WASHINGTON - Thousands of service members and veterans whose mortgages were wrongfully foreclosed on, or who were improperly denied lower mortgage interest rates in the national housing crisis, can receive "significant relief," President Barack Obama announced Tuesday.
"It is unconscionable that members of our armed forces and their families are among those who were most susceptible to losing their homes due to the unscrupulous acts of banks and mortgage lenders," Obama said during a White House news briefing.
Defense Secretary Leon E. Panetta issued a statement, applauding the announcement.
"These new steps are the result of an extensive interagency effort made by this administration to protect and support service members and veterans, and this initiative will help military families overcome obstacles to purchasing and maintaining a home," Panetta said.
Helping military families achieve personal and financial security "is a vital part of maintaining a strong national defense, just as home ownership is a vital part of fulfilling the American dream," Panetta said.
"I thank the president for ensuring that our service members receive the support they need so they and their families can pursue their dreams while carrying out their vital missions around the world," he said.
Federal and state officials announced Feb. 9 that the nation's five largest mortgage lenders – Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial [formerly GMAC] – agreed to pay $26 billion to settle a government lawsuit claiming mortgage loan and foreclosure abuses.
At least $20 billion is to be returned to aggrieved homeowners, according to White House and Housing and Urban Development Department news releases.
"If you are a member of the armed forces whose home was wrongfully foreclosed, you will be substantially compensated," the president said.
The settlement also restores lower interest rates and reduces fees for Federal Housing Administration borrowers for those who were wrongly given higher rates and fees.
Under the agreement, lenders will:
- Review the records of every service member whose home was foreclosed upon since 2006 and provide any who were wrongly foreclosed upon with compensation equal to a minimum of lost equity, plus interest and at least $116,785;
- Refund to service members money lost because they were wrongfully denied the opportunity to reduce their mortgage payments through lower interest rates;
- Provide relief for service members who are forced to sell their homes for less than the amount they owe on their mortgage due to a permanent change in station;
- Pay $10 million into the Veterans Affairs fund that guarantees loans on favorable terms for veterans; and
- Extend certain foreclosure protections afforded under the Servicemember Civil Relief Act to those serving in harm's way.
Obama also announced that the FHA will cut its fees for refinancing loans already insured by the FHA. Two- to three million Americans could save about $1,000 annually under today's fee structure.
Still, Obama said, "No amount of money is going to be enough for a family who has wrongfully had their piece of the American dream taken away from them."
Later on a conference call with reporters, HUD Secretary Shaun Donovan said it was shameful of financial institutions to wrongfully foreclose on service members homes or not provide them the full financial protections that the law allows. In many cases, he said, lenders "did not review or even read the foreclosure documents they were processing."
"That's not only wrong, it's not who we are as Americans," Donovan said. The settlement ensures that the men and women risking their lives for our country get treated with the dignity and respect they deserve."
Military families "won't just be compensated," Donovan said, explaining that they will be eligible for modifications to their mortgages even for homes in which they are not living.
Holly Petraeus, the Consumer Financial Protection Bureau's head of service member affairs, said the former regulation requiring service members to live a home to have a mortgage lowered, as well as the difficulty of selling a home quickly for a change of duty station, has caused many military families to live separately.
Emphasizing the frequency of military moves, she told reporters she and her husband, retired Army Gen. David H. Petraeus, who currently is serving as the CIA Director, moved 24 times in 37 years.
With the "unique challenges" of deployments and frequent forced relocations,
Petraeus said, "many see no other solution than to go it alone in military barracks while leaving their families behind" in their homes.
Petraeus said she would urge all financial institutions to understand the Servicemember Civil Relief Act. She also warned service members against a possible "cottage industry" of people who will claim to help them receive help under the new settlement.
Service members and veterans who believe they can take part in the settlement are encouraged to call the Justice Department at 1-800-896-7743.
Todd Perez, assistant attorney general for Justice's civil rights division, told reporters that under the settlement, lenders must have court approval to foreclose on the home of a deployed service member; anyone who was wrongly charged an interest rate above 6 percent can receive four times that back in damages; and all negative entries to credit agencies will be repaired.
Also, Perez said, victims in the housing crisis don't have to contact the government; the settlement requires the banks to contact them.
As for service members and veterans, he said, "they have our backs and they need to know that we have theirs."