Citigroup Inc. should face claims that a unit overcharged military personnel on home loans rather than be allowed to use a $25 billion national foreclosure accord to settle, lawyers for the borrowers said.
Officials of the bank’s CitiMortgage unit failed to apply the proper mortgage-amortization rate to loans of active-duty members of the U.S. military and now seek to get soldiers and sailors to settle their suits as part of the five-bank foreclosure deal, attorneys for Raymond Wray, a retired Army staff sergeant, said in papers filed in federal court in Washington in the past month.
Wray is seeking to have his claims separated from the foreclosure settlement and heard in a federal court, alleging that the national accord doesn’t provide enough compensation.
“Citibank treated these members of our military shabbily by mishandling their mortgages and now they want them to sign away their claims without proper compensation,” Dick Harpootlian, Wray’s South Carolina-based lawyer, said in an interview. “These people put their lives on the line for this country and the bank should be ashamed.”
Citigroup and other lenders faced criticism for their handling of home loans covered by the Servicemembers Civil Relief Act, or SCRA. That law, enacted in 1942 to shield active-duty military personnel from financial stress, limits the interest rate that can be charged on mortgage loans to active duty servicemembers.
JPMorgan Chase & Co. agreed in 2011 to pay $56 million to settle claims it overcharged about 6,000 service members on their mortgages. It also agreed to return homes that were wrongfully foreclosed upon.
JPMorgan and New York-based Citigroup also joined Bank of America Corp., Wells Fargo & Co. and Ally Financial Inc. in a pact to pay $25 billion to end a probe of abusive foreclosure practices stemming from the collapse of the housing bubble.
U.S. District Judge Rosemary Collyer in Washington approved the $25 billion foreclosure settlement in 2012. Wray’s lawyers are asking Collyer to carve out military mortgage-loan holders’ claims against Citigroup over the amortization rate from the $25 billion accord.
“We remain committed to the National Mortgage Settlement and the comprehensive remediation it affords eligible service members,” Mark Rogers, a Citigroup spokesman, said in an emailed statement.
Harpootlian said Wray, who filed suit in federal court in Columbia, S.C., last year, is seeking to have his case designated as a class action to represent more than 15,000 soldiers, sailors, Marines and Air Force personnel who got CitiMortgage loans.
In June, U.S. District Judge Cameron McGowan Currie in Columbia rejected Citigroup’s calls to throw the case out for failing to state a claim.
Under the SCRA, active duty military personnel can demand banks cap their mortgage interest and amortization rates at 6%. While Citigroup officials agreed to cap the interest rates for their military customers, the bank refused to “re-amortize loans in excess of 6%,” Wray’s lawyers said in a Dec. 24 filing. Instead, the bank applied an “interest subsidy” as a credit toward the service member’s monthly payment, according to the filing.
“This caused borrowers entitled to SCRA protection to continue to make payments according to an amortization schedule that reduced their principal more slowly than they would be entitled to under a 6% SCRA loan,” the lawyers added.
If a servicemember got a 30-year home loan at 12.99%, the loan’s interest and amortization rates were subject to being reduced to 6% when the soldier went on active duty, lawyers for servicemembers contend.
By failing to change the amortization rate, Citigroup officials forced soldiers and sailors to pay more in interest because the loan’s principal wasn’t being properly reduced over time through regular payments, according to legal filings.
Michael Schag, an Edwardsville, Ill.-based lawyer who has written about the SCRA, said a judge must decide if the law requires the amortization rate to follow the 6% cap on military mortgages.