On Thursday, the Department of Justice (DoJ) stated that subsidiaries of Bank of America Corporation (BAC) and Morgan Stanley (MS) have agreed to pay nearly $22.35 million to settle the lawsuit related to unlawful foreclosure of properties of active-duty military members without obtaining the court orders. About 180 military personnels are expected to get relief from this settlement deal.
As a part of the settlement deal, BAC’s Home Loans Servicing unit (earlier Countrywide Home Loans Servicing) will pay $20 million to about 160 service personnels from 2006 to May 2009. The company’s foreclosures had taken place in 20 states and the victims will get an average of $125,000 each. The company had purchased Countrytwide Financials in 2008.
Similarly, MS’s subsidiary Saxon Mortgage Services Inc. will pay $2.35 million to nearly 17 military members, with an average payment of about $130,000 each. Saxon had foreclosed properties in 10 states. The company had purchased Saxon in 2006.
Furthermore, BAC and MS stated that they would also pay military members wrongly foreclosed from June 2009 until the end of 2010. Additionally, both the companies also agreed to stop pursuing the remaining mortgage balance owed on each loan.
They would also take various steps to ensure no further such cases come including implementation of new training program and policies. Moreover, BAC and MS will also check the Defense Manpower Data Center’s website and their own files before initiating any foreclosures.
DoJ commented that this settlement order with BAC and MS is the largest financial recovery in any case under Service members Civil Relief Act (SCRA) that provides a wide range of protection to on-duty military members. The SCRA prohibits foreclosures without court orders on pre-service residential mortgages of active-duty service members.
In this case, DoJ alleged that BAC and MS had failed to disclose whether military members whose property they planned to foreclose were covered by SCRA or not. Furthermore, it was alleged that they intentionally violated the SCRA.
They also refused to delay foreclosures even after getting notifications and copies of military orders that homeowners whose homes have been foreclosed are on active duty. Some of these active military members were serving in Iraq and Afghanistan.
BAC and MS are not the only two mortgage servicers who have been fined by DoJ. In April, JPMorgan Chase & Co. (JPM) had agreed to pay $27 million (including $15 million for future claims) to 6,000 active military personnels in a similar case.
Hence, the settlement of the case would deter other mortgage servicers from such negligence in future.
Currently, the shares of both BAC and MS retain a Zacks #4 Rank, which translates into a short-term Sell rating. Also, considering these companies’ fundamental weakness, we have a long-term Underperform recommendation.
BANK OF AMER CP (BAC): Free Stock Analysis Report
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