 6%
Type
Letter
Provided By
Servicemember/Borrower
Provided To
Lender/Servicer
Notarization Required
No
Signed By
Servicemember/Borrower
Life Cycle Stage
Servicing
Recordkeeping
Record retention period is not specified by SCRA.
Model Form
N.A.
Applicable Laws
Servicemember Civil Relief Act (SCRA)
Source :www.MortgagesAnalyzed.com
 

Updated: Mar 27, 2015

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SCRA entitles the servicemembers to certain protections & benefits such as interest rate limitations
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