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The Military Homeowner’s Foreclosure Crisis

By Joe and Deb - VR SAM on 3/6/2014

This article is a deviation from our series on successful home purchasing and selling and addresses an issue that is of serious concern to all Military Families.  It may strike home for a number of readers. 

This article is a deviation from our series on successful home purchasing and selling and addresses an issue that is of serious concern to all Military Families.  It may strike home for a number of readers. 

     Within the past two weeks, VR SAM® has been contacted by a major network news correspondent and an influential on line military magazine to provide information on Military Homeowners caught up in this “perfect storm” of subprime loans, declining housing market and PCS orders.  At some point in our careers most of us have faced the pressure of a PCS while sweating out selling a house.  You probably considered renting, being an absentee landlord, and / or doing the “geo-bachelor” thing for an extended period, leaving the family on another coast and eating the additional expenses associated with that circumstance.  Does this dredge up some memories?  Military Families are legendary for “sucking it up” and dealing with the rigors of the “Military Lifestyle.”

     But things are different for this generation of Military Families.  This “perfect storm” is dramatically different than the trials faced in the past.  It has devastating long term consequences for Military Families and will ultimately impact the readiness of our fighting forces.  Some reports indicate that the foreclosure rate among our Military Families is four times the national average.  And it is simplistic to write it off as a few folks with bad judgment in home purchases or loan selection.  By the way, it is affecting officer and enlisted alike!  For example we recently received a call from a chaplain’s spouse…about their own impending default! 

     From our vantage point that statistic is entirely believable and it is a DOD train wreck in the making.  Many service members caught up in this may find it difficult renewing   security clearances due to credit issues.  It will undoubtedly impact morale and it is likely that many of them will simply leave the service rather than face default, foreclosure, or bankruptcy!   Many of these families are upside down for $100K or more.  They look up and down their streets and see numerous foreclosed homes in their neighborhood further depressing the market which makes selling almost impossible.   Concurrently their ARMs are due to adjust and the PCS “orders…that’s why they call them orders”… just arrived for the other coast! 

      Much has been written about the increased deployments and now the spouse left behind has one more really huge issue with which to cope!   What isn’t as obvious are the increasing number of short tours and short notice PCS orders further complicating the problem. 

     On the other hand, we also work with a large number of clients from other federal agencies who, when ordered to relocate, have their settlement costs reimbursed on both ends by the government.  When selling in a down market they have a guaranteed buy out based on the average of two appraisals.  Doesn’t it seem just a bit curious that those on the pointy end of the spear defending the American Dream don’t enjoy the same benefits as other federal employees? 

     Both the Congress and administration have acted quickly to give relief to home owners in the form of tax breaks and have directed sweeping reform of the mortgage industry.  In conjunction with supportive non-profit organizations, they have raised the limit on VA home loans and have improved the protections offered by the Soldiers and Sailors Civil Relief Act.  All good things!   We believe they should take the next very obvious step and offer an immediate, retroactive tax credits for Military Families who lose (or have lost) money on the sale of a home incident to PCS orders. 

     The above improvements are a great start, but not nearly enough.   A long term fix is desperately needed.  Is a program similar to that enjoyed by other federal employees really too costly, or is it time we reevaluate old assumptions?   For instance, how much would it cost to offer this program twice per career to career designated Military Families?   And are there cost offsets or even cost savings by doing so?  

     We believe that the costs of recruiting, training, and retaining replacements for those who leave this high tech, all volunteer force (and be sure that they will leave!) due to this issue are substantial.  Likewise, a gradual reduction of high maintenance base housing, and associated costs, would be accompanied by a reduction in the federal subsidies for school systems that support base housing children.  Local and state property tax revenues increase with increased home ownership.  Local business and economies prosper with home ownership.   And most certainly, the national economy benefits with increased homeownership.  Would 50,000 new homeowners (Military Families!) next year hurt this economy?

     But in the final analysis, it simply the right thing to do.  We contend that no professional group in our country is more deserving of financial support in homeownership than the men and women of the US Armed Forces.  And presently, simply by virtue of their service to our country, the “American Dream of homeownership” is extremely hard to achieve, extremely risky, or simply out of reach.  It’s time to for a change!   

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