Banks Allegedly Overcharged U.S. Government When Foreclosing on Homeowners

You think you understand the truly depressing extent of conduct of some banks before, during, and after the foreclosure crisis, and then you read this:

"(Reuters) - The U.S. Attorney's office in Manhattan is investigating at least five banks over whether they overcharged the government for expenses incurred during foreclosures on federally backed home loans, filings and interviews show.

PNC Financial Services Group Inc, PHH Corp, MetLife Inc, Santander Holdings USA Inc and Citizens Financial Group Inc, the U.S. unit of Royal Bank of Scotland, have all disclosed in filings with the Securities and Exchange Commission that they've received subpoenas. U.S. Attorney Preet Bharara's office is seeking information on claims on foreclosed loans insured by the Federal Housing Administration or guaranteed by Fannie Mae and Freddie Mac, according to records reviewed by Reuters." (link)

First banks caused the foreclosure crisis, then got bailed out, then lobbied against the bankruptcy bill that would have helped halt the crisis, then agreed to the Home Affordable Modification Program ("HAMP") but initially refused to actually properly modify mortgages under the program -- all the while foreclosing on homes without the legal right to do so because of improper paperwork and robosigning.

That was not enough?

"The subpoenas, coming years after the height of the foreclosure crisis, seek information about banks' foreclosure-related expenses, which generally include court filings and posting or mailing legal notices.

"You've got a lot of people trying to clean up the servicing industry, but the truth is we are seeing the same servicing problems over and over," said Ira Rheingold, director of the National Association of Consumer Advocates in Washington. "It was built into the model to charge as many fees as they could." (link)

You think you've seen it all . . . and then you see more.

Several Cities Take Foreclosure Litigation Back to the Banks

Last Friday Los Angeles filed a federal lawsuit against Chase for both redlining and reverse redlining in mortgage lending to minority borrowers.  In short, the city alleges claims for violation of the Fair Housing Act and  restitution, and seeks damages for tax revenue lost to the city as a result of these practices. 

"The lawsuit on Friday is part of the second most populous U.S. city's effort to hold mortgage lenders liable for lost property tax revenue caused by falling home values, and the cost to maintain vacant foreclosed properties.

"LA continues to suffer from the foreclosure crisis - from blight in our neighborhoods to diminished revenue for basic city services," City Attorney Mike Feuer said in a statement. "We're fighting to hold those we allege are responsible to account."

It said the New York-based bank's practices included redlining, where minority borrowers are denied credit on the same terms as other borrowers, and reverse redlining, where borrowers in minority neighborhoods are flooded with subprime loans they cannot afford despite qualifying for better terms." (link)

Los Angeles, and several other cities, previously filed similar lawsuits against other large banks:

"Los Angeles in December filed similar lawsuits against Bank of America Corp , Citigroup Inc and Wells Fargo & Co , the next three largest U.S. banks. Wells Fargo on Wednesday lost its bid to dismiss its lawsuit.

Cook County, Illinois, which encompasses Chicago, has filed similar lawsuits against Bank of America and HSBC Holdings Plc , while Providence, Rhode Island on Thursday sued a unit of Spain's Banco Santander SA .

Baltimore, Cleveland and Memphis, Tennessee are among other cities to bring similar cases against banks. Atlanta-area counties have also sued HSBC.

Los Angeles said JPMorgan loans made from 2004 to 2011 in predominantly black or Latino neighborhoods were 2.19 times more likely to go into foreclosure than loans in mainly white areas. It said loans to minority borrowers went into foreclosure faster."  (link)

Could this approach be the solution to holding banks accountable for the foreclosure crises?

Maybe . . .

Los Angeles' lawsuit against Wells Fargo recently survived a motion to dismiss:

"Law360, New York (May 29, 2014, 2:43 PM ET) -- A California district judge on Wednesday kept alive a lawsuit filed by the city of Los Angeles alleging that Wells Fargo & Co. directed predatory mortgage lending practices at minority borrowers before the financial crisis that led to a wave of foreclosures, costing the city millions of dollars in tax revenue.

U.S. District Judge Otis D. Wright II denied the bank's motion to dismiss the case, ruling that the city had provided enough detailed evidence that predatory lending practices . . . ." (link)

The most recent Los Angeles case is City of Los Angeles v. JPMorgan Chase & Co et al, U.S. District Court, Central District of California, No. 14-04168. 

The press release and complaint are available here.