A unit of Morgan Stanley, the sixth-largest U.S. bank by assets, and other lenders are under investigation by the Justice Department for allegedly overcharging soldiers and foreclosing on their homes without court orders. “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,” Xochitl Hinojosa, a Justice Department spokeswoman, said in an e-mail. Saxon is a subsidiary of Morgan Stanley. The investigation was revealed in a court document filed last week in a lawsuit brought in federal court in Grand Rapids, Mich., by U.S. Army Sgt. James Hurley. He served in Operation Iraqi Freedom starting in 2004 and lost his home through an eviction proceeding in 2005 while he was still in Iraq.
Saxon Mortgage Services Inc. and a unit of Deutsche Bank AG responded in court papers March 8 to an effort by Hurley’s lawyers to subpoena Saxon’s general counsel to learn more about the Justice Department probe.
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“The Department of Justice investigation is merely a preliminary investigation based on unproven allegations, for which no liability or wrongdoing has been found,” the companies said in a court filing. Mark Lake, a spokesman for New York-based Morgan Stanley, declined to comment on the federal probe.
JPMorgan Chase & Co., the second-biggest U.S. bank by assets, last month said it would return money and houses to families who were overcharged on mortgages or lost their homes after it was accused in a lawsuit of violating the Servicemembers Civil Relief Act.
The bank has begun paying back $2.4 million to about 4,500 service members after reviewing its compliance with the law, Stephanie Mudick, the bank’s head of consumer practices, told the House Veterans Affairs Committee Feb. 9.
The act was passed in 2003 to provide temporary suspension of legal proceedings that may adversely affect the civil rights of soldiers during their military service.
Morgan Stanley said in a regulatory filing last month that it is “responding to subpoenas and requests for information from certain regulatory and governmental entities concerning the origination, financing, purchase, securitization and servicing of subprime and non-subprime residential mortgages.”
