NEW YORK/WASHINGTON May 29 The U.S. Attorney's office in Manhattan is investigating at least five banks over whether they overcharged the government for expenses incurred during foreclosures on federally backed home loans, filings and interviews show.
PNC Financial Services Group Inc, PHH Corp, MetLife Inc, Santander Holdings USA Inc and Citizens Financial Group Inc, the U.S. unit of Royal Bank of Scotland , have all disclosed in filings with the Securities and Exchange Commission that they've received subpoenas. U.S. Attorney Preet Bharara's office is seeking information on claims on foreclosed loans insured by the Federal Housing Administration or guaranteed by Fannie Mae and Freddie Mac, according to records reviewed by Reuters.
The subpoenas, coming years after the height of the foreclosure crisis, seek information about banks' foreclosure-related expenses, which generally include court filings and posting or mailing legal notices.
"You've got a lot of people trying to clean up the servicing industry, but the truth is we are seeing the same servicing problems over and over," said Ira Rheingold, director of the National Association of Consumer Advocates in Washington. "It was built into the model to charge as many fees as they could."
At least one of the subpoenas sent to a bank specifically asks about expenses by New York law firms, one person familiar with the matter said.
The probe is being conducted pursuant to the Financial Institutions Reform, Recovery and Enforcement Act, according to Citizens Financial, which on May 12 became the most recent bank to disclose receiving a subpoena. Passed in response to the savings-and-loan crisis of the 1980s, the law has become a key tool of the Justice Department in pursuing cases against banks.
An earlier investigation by Bharara's office of the improper approval of FHA-insured loans relied on FIRREA as well as another law, the False Claims Act, and resulted in $1.1 billion in settlements with JPMorgan Chase & Co, Deutsche Bank AG, Citigroup Inc and Flagstar Bancorp. In another case being pursued under FIRREA, Bharara's office has been seeking $2.1 billion from Bank of America Corp after a federal jury last year found it liable for fraud over defective mortgages sold by its Countrywide unit to Fannie and Freddie.
About 10 percent of the loans serviced by large U.S. servicers between 2009 and 2012 were either delinquent or in foreclosure, according to industry publication Inside Mortgage Finance. The total amount of the loans is between $6 trillion and $7 trillion.
Representatives for Bharara, the Department of Housing and Urban Development, which oversees FHA, Fannie Mae, and Fannie and Freddie's regulator, the Federal Housing Finance Agency, declined comment. Freddie Mac spokesman Brad German said the company is aware of the investigation and "cooperating fully."
PNC, Citizens, Santander, and MetLife declined comment. PHH didn't respond to requests for comment.
PROBE OF LAW FIRMS
In their SEC disclosures, three banks said they received subpoenas in May 2013. While the disclosures do not provide much detail on the scope of the probe, two banks, PNC and MetLife, said federal authorities are looking at foreclosure-related costs incurred by law firms. MetLife said the Justice Department is looking at its supervision of those expenses.
Similar expenses are the subject of the separate probe by Colorado Attorney General John Suthers, who is examining whether at least five local law firms misrepresented costs on a foreclosure and ultimately passed them on to prospective purchasers, investors, and taxpayers, in violation of Colorado consumer protection laws, according to court filings.
Foreclosures generally cost between $1,000 and $3,000, depending on the state and type of foreclosure, with the bulk going to legal fees. Other expenses, including posting and mailing notices, court filing costs and title searches, add to the total bill.
The law firms under investigation in Colorado allegedly represented expenses that were much higher than their actual costs, in some cases by hundreds of dollars. One firm charged $150 for posting a notice on the door of a property in foreclosure, even though the market rate for that service was about $25, according to the allegations.
Another allegedly represented court filing costs between $42 and $224 more than it was actually paying.
Since October 2011, FHFA has directed Fannie and Freddie to require mortgage servicers to select law firms that meet certain criteria. Previously, the two companies, which together own or guarantee about 60 percent of all U.S. home loans, had directed servicers to use only lawyers that appeared on a list of firms approved by them. (Editing by Caren Bohan and John Pickering)