Banks Illegally Foreclosed on Military Personnel

It is now well-known that a culture of cheating pervaded the mortgage industry during the real estate boom, with widespread deception around underwriting practices as lenders scrambled to lend piles of money to anyone with a pulse amid an orgy of greed and irresponsibility.

What is less known is that boom-era cheating also involved illegal foreclosure practices. While those practices have gotten a lot of attention during the bust, they actually started during the boom as the mortgage industry totally lost its ethical compass. 

The latest revelation is that, starting in the early 2000s, lenders foreclosed on scores of properties owned by military personnel serving in Iraq and Afghanistan, including those who sustained injuries in combat, without first obtaining a court order, as required by law.

In May, the Justice Department reached a settlement with Bank of America and Saxon Mortgage for illegally foreclosing on servicemembers. The settlement includes at least $22 million in relief for victims.

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Mortgage Servicer Abuses Were Long Ignored

If you learn anything from following regulatory failures that hurt consumers it is this: Most of these failures have happened before and alarm bells have been sounded, only to be ignored. Such is the case with mortgage servicing abuses, which have emerged in recent months as a major focus on state and federal investigations. 

In 1989, when mortgage servicing was still a relatively new industry, the General Accounting Office undertook the first-ever government study of mortgage servicers. The findings of the report won't be surprising to anyone who has been following the news in the past year: Mortgage servicers tended to cut corners to boost profits. 

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1989 GAO Report on Mortgage Servicing Abuses

Are the Banks Getting Off Easy in AG Deal? Maybe So

Even as the banks and their conservative allies mount a fierce attack on the effort by state attorney generals to punish banks for their abusive foreclosure and modification practices, an entirely different critique of the proposed deal has emerged: It's not tough enough on the banks.

The critique that banks are being let off the hook has a few threads. One is that the terms -- which you can read below -- would give banks more ability to write off failed second mortgages or home equity loans as tax losses saving themselves billions. The second complaint about the deal is that it would probably protect the banks and mortgage servicers against future litigation, limiting their liability in ways that guarantee that they will never be held responsible for the full scope of their criminal or negligent actions.

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50 State Attorney General 27 Page Settlement on Fraud Closures

Some Attorney Generals Side With Banks in Talks on Foreclosure Abuses

The rampant lawlessness of banks and mortgage servicers around foreclosures and mortgage modifications is now well known. Investigations and lawsuits in multiple states have turned up a mountain of damning evidence of how the banks and servicers have fabricated crucial documents and routinely lied to home owners in ways that have had devastating financial consequences. 

State attorney generals nationwide have been moving ahead individually with suits against a range of wrongdoers. But years of uncoordinated litigation can be avoided if the attorney generals can agree on a giant deal with top banks to halt their abusive practices and pay a substantial penalty for their actions.

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Mortgage Service Providers: A Rogue Industry with "Structural Incentives" for Abuses

In recent months, the mortgage servicing industry has emerged from the shadows to take its place as one of the great villains of the mortgage meltdown and foreclosure crisis. Last fall, state attorney generals across the country launched a concerted probe of the industry and compiled a mountain of evidence of deceptive and abusive practices that have had devastating effects on homeowners struggling to avoid foreclosure. The suit filed in just one state, Nevada, against one lender -- Bank of America and its servicers -- runs 152 pages and is filled with horror stories. (See below)

Charges of foreclosure fraud, in which servicers fabricated documents for foreclosure proceedings, are among the least of the abuses uncovered by the probe. More heartbreaking are the stories of homeowners who drained their savings or ran up debt to continue making payments as part of mortgage modifications deals, only to have their homes foreclosed on anyway. Read More

State of Nevada vs Bank of America