Probe targets PNC, Citizens
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 American unit of Royal Bank of Scotland, disclosed in filings with the Securities and Exchange Commission that they've received subpoenas.
PNC and Citizens, Pittsburgh's two largest banks, declined to comment, as did Santander and MetLife. PHH didn't respond to requests for comment.
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.
The subpoenas, issued years since 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., which a federal jury last year found liable for fraud over defective mortgages sold by its Countrywide unit to Fannie and Freddie.
About 10 percent of the loans handled by large servicers between 2009 and 2012 were 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 to comment. Freddie Mac spokesman Brad German said the company is aware of the investigation and “cooperating fully.”