Banks don't usually say they're sorry when they settle cases in which law enforcers accuse them of mortgage abuse. Sometimes the banks don't even like to use the word "settlement."
I discovered that last year when interviewing Terry Francisco, Bank of America Corp.'s senior vice president of public relations, about a legal deal struck two years ago.
"We don't call it a settlement, but our agreement with the attorneys general," Francisco said.
The change of heart this time around appears to result from the fact that the banks don't have their usual wiggle-room when responding to allegations that they violated the Servicemembers Civil Relief Act. The act provides foreclosure protection to active-duty service members, and a settlement involving it last Thursday was followed by strikingly contrite statements from B of A and Morgan Stanley.
The mea culpas came on the heels of settlements involving foreclosures that the U.S. Department of Justice had charged were made in violation of SCRA. Morgan Stanley settled for $2.35 million to resolve the DOJ's claim that its Saxon Mortgage Services Inc. subsidiary wrongfully foreclosed on about 17 service members. That means each service member stands to receive $130,555 as part of the deal.
"We want to apologize to those military families that were affected by any mistakes made in the foreclosure process," Morgan Stanley said in a written statement.
B of A settled for $20 million over charges that it foreclosed on 160 service members, which comes to $125,000 each. The bank placed most of the blame on Countrywide Financial, which it acquired in 2008. In doing so, B of A still showed an unusual modicum of remorse.
"While most cases involve loans originated by Countrywide and the improper foreclosures were taken or started by Countrywide prior to our acquisition, it is our responsibility to make things right," said B of A executive vice-president Terry Laughlin in a statement to reporters. "These errors are not acceptable, and we certainly regret them."
Why are the banks taking the unusual approach?
"I will let the apology speak for itself," said Mark Lake, a spokesman for Morgan Stanley. Dan Frahm, a B of A spokesman, referred back to the Laughlin statement.
"You apologize if you think you've done something wrong," said an industry lawyer who requested anonymity because of his work with banks. "It may be that with this particular set of customers it's prudent public relations."
One thing that made the service member foreclosures particularly egregious is the violation of SCRA, said Ira Rheingold, executive director of the National Association of Consumer Advocates.
"They apologized because they completely violated the law and what would be worse than foreclosing on someone who is defending the country?"
Rheingold said the Justice Department had immense leverage over the banks in negotiating settlements involving foreclosed-upon service members and that the settlement amounts were also noteworthy "The last thing that any of these companies wanted was a Justice Department lawsuit," Rheingold said. "It's a big settlement and pretty generous."
For the banks, the hefty settlements may have a benefit beyond the optics of appearing to do the right thing; they may lessen the risk of private litigation by service members, Rheingold said.