The Federal Trade Commission and two Countrywide mortgage servicing companies have reached a settlement to resolve FTC charges. The two companies have agreed to pay $108 million to settle charges that the companies collected excessive fees from cash-strapped borrowers who were struggling to keep their homes. This settlement is one of the largest ever imposed in an FTC case. The settlement funds will be used to reimburse the overcharged homeowners whose loans were serviced by Countrywide before it was purchased in July 2008 by Bank of America.
The Complaint filed by the FTC alleged that Countrywide’s loan-servicing operation deceived homeowners who were behind on their mortgage payments into paying inflated fees, and in each instance those fees could add up to hundreds or even thousands of dollars. Many of the homeowners had taken out loans that were either originated or funded by Countrywide’s lending arm. This included, according to reports, 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.
The responsibilities of mortgage servicers include the day-to-day management of homeowners’ mortgage loans, including but not limited to the collecting and crediting of the borrower’s monthly loan payments. Unfortunately, homeowners cannot choose who services their mortgage. In March 2008, and prior to being acquired by Bank of America, Countrywide was ranked as the top mortgage servicer in the United States with a balance of more than $1.4 trillion in its mortgage servicing portfolio.
In instances where homeowners fell behind on their payments and were in default on their loans, Countrywide promptly ordered property inspections, lawn mowing, and other services meant to protect the lender’s interest in the property. However, rather than simply hiring third-party vendors to perform those services, Countrywide created subsidiaries to hire the vendors. In doing so, the subsidiaries marked up the price of those services charged by the vendors – often by 100% or more – and Countrywide would then charge the homeowners those inflated fees. Countrywide’s strategy was to increase profits from default-related service fees in bad economic times. As a result, even as the mortgage market collapsed and more homeowners fell into delinquency, Countrywide made huge profits by funneling default-related services through subsidiaries that it created solely to generate revenue. This sort of conduct should shock even my Tea Party friends!
According to the FTC, as it relates to those default-related services, homeowners must pay for any necessary services under most mortgage contracts, but mortgage servicers can’t mark up the cost to make a profit or charge homeowners for services that are not reasonable or appropriate to protect the mortgage holder’s interest in the property. Homeowners have no choice in who performs default-related services or the cost of those services, neither do they have an option to shop around for those services.
Additionally, in servicing loans for borrowers trying to save their homes in Chapter 13 bankruptcy proceedings, Countrywide made false or unsupported claims to borrowers about amounts owed or the status of their loans. Countrywide also failed to tell borrowers in bankruptcy when new fees and escrow charges were being added to their loan accounts. Lastly, the FTC alleged that after the bankruptcy case closed and borrowers no longer had bankruptcy court protection, Countrywide would then unfairly attempt to collect all of those fees and charges. In some cases Countrywide actually attempted to do this through the foreclosure process.
For more information about the case and the FTC’s refund program, you can go to www.ftc.gov/countrywide. Also, if you have any questions about predatory lending or mortgage servicing fraud, contact Bill Robertson, a lawyer in our firm’s Consumer Fraud Section. Bill is currently handling cases against Countrywide and other companies involving predatory lending practices. He is also handling mortgage servicing fraud cases involving several different companies. You can reach Bill at 800-898-2034 or by email at Bill.Robertson@beasleyallen.com.
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