Banks Find More Wrongful Foreclosures Among Military Members

The nation’s biggest banks wrongfully foreclosed on more than 700 military members during the housing crisis and seized homes from roughly two dozen other borrowers who were current on their mortgage payments, findings that eclipse earlier estimates of the improper evictions.

Bank of America, Citigroup, JPMorgan Chase and Wells Fargo uncovered the foreclosures while analyzing mortgages as part of a multibillion-dollar settlement deal with federal authorities, according to people with direct knowledge of the findings. In January, regulators ordered the banks to identify military members and other borrowers who were evicted in violation of federal law.

The analysis, which was turned over to regulators in recent days, provides the first detailed glimpse into the extent of wrongful foreclosures amid the collapse of the housing market. While lenders previously acknwledged that they relied on faulty documents to push through foreclosures, the banks claimed borrowers were rarely evicted by mistake, including military personnel protected by federal law.

That thesis, which underpinned the government’s response to the financial crisis, helps explain why homeowners languished for years without relief. The revelations of more pervasive harm could provide fresh ammunition for Wall Street critics and prompt regulators to adopt a tougher stance.

Housing advocates say the findings also underscore the broader flaws with the settlement. In the latest negotiations, according to people briefed on the talks, the banks secured favorable terms for doling out some aid, a deal that could diminish the relief to homeowners.

Dan Petegorsky, national outreach manager with an advocacy group, the Campaign for a Fair Settlement, described the terms as a “step backwards” for homeowners.

“Our initial reaction was stunned disbelief,” he said.

Complai! nts that active military personnel and National Guard members were losing their homes while deployed in war zones set off national outrage and prompted Congressional hearings in 2011. The case of Sgt. James B. Hurley, a disabled veteran whose home outside Hartford, Mich., was sold two months before he returned from Iraq, dragged through the courts for years, highlighting the devastating effect of foreclosures.

In 2011, JPMorgan settled claims that it inappropriately foreclosed on 18 military service members and overcharged 6,000. Bank of America and Morgan Stanley also struck a pact with the Justice Department to settle claims they foreclosed on 178 military members between 2006 and 2009. Sergeant Hurley has since reached a settlement with Deutsche Bank in his case.

But the problems are more extensive than the wave of cases indicated.

When regulators forced them to take a close lok at their loans, JPMorgan, Wells Fargo and Bank of America, the largest loan servicers, each discovered about 200 military members whose homes were wrongfully foreclosed on in 2009 and 2010, according to the people with direct knowledge of the findings. Citigroup had at least 100 such foreclosures. The foreclosures violate the Servicemembers Civil Relief Act, a federal law requiring banks to obtain court orders before foreclosing on active-duty members.

“It’s absolutely devastating to be 7,000 miles from your home fighting for this country and get a message that your family is being evicted,” said Col. John S. Odom Jr., a retired Air Force lawyer in Shreveport, La., who represents military members in foreclosure cases. “We have been sounding the alarms that the banks are illegally evicting the very men and women who are out there fighting for this country. Thi! s is a de! vastating confirmation of that.”

The banks note that the wrongful evictions make up a fraction of the foreclosures under review. Bank of America analyzed more than 1.2 million loans, and JPMorgan assessed roughly 900,000.

The banks also said they had taken steps to protect service members. “Wells Fargo is honored to serve the needs of the men and women who defend our country, we take our responsibilities under the Servicemembers Civil Relief Act very seriously and we regret any hardship that has been caused,“ said Vickee Adams, a bank spokeswoman.

A spokeswoman for JPMorgan, Kristin Lemkau, said the bank had instituted “very generous programs for the military, including awarding homes, forgiving principal and hiring more than 5,000 veterans.”

“We have remediated these errors and plan to appropriately compensate anyone whom we made a mistake with,” Ms. Lemkau said.

A spokesman for Citigroup, Sean Kevelighan, said that the bank was committed to meeting its obligatios to military personnel, “in many cases going beyond the requirements of law.” He added: “We have taken several measures to enhance our processes and are working with our regulators to ensure they have the information they need to appropriately address these issues and provide restitution for those affected.”

Other types of borrowers have been erroneously evicted, too.

The banks uncovered about 20 borrowers who never missed a single mortgage payment, but lost their homes nonetheless. The properties, according to the people with direct knowledge of the findings, have since been sold.

The banks also found a handful of foreclosures related to botched loan modifications. In those cases, the people with direct knowledge said, customers had successfully negotiated a permanently lower mortgage payment, but the banks failed to honor those agreements.

Ms. Adams, the Wells Fargo spokeswoman, said the bank identified only five cases of foreclosure on borrowers “technically not ! in defaul! t.” She noted, though, that the customers were “seriously delinquent” and the problems may have been caused by mortgage payments made “close to the scheduled foreclosure action.” Ms. Adams said in all but one case, “we identified the issues ourselves in a timely manner and reversed them immediately, so that the customers did not lose their homes.”

The revelation of wrongful foreclosures is the latest development in the long and tangled effort to clean up the mortgage mess.

In 2011, the Federal Reserve and Office of the Comptroller of the Currency ordered the banks to hire independent consultants for a sweeping review of foreclosures. The process of scanning loan files for flaws was marred as some consultants farmed out work to contractors who had to navigate a bureaucratic maze.

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