Q: According to HUD’s Mortgage Letter 2006-28, the SCRA notice is to be sent to all homeowners who are delinquent on a residential mortgage. Could you please clarify what meets the definition of a “residential mortgage”? It clearly includes conventional mortgages and mortgages insured by the Department of Housing and Urban Development (HUD). But does it include junior lien mortgages (home equity loans/lines) and business loans that have a guarantor who gives the bank a mortgage on his or her personal residence? In other words, should the bank send the notice to any individual homeowner with a mortgage on a single-family residence regardless of lien status or purpose?
A: The SCRA notice requirement at issue, imposed by the Homeownership Counseling Act (12 U.S.C. §1701X(c)(5)(A)), applies to loans secured by a mortgage or lien on the principal residence of the person to whom the notice must be given — whether open- or closed-end, first- or second-lien, business purpose or consumer purpose. The notice requirement is generally triggered when a borrower applies for, or defaults on, a home loan, defined as “a loan secured by a mortgage or lien on residential property” secured by the borrower’s or the applicant’s principal residence.