Citigroup Inc. (C:US) should face claims that a unit overcharged military personnel on home loans rather than be allowed to use a $25 billion national foreclosure accord to settle with the servicemembers, lawyers for the borrowers said.
Officials of the bank’s CitiMortgage unit failed to apply the proper mortgage-amortization rate to loans of active-duty members of the U.S. military and now seek to get soldiers and sailors to settle their suits as part of the five-bank foreclosure deal, attorneys for Raymond Wray, a retired Army staff sergeant, said in papers filed in federal court in Washington in the past month.
Wray is seeking to have his claims separated from the foreclosure settlement and heard in a federal court, alleging that the national accord doesn’t provide enough compensation.
“Citibank treated these members of our military shabbily by mishandling their mortgages and now they want them to sign away their claims without proper compensation,” Dick Harpootlian, Wray’s South Carolina-based lawyer, said in an interview. “These people put their lives on the line for this country and the bank should be ashamed.”
Citigroup and other lenders faced criticism for their handling of home loans covered by the Servicemembers Civil Relief Act, or SCRA. That law, enacted in 1942 to shield active-duty military personnel from financial stress, limits the interest rate that can be charged on mortgage loans to active duty servicemembers.
JPMorgan Chase & Co. (JPM:US) agreed in 2011 to pay $56 million to settle claims it overcharged about 6,000 service members on their mortgages. It also agreed to return homes that were wrongfully foreclosed upon.
JPMorgan and New York-based Citigroup also joined Bank of America Corp. (BAC:US), Wells Fargo & Co. (WFC:US) and Ally Financial Inc. in a pact to pay $25 billion to end a probe of abusive foreclosure practices stemming from the collapse of the housing bubble.
U.S. District Judge Rosemary Collyer in Washington approved the $25 billion foreclosure settlement in 2012. Wray’s lawyers are asking Collyer to carve out military mortgage-loan holders’ claims against Citigroup over the amortization rate from the $25 billion accord.
“We remain committed to the National Mortgage Settlement and the comprehensive remediation it affords eligible service members,” Mark Rogers, a Citigroup spokesman, said in an e-mailed statement.
Harpootlian said Wray, who filed suit in federal court in Columbia, South Carolina,last year, is seeking to have his case designated as a class action to represent more than 15,000 soldiers, sailors, Marines and Air Force personnel who got CitiMortgage loans.
In June, U.S. District Judge Cameron McGowan Currie in Columbia rejected Citigroup’s calls to throw the case out for failing to state a claim.
Under the SCRA, active duty military personnel can demand banks cap their mortgage interest and amortization rates at 6 percent. While Citigroup officials agreed to cap the interest rates for their military customers, the bank refused to “re-amortize loans in excess of 6 percent,” Wray’s lawyers said in a Dec. 24 filing. Instead, the bank applied an “interest subsidy” as a credit toward the service member’s monthly payment, according to the filing.
“This caused borrowers entitled to SCRA protection to continue to make payments according to an amortization schedule that reduced their principal more slowly than they would be entitled to under a 6 percent SCRA loan,” the lawyers added.
If a servicemember got a 30-year home loan at 12.99 percent, the loan’s interest and amortization rates were subject to being reduced to 6 percent when the soldier went on active duty, lawyers for servicemembers contend.
By failing to change the amortization rate, Citigroup officials forced soldiers and sailors to pay more in interest because the loan’s principal wasn’t being properly reduced over time through regular payments, according to legal filings.
Michael Schag, an Edwardsville, Illinois-based lawyer who has written about the SCRA, said a judge must decide if the law requires the amortization rate to follow the 6 percent cap on military mortgages.
“The law doesn’t directly say that you have to re-amortize the loan at that rate, so that’s where the legal rub will be,” said Schag, a U.S. Air Force Reserve lieutenant colonel and an adjunct law professor at Embry-Riddle Aeronautical University. “Most times, the law is construed in favor of the service member.”
As part of the foreclosure settlement, Citigroup officials are seeking to send out notices to military mortgage holders offering to have them settle all their claims against the bank for compensation offered through that accord, according to the filing.
The U.S. Justice Department, which negotiated the foreclosure accord, backed the bank’s request to send out the settlement offers, Wray’s lawyers added.
Under that deal, military mortgage holders can receive three times the amount they were overcharged and extra compensation if they were forced to sell their home at a loss because of a transfer, according to the settlement’s terms.
“That’s not adequate compensation for claims that carry with them the potential to receive punitive and consequential damages,” Harpootlian said. “The bank is asking these folks to make a decision on whether to accept the settlement without all the facts.”
Wray’s lawyers asked Collyer to let them intervene in the foreclosure settlement to get their claims carved out from the accord. They also are seeking to bar the bank from sending out settlement offers to military mortgage holders, according to court filings.
The foreclosure settlement case is U.S. v. Bank of America Corp. (BAC:US), 12-00361, U.S. District Court, District of Columbia (Washington). Wray’s case is Wray v. CitiMortgage Inc., 12-cv-3628-CMC, U.S. District Court, District of South Carolina (Columbia).
To contact the reporters on this story: Jef Feeley in Wilmington, Delaware at email@example.com; David McLaughlin in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Michael Hytha at email@example.com