In February 2011 – after multinational bank JPMorgan Chase publicly admitted it had either overcharged or processed illegal foreclosures on the home mortgages of 18 military families – Holly Petraeus sent a letter to the chief executives of the nation’s 25 largest banks. Petraeus, assistant director of servicemember affairs at the Treasury Department’s Consumer Financial Protection Bureau, was writing to urge these banks to follow the law when dealing with the home mortgages of military service members.
The decades-old federal law that protects military members’ homes, the Servicemembers Civil Relief Act (SCRA), includes two simple provisions relating to home mortgages: It limits the interest rate to 6 percent on debts incurred by service personnel before entering active duty (including mortgages), and it protects a service member’s home from foreclosure during, or within nine months after, the period of the military member’s active-duty obligations – except in cases of a court order or a signed agreement waiving SCRA protections.
“I know that you appreciate the importance of these SCRA protections,” Petraeus concluded, “and I appreciate your assistance in ensuring that your bank does not overlook its obligations – legal and otherwise – to your military customers.”
Despite these clear legal protections for military and veteran families, recent events revealed that many banks – and many homeowners – appeared to be unaware of them:
- In May 2011, the U.S. Government Accountability Office (GAO) reported the tip of the iceberg: Federal regulators’ review of 2,800 foreclosures by two of the nation’s largest mortgage firms, undertaken after the JPMorgan Chase announcement, revealed that they had foreclosed on the homes of nearly 50 service members. Continued investigations and discussions with lenders revealed a more widespread problem.
- In February 2012, the nation’s five largest mortgage lenders – Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial (formerly GMAC) – agreed to pay $26 billion to settle a government lawsuit claiming irregularities in mortgage loan financing and servicing. At least $20 billion of that settlement was to be paid directly to the families, who were now known to number in the thousands. By April, several hundred families had received settlement payments of $116,785 apiece, in addition to compensation for lost equity and interest.
- In July 2012, Capital One Bank agreed to pay $12 million to an estimated 4,000 service members who were denied their SCRA protections.
So far, there’s no indication that the people who serviced these mortgages knew they were breaking the law. The loss of so many homes could best be described as an avoidable tragedy, brought about by sloppiness, poor communication, and bad oversight by everyone involved – the banks, the military and veteran communities, and the regulators assigned to protect service members. Beginning with the 2006 collapse of the housing market, foreclosures became a fast and furious high-volume business. Tens of thousands of military members and recently separated veterans lost their homes to foreclosure – 20,000 in 2010 alone. Since 2006, housing prices have fallen by an average of 33 percent around the country.
Only a small fraction of the service members who have lost their homes in the housing collapse have had their SCRA protections violated, and thus qualified for compensation under the law. A small fraction of such a large number, nevertheless, still amounts to thousands of families whose rights were not protected.
Minding the Mortgage Store
In July 2012, the GAO released a report titled: “Mortgage Foreclosures: Regulatory Oversight of Compliance with Servicemembers Civil Relief Act Has Been Limited.” The GAO estimated that – while the total number of SCRA violations was unknown – investigators had discovered 15,000 instances when financial institutions had failed to properly reduce service members’ mortgage interest rates and more than 300 improper foreclosures, since roughly the onset of the housing crisis.