Shahien Nasiripour has a great scoop in the FT – bank regulators have uncovered up to 5000 military families who were foreclosed on illegally by mortgage servicers. Foreclosures on active duty troops is usually a big no-no, for a lot of reasons – for instance, when your credit rating is damaged by a foreclosure, it can impact your national security clearance. In addition, there’s enormous stress that the soldier goes through when his or her family is facing a threat of eviction, and it’s the kind of stress that makes him or her less equipped to be ready in a warzone. Congressman Bob Filner has even accused banks of “homicide” against American troops, blaming the banks for suicides resulting from the increased stress brought on by aggressive debt collection techniques.
There have been laws to protect troops from unscrupulous lending practices going all the way back to the First World War. The most recent revision to these laws is the Servicemember Civil Relief Act, which was signed in 2003. Congressman Brad Miller, who helped author the most recent version of this law, explained the rationale for the law as follows:
“The Service Members Civil Relief Act is very clear: if you’re in harm’s way in our nation’s military, you can devote your whole energy to our nation’s service without worrying what’s happening in a courthouse back home. And if you have a claim against someone in our military, you can wait until they get home and can defend themselves.”
Miller is a Democrat from North Carolina, but the bill was signed by George W. Bush, so there’s a bipartisan consensus on not foreclosing on troops fighting in wars.
Yet, as the FT story shows, it has become clear that big banks are routinely ignoring the law. Miller noted,
“The SCRA is not some obscure legal technicality that might just have escaped the attention of mortgage servicers. Those servicers are all affiliates of the biggest banks, but they’re huge and specialized. Servicing mortgages is all they do, and they really don’t have that many laws to keep up with. They have got to have known what the law required, and consciously decided that they could just ignore it, the same way they apparently decided it was okay to file false affidavits in legal proceedings.”
In all likelihood, these banks simply never set up their management processes to handle anything but an aggressive foreclosure steam-roller. And so, they are breaking the law.
Banks admit this. JP Morgan apologized back in February in a Congressional hearing for overcharging 4000 military families and illegally foreclosing on 18 of them. In that hearing, one foreclosure defense attorney pointed out that jail time for officials of the bank doing the foreclosing would be a deterrent to these practices, an apology would not be.
Much has been made of President Obama’s argument that the banks did nothing illegally, and various other scholars and officials have argued that prosecuting the banks is far too expensive and difficult. Yet, the SCRA is a simple law with teeth; it carries real jail time, and the parties have already confessed to the crime. Here’s Section 303(d)(1) of that law, which spells out penalties. (PDF)
(1) MISDEMEANOR.—A person who knowingly makes or causes to be made a sale, foreclosure, or seizure of property that is prohibited by subsection (c), or who knowingly attempts to do so, shall be fined as provided in title 18, United States Code, or imprisoned for not more than one year, or both.
Interestingly, the Department of Justice seems to agree with this interpretation. Here’s a press release from the Department of Justice on a settlement of some of these claims, from Bank of America. I’ve bolded the important part.
The Justice Department announced today that, as part of its settlement with BAC Home Loans Servicing LP, a subsidiary of Bank of America Corporation, servicemembers whose homes were unlawfully foreclosed upon will each receive a minimum $116,785 plus compensation for any equity lost to compensate them for the bank’s alleged violation of the Servicemember Civil Relief Act (SCRA).
Note the use of the word “alleged.” Bank of America isn’t admitting anything, and the Eric Holder’s Department of Justice isn’t making them admit anything. Otherwise, the penalties might come into play. Sometimes, law can get very complex. But sometimes, it isn’t. JP Morgan admitted to violating the law. There are up to 5000 more cases, and each one carries up to a year in jail.
Eric Holder and various US Attorneys around the country aren’t prosecuting bank foreclosures on active duty troops, even though they know it is happening. Bank regulators know about the problem. Congress knows about the problem. Certainly, the Pentagon knows about the problem. Where are the prosecutions? Is there an internal policy that certain crimes are not to be prosecuted? Isn’t that something the public should be aware of?
As Congressman Miller put it, “The continued failure to pursue criminal charges in the face of flagrant violations of the criminal law is destroying Americans’ faith in their government and democracy. In a democracy, no one is too big to prosecute.”