The day before Veteran’s Day, the Department of Justice announced that Bank of America will settle with servicemembers whose homes were unlawfully foreclosed upon. Each claimant will receive a minimum of $116,785 plus compensation for any equity lost. This is supposed to compensate them for violations of the Servicemember Civil Relief Act (SCRA).
This payout works out to about $20 million total for 160 service members who were illegally foreclosed on between 2006 and the middle of 2009 by Countrywide. Bank of America inherited the responsibility for the wrongful foreclosures when they purchased Countrywide in 2008.
Bank of America has admitted no wrongdoing, but they purchased Countrywide, so are responsible for the debt restructuring. Bank of America had an agreement with the states that accused Countrywide of misleading and predatory practices. The Washington Post notes that Bank of America took these costs into account when they bought Countrywide.
Violating the SCRA, particularly through an illegal foreclosure while the service member is serving, is considered “a criminal misdemeanor and is punishable by a sentence of up to one year imprisonment.” (found on page 7 of the DOJ downloadable pdf on illegal foreclosures). However, since Bank of America admitted no wrongdoing, charges have not been filed against them.
Several states have filed against Bank of America, though, and in a proposed settlement for restructuring the loans, first-year payments of principal, interest, taxes and insurance will be set to equal 34 percent of the borrower’s income, or 25 percent for those who are not in escrow.
Bank of America has guaranteed a permanently low principal on all loans. Borrowers can also get an interest rate reduction in addition to that.
Guy Cecela, the publisher of Inside Mortgage Finance, told the Washington Post that this is a move that makes sense. If the restructuring had not happened, and 20% of all mortgages defaulted (as they did in 2011), Bank of America will owe $22 billion dollars in losses. They currently have set aside $150 million as part of the purchasing price of Countrywide.
Take away the $20 million for service members and we have $130 million for the rest of the country. This is not nearly enough and leaves a deficit of about 20.7 billion. Doing the math, it leaves about $1,500 each for all non-service members who have been foreclosed one.
I am not sure this is enough, yet I do not begrudge the service members their part.
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