Representing one of the largest judgments imposed in a Federal Trade Commission (FTC) case, two Countrywide
mortgage servicing companies, now part of Bank of America Home Loans, have been ordered to pay $108 million to settle charges that they collected excessive fees from cash-strapped borrowers who were struggling to keep their homes.
In a statement released Monday, the FTC said the $108 million settlement will be used to reimburse overcharged homeowners whose loans were serviced by Countrywide before it was acquired by North Carolina-based Bank of America in July 2008. Bank of America said it agreed to the settlement “to avoid the expense and distraction associated with litigating the case.”
According to the FTC, Countrywide used unlawful practices in servicing homeowners’ mortgages. The company allegedly charged excessive fees for default-related services, made claims about amounts owed by homeowners in bankruptcy that were false or couldn’t be backed up, and didn’t tell people going through bankruptcy when new fees or charges were being added to their loans.
“Life is hard enough for homeowners who are having trouble paying their mortgage. To have a major loan servicer like Countrywide piling on illegal and excessive fees is indefensible,” said Jon Leibowitz, FTC chairman.
In its complaint, the FTC said Countrywide’s loan-servicing operation deceived homeowners who were behind on their mortgage payments into paying inflated fees, which could add up to hundreds or even thousands of dollars. The commission said many of the homeowners had taken out loans originated or funded by Countrywide’s lending arm, including subprime or “nontraditional” mortgages such as payment option adjustable rate mortgages, interest-only mortgages, and loans made with little or no income or asset documentation.
When these homeowners fell behind on their payments and were in default on their loans, Countrywide ordered property inspections, lawn mowing, and other services meant to protect the lenders’ interest in the property, the
FTC complaint stated. But rather than simply hire third-party vendors to perform the services, Countrywide created subsidiaries to hire the vendors, and these subsidiaries allegedly marked up the price of the services charged by the vendors – often by 100 percent or more. Countrywide then charged the homeowners these marked-up fees, the FTC said.
The complaint claims that the company’s strategy was to increase profits from default-related service fees in bad economic times. As a result, Countrywide earned substantial profits, even as the mortgage market collapsed and more homeowners fell into delinquency, the FTC said.
The complaint also charges that in servicing loans for borrowers trying to save their homes in Chapter 13 bankruptcy proceedings, Countrywide made false or unsupported claims about the amounts they owed or the status of their loans. Furthermore, the FTC said Countrywide failed to tell borrowers in bankruptcy when new fees and escrow charges were being added to their loan accounts. And after the bankruptcy case closed and borrowers no longer had bankruptcy court protection, the FTC alleges that Countrywide unfairly tried to collect those amounts.
In addition to paying $108 million towards homeowner reimbursements, the settlement order prohibits Countrywide, now Bank of America Home Loans, from taking advantage of borrowers who have fallen behind on their payments. The FTC said the two defendants named in the case – Countrywide Home Loans, Inc., and BAC Home Loans Servicing LP, formerly doing business as Countrywide Home Loans Service LP – continue to service millions of mortgage loans, including tens of thousands of loans involving borrowers in bankruptcy and foreclosure.
In the future servicing of these loans, the defendants are barred from making false or unsubstantiated representations about loan accounts, and they may not charge any fee for a service unless it is authorized by the loan instruments, by law, or by the consumer for a specific service requested by the consumer. In addition, the defendants are not allowed to charge any fee for a default-related service unless it is a reasonable fee charged by a third party for work actually performed. And if affiliates are used for default-related services, the defendants must make consumers aware of this and provide a fee schedule of the amounts charged by the affiliates.
The settlement also requires the defendants to make significant changes to their bankruptcy servicing practices. Going forward, borrowers in Chapter 13 bankruptcy must be sent a monthly notice with information about what amounts are owed – including any fees assessed during the prior month. Additionally, the defendants must implement a data integrity program to ensure the accuracy and completeness of the data they use to service loans in Chapter 13 bankruptcy
Tue, Jun 8, 2010
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