Reservists may get help on mortgages 6% interest cap allowed for those called to duty


A call to active duty could mean a big break in mortgage interest payments for military reservists, under a 50-year-old law back in service after the Iraqi invasion of Kuwait.

The Soldiers and Sailors Civil Relief Act of 1940 caps at 6 percent the interest rate on existing fixed- or adjustable-rate mortgages, second mortgages and home equity loans for qualifying reservists who are called up to active duty. As long as the reservist is activated, the cap stays in effect.

On a $100,000, 10 percent mortgage, that's a savings of about $500 a month.

Despite such a potentially drastic reduction in interest payments, local lenders say they are taking the measure in stride.

"We follow the industry standard, and we're very liberal," said Susan Soderman, a Signet Mortgage Corp. vice president.

Jerry Kracke, executive vice president with Atlantic Residential Mortgage Corp., the Bank of Baltimore's mortgage banking subsidiary, said his firm is also toeing the line.

Mr. Kracke said, however, he hasn't yet seen a rush of activated reservists lining up to take advantage of the cap.

"Since there haven't been that many people in our area affected, it really hasn't been much of an issue," he said.

About 47,000 U.S. military reservists have been activated by President Bush since Iraq invaded Kuwait Aug. 2, the largest call-up of reserves since 26,000 were activated in 1970.

Word of the cap has been slow to reach many reservists. Curtis Hughes, a northern Anne Arundel County homeowner and Army reservist, said he's learned what he knows about the law from talking with other reservists.

Mr. Hughes hasn't been activated, but he said he'd immediately take advantage of a rollback on his 10.5 percent home loan if called up.

"No question about it," he said. "Military duty would really throw me into a turmoil financially, and anything like that would help."

Lenders are not obligated to inform borrowers of the cap, and no federal agency is charged with enforcing it, so reservists should inform their financial institutions of their eligibility under the law.

The 1940 legislation, passed as the United States was moving toward involvement in the war, was a re-enactment of a World War I act approved in 1918. Both were intended to shield active military personnel from financial worries at home so that they could "devote their entire energy to the defense needs of the nation."

The law has remained on the books since then, but hasn't had much impact until now -- interest rates were at about 4 percent during World War II and rarely climbed above 6 percent during the VietnamWar, when the last major deployment of reserves occurred.

Congress took a second look at the appropriateness of a 6 percent limit in an era of double-digit interest rates during a joint hearing by veterans affairs committees Sept. 12. Legislators decided to make few amendments to the law.

"The bottom line is we're not going to change the 6 percent," said Jim Holley, director of public affairs for the House Veterans Affairs Committee.

CHe said financial institutions have adjusted well to the law, after an initial period of apprehension in August and September.

"At first, there was concern, but the banks have been good about it,

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