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Financial Planning > College Planning > Student Loan Debt

Banks Cheated Veterans on Mortgages: Lawsuit

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As the nation honors military personnel on Veterans Day, apparently 13 banks face a lawsuit alleging they cheated veterans by charging illegal fees on mortgages. At the same time, the Justice Department announced a settlement with Bank of America on charges that the bank illegally foreclosed on service members. In that case, there is an ongoing review to determine if other people in the military were wrongly foreclosed on.

MarketWatch reported that the lawsuit, made public in fedreal court in Atlanta in October, was brought under the False Claims Act by two mortgage brokers, and accuses 13 major banks and mortgage companies of cheating not just veterans, but taxpayers as well.

Wells Fargo Bank, Bank of America, JPMorgan Chase Bank, GMAC Mortgage, CitiMortgage, SunTrust Mortgage, Washington Mutual Bank, PNC Bank (which acquired National City Mortgage Co.), Countrywide Home Loans, Mortgage Investors Corp., First Tennessee Bank (which acquired First Horizon Home Loan Corp.), Irwin Mortgage Corp. and New Freedom Mortgage Corp. were all named in the suit.

Veterans are assisted by the Veterans Administration to obtain cheaper home loan refinancing with fewer requirements. The government, on behalf of American taxpayers, also guarantees up to 25% of each loan if a veteran defaults or forecloses. According to VA rules, lenders may charge veterans for recording fees and taxes, fees for a credit report and other “reasonable and customary amounts,” but not for attorneys’ fees or settlement closing fees in refinancing transactions involving VA loans.

The suit alleges that banks called attorney’s fees “title examination fees” and, in hundreds of thousands of refinancing transactions, collected anywhere from $300–$1,000 per loan from unsuspecting veterans. Over the last 10 years, that could amount to as many as 90% of the more than 1.2 million refinanced loans made to veterans and their families.

Mary Louise Cohen, one of the attorneys representing the whistleblowers, said in a statement, “By concealing the unallowable fees they charged, the banks benefited in two ways. The banks collected the illegal fees from veterans, and they obtained hundreds of millions of dollars in loan guarantees they otherwise wouldn’t have received.”

If an illegal fee is charged, the VA guarantee is void according to federal rules. However, banks have billed the VA anyway for reimbursement under the VA guarantee when the loans containing unallowable fees went into default and foreclosure, according to the lawsuit, costing taxpayers hundreds of millions of dollars.

In the Justice Department case, in its settlement with BAC Home Loans Servicing a subsidiary of Bank of America, BofA agreed to pay $20 million to approximately 160 service members who were illegally foreclosed on between 2006 and the middle of 2009. Under the agreement, Bank of America also agreed to provide information about its foreclosures from mid 2009-2010 and will pay damages in a proscribed minimum amount to those service members whose homes were illegally foreclosed upon to compensate for the loss of their homes.

Service members whose homes were unlawfully foreclosed upon will each receive a minimum amount of $116,785, plus compensation for any equity lost, to compensate them for the bank’s alleged violation of the Servicemember Civil Relief Act.

Thomas E. Perez, assistant attorney general for the Civil Rights Division of the Justice Department, said of the action, “The men and women serving our nation should not have to worry about a bank foreclosing on their home while they bravely serve our country. The Justice Department will vigorously enforce the laws that protect service members while they do the difficult and necessary work of protecting our country. We have and will continue to work hard to ensure that service members receive the full protections of the law and relief they deserve in a timely fashion.”

On May 26, 2011, the department had announced a settlement with BAC Home Loans Servicing, formerly known as Countrywide Home Loans Servicing, which resolved allegations that the bank unlawfully foreclosed on service members’ homes in violation of the Service Members Act.


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