Bank of America Corp. will pay $20 million and Morgan Stanley $2.35 million for improperly foreclosing on members of the military — some of whom were on active duty in Iraq and Afghanistan — under a settlement with the Justice Department.
The settlement with Countrywide Home Loans Servicing LP, a unit of Bank of America, is expected to be the largest ever to come out of the civil rights division of the Justice Department for violations of the Servicemembers Civil Relief Act of 2003. That law bars lenders from foreclosing on active-duty military members and caps their interest rate on all pre-existing consumer debt at 6%.
The settlement with B of A covers 160 service members who were foreclosed on without court orders from January 2006 to May 2009.
Morgan Stanley's Saxon Mortgage Services Inc. settled for $2.35 million to resolve a suit claiming it foreclosed on about 17 service members during the same period. (Saxon, a top ranked subprime servicer, is currently on the auction block.)
Both servicers agreed to set up funds to repay service members who faced wrongful foreclosures from June 2009 through 2010, the Justice Department said Thursday. The complaints allege the companies did not consistently check the military status of borrowers on whom they foreclosed through May or June 2009.
Mark Lake, a Morgan Stanley spokesman, said in an email that Saxon has "taken meaningful steps" to ensure it has appropriate policies and procedures in place to comply with the law. "We want to apologize to those military families that were affected by any mistakes made in the foreclosure process," the email said.
Terry Laughlin, an executive vice president at Bank of America, said in an emailed statement that most of the cases involved improper foreclosures by Countrywide before B of A acquired the company. "It is our responsibility to make things right," Laughlin said. "These errors are not acceptable, and we certainly regret them."
Banks claim they ran afoul of the law because they had expected service members to inform them of their military status. But the Justice Department has made it clear that the onus for checking whether a defaulted borrower is in the military falls on servicers.
