A Foreclosure Problem Congress Couldn't Ignore

Last week, the mortgage servicing arm of JPMorgan Chase reached an unusual settlement in a class action lawsuit, acknowledging it had charged illegally high interest rates and wrongfully foreclosed on 6,000 homeowners across the country. JPMorgan agreed to give $12 million to the individuals and $15 million to a fund for additional damages, on top of $6 million already promised for these particular violations.

So had one of the major corporate forces behind the foreclosure crisis finally come to terms with its criminal activities and done right by the customers it defrauded? Hardly. Last week's settlement, and similar ones by other banks, relate only to a very specific type of foreclosure fraud: violations of the Servicemembers Civil Relief Act. Banks are hoping that by compensating members of the military for improper foreclosures, they can boost their public image and avoid responsibility for the broader foreclosure crisis and the truckload of violations committed against civilian borrowers.

NBC News first reported back in January that the nation's leading mortgage companies had illegally charged service members higher interest rates than allowed under the SCRA, and even foreclosed on active duty soldiers while they served in Iraq, Afghanistan and other venues. The SCRA, which has been in place since World War I, stipulates that legal proceedings against service members must be stayed until they return from active duty. A more recent amendment to the law limits interest rates for active duty personnel to 6 percent.

Even the Republican House of Representatives -- generally more reluctant to address foreclosure concerns than its Democratic predecessor -- could not ignore these violations. The Veterans Affairs Committee held a hearing in February on the issue in which passions ran high and one congressman essentially accused the banks of homicide. "Service members hold a favored position among Democrats and Republicans," said Rep. Brad Miller (D-N.C.) at the hearing. "Republicans are more willing to hold a hearing on abuse of service members than the abuse of other homeowners."

Within weeks, JPMorgan and other top banks not only admitted fault, but made restitution. To people who had followed the foreclosure fraud issue closely, this was astounding. For years, banks have denied any wrongful foreclosures or errors in their foreclosure processes, despite clear evidence of persistent abuse.

But with the military foreclosures, it only took one report on NBC and one congressional hearing to open the floodgates. JPMorgan, in addition to the class action settlement described above, reduced all interest rates for active duty military to 4 percent, lower than required by the SCRA. It inaugurated a special loan modification program for all military personnel who have served since September 11, 2001. It donated 1,000 homes to veterans, and committed to hiring 100,000 veterans over the next five years. And for service members who experienced a wrongful foreclosure while serving overseas, it gave them back their homes for free, forgiving all remaining mortgage debt.

Wells Fargo settled a similar class action lawsuit on military foreclosures for $10 million and instituted a modification program. So did Saxon Mortgage, a division of Morgan Stanley. And Bank of America's program for military personnel reduces principal to 100% of the current market rate. This is particularly notable, since just a day before instituting the program, Bank of America CEO Brian Moynihan rejected principal reductions for the bank's underwater borrowers, calling them "unworkable" and unfair. Moynihan stated, "There's a core problem that if you start to help certain people and don't help other people, it's going to be very hard to explain the difference."

Yet that's what the entire mortgage industry is doing. And the reason for it is simple. The banks know that the military is one of the only widely respected institutions left in the country, and well-publicized instances of abuse of service members will cause a far bigger backlash than they have experienced to this point. What's more, evidence of wrongful foreclosures on the military will lead to further scrutiny of their actions with other borrowers.

This is what you could call "camo-washing," similar to the greenwashing that corporations employ to create an appearance of attentiveness to environmental issues. The banks bend over backwards for the benefit of members of the military they have wronged, to distract from the fact that they're not doing the same for millions of others. It also works to enhance their public image, positioning them as sympathetic and responsible, willing to make good when they screw up.

But the logic is lacking. Banks are fighting any settlement to the foreclosure fraud scandal that forces them to pay penalties to their borrowers. But they're showering service members with money and free homes. All the attention and care paid to military foreclosures simply underscores the fact that next to nothing is being done with all the wrongful foreclosures on everyone else. Almost three million families will get a foreclosure notice this year, just about the same number as last year and in 2009. But the banks are focusing on a small handful of military foreclosures.

Nobody denies that foreclosing on members of the military while they serve overseas is particularly egregious. But hardworking civilians duped into loans, ravaged by an economic meltdown and stonewalled in their effort to save their homes are not somehow less deserving than the men and women on the front lines.

Take the case of a Milwaukee man, ironically an ex-Marine, about to be evicted from his home despite making every single mortgage payment on time, because the company he refinanced with never paid off his original loan, saddling him with a mortgage he never discovered until it was already sold at auction. Does that negligence somehow exist on a different plane than SCRA violations?

Mortgage servicers illegally foreclosed on active duty military for the same reason they violated other laws with respect to foreclosures: They chose to ignore these laws, preferring to maximize profits, cut corners and act with blatant disregard for their customers. To distract from the bigger picture of foreclosure fraud, banks are peddling this modification program to a small sliver of their customer base, while at the same time telling everyone else in the same mess that they're on their own.

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