A unit of Morgan Stanley, the sixth-largest US bank by assets, and other lenders are under investigation by the United StatesJustice Department for allegedly overcharging soldiers and foreclosing on their homes without court orders.
“The Civil Rights Division has an ongoing investigation into Saxon Mortgage and other lenders as well as authorized lawsuits against lenders for violations of the Servicemembers Civil Relief Act, specifically for overcharging and foreclosing against the homes of servicemembers without court orders,” Xochitl Hinojosa, a government spokeswoman, said yesterday in an e-mailed statement. Saxon is a subsidiary of Morgan Stanley.
The investigation was revealed in a court document filed last week in a lawsuit brought in federal court in Grand Rapids, Michigan, by US Army Sergeant James Hurley. He served in Operation Iraqi Freedom starting in 2004, and lost his home through an eviction proceeding in 2005 while still in Iraq.
Saxon Mortgage Services and a unit of Deutsche Bank responded in court papers March 8 to an effort by Hurley’s lawyers to subpoena Saxon’s general counsel to learn more about the Justice Department probe.
“The Department of Justice investigation is merely a preliminary investigation based on unproven allegations, for which no liability or wrongdoing has been found,” the companies said in a court filing. Mark Lake, a spokesman for New York- based Morgan Stanley, declined to comment on the federal probe.
JPMorgan Chase & Co, the second-biggest US bank by assets, last month said it would return money and houses to families who were overcharged on mortgages or lost their homes after it was accused in a lawsuit of violating the Servicemembers Civil Relief Act.
The bank has begun paying back $2.4 million to about 4,500 service members after reviewing its compliance with the law, Stephanie Mudick, the bank’s head of consumer practices, told the House Veterans Affairs Committee on February 9.
The Servicemembers Civil Relief Act was enacted in 2003 to provide temporary suspension of legal proceedings that may adversely affect the civil rights of soldiers during their military service.
Morgan Stanley said in a regulatory filing last month it’s “responding to subpoenas and requests for information from certain regulatory and governmental entities concerning the origination, financing, purchase, securitisation and servicing of subprime and non-subprime residential mortgages.”
‘Due diligence’
“These matters include, but are not limited to, investigations related to the company’s due diligence on the loans that it purchased for securitisation,” and its “compliance with the Servicemembers Civil Relief Act,” according to a February 28 annual report filed with the US Securities and Exchange Commission. The New York Times reported on Hurley’s lawsuit and the US investigation March 11.
US District Judge Gordon Quist in Grand Rapids found in 2009 that Saxon and Deutsche Bank Trust Company Americas violated the Servicemembers Civil Relief Act when it foreclosed on Hurley’s home in Hartford, Michigan, according to court filings.
