DOJ investigating Saxon for military mortgage compliance

[Update 1: Adds comment from the Department of Justice.] The Department of Justice is leading a civil rights investigation into allegations a Morgan Stanley subsidiary wrongfully foreclosed on military families between 2006 and 2008. Saxon Mortgage Services is being investigated for possible violation of the Servicemembers Civil Relief Act. Saxon is just one of several lenders under investigation, a DOJ representative said. “The Civil Rights Division has an ongoing investigation into Saxon mortgage and other lenders as well as authorized lawsuits against lenders for violations of the Servicemembers Civil Relief Act, specifically for overcharging and foreclosing against the homes of Servicemembers without court orders,” commented Xochitl Hinojosa. The investigation recently made national headlines when Saxon filed a motion to quash a subpoena. The case took place in Grand Rapids, Mich., and was filed with the U.S. District Court for the Western District of Michigan. Sgt. James Hurley, a Michigan National Guard member, filed suit against Saxon of Fort Worth, Texas, in February 2008. While serving in Iraq in 2004 and 2005 as part of Operation Iraqi Freedom, Hurley was evicted from his home. A federal judge ruled late last year that Saxon acquired the home illegally. Under the Servicemembers Civil Relief Act last amended in 2003, lenders can be required to lower mortgage rates for active-duty military personnel to 6% and cannot pursue a foreclosure. John Odom, Hurley’s legal defense, filed a subpoena for testimony from Saxon’s general counsel, Gregory Smallwood. Saxon motioned to quash the subpoena on the basis of his relevance to the case. According to a Saxon filing, Smallwood was not on the either party’s witness list and had no personal knowledge of Hurley case because he joined the company in 2008. “The only possible reason to call Mr. Smallwood as a rebuttal witness is to explore the Department of Justice investigation. Mr. Smallwood cannot be called for this reason,” Saxon said in the court filing. “In addition to being irrelevant and unfairly prejudicial, the introduction of evidence of, or reference to, the DOJ investigation would result in a monumental waste of time.” Leigh Stafford, senior vice president of capital markets administration at Saxon, told HousingWire the firm has no further comment on the DOJ investigation. However, the company is very pleased to have settled with Hurley. Last week, the parties settled for an undisclosed amount. “As we have said previously, Saxon is always willing to make reasonable accommodations to amicably resolve a matter, especially for our servicemen and women,” Stafford commented. Several mortgage lenders have already come under scrutiny for ill-treating military families. In January, JPMorgan Chase (JPM) admitted to overcharging roughly 4,000 troops on their mortgage and improperly foreclosing on 14 of those families. Last month, the firm began offering a variety of mortgage assistance programs for military personnel and pledged not to foreclose on any service member on active duty. Bank of America (BAC) also introduced programs recently that offer mortgage assistance to American military servicemembers beyond active duty. The initiative was not in response to litigation. Beginning April 1, BofA will offer 4% interest mortgage originations to active duty military personnel, lower than the 6% mandate under the Servicemembers Civil Relief Act. Wells Fargo (WFC) is refunding about $10 million to veterans as settlement to a class-action lawsuit that alleged the bank overcharges on most closing costs associated with title services. The settlement funds will be disbursed between roughly 60,000 veterans who refinanced between Jan. 20, 2004 and Oct. 7, 2010. Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR.