Two subsidiaries of former mortgage lender Countrywide Financial will pay out $108 million to settle an claims that they charged excessive fees to borrowers in default or Chapter 13 bankruptcy, the Federal Trade Commission (FTC) announced today.
According to the FTC, Countrywide charged inflated fees to borrowers who were behind on their mortgage payments for default-related services meant to protect the lender's interest in the property. The FTC also charged that the company mishandled loans it was servicing for borrowers in Chapter 13 bankruptcy.
"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 FTC Chairman Jon Leibowitz. "We're very pleased that homeowners will be reimbursed as a result of our settlement."
The settlement will reimburse overcharged homeowners whose loans were serviced by Countrywide prior to its acquisition by Bank of America in July 2008. Prior to that, Countrywide had been the nation's largest mortgage servicer, with a portfolio in excess of $1.4 trillion.
According to the complaint, when borrowers fell behind on their mortgages, Countrywide would order various services such as property inspections and lawn mowing intended to protect the value of the property. However, instead of contracting third parties to perform the work, the complaint claims Countrywide created subsidiaries to hire vendors to do the work, inflated the fees by as much as 100 percent and then passed the charges along to the homeowners.
The FTC alleges Countrywide sought to increase its profits through default-related services at the same time the mortgage market was declining and more homeowners were falling into delinquency.
The complaint also charges that Countrywide made false or improper claims to borrowers in Chapter 13 about the amount they owed or the status of their loans, and failed to inform them when new fees or escrow charges were assessed. It also says the lender unfairly tried to collect those amounts, in some cases through foreclosure, after the bankruptcy case closed and the borrowers no longer had court protection.
In response, Bank of America issued a statement noting that the settlement relates to an investigation that began prior to its acquisition of Countrywide and does not involve any Bank of America legacy transactions. It said the settlement is not an admission of wrongdoing.
"Bank of America agreed to this settlement to avoid the expense and distraction associated with litigating the case," the statement read. "In addition to addressing FTC claims regarding affiliated default-related services, it provides resolution of several litigations by U.S. bankruptcy trustees. The settlement allows us to put all of these matters behind us."
The two Countrywide subsidiaries identified in the settlement are Countrywide Home Loans, Inc. and BAC Home Loans Servicing LP (formerly Countrywide Home Loans Servicing LP), which will be required to reimburse borrowers overcharged prior to July 2008. The FTC will contact eligible homeowners over the coming months to let them know how to obtain their share of the settlement.
In addition, the settlement places a number of limitations on the two servicers to prevent them from taking advantage of borrowers who are behind on their mortgages. Although acquired by Bank of America, the two entities continue to service millions of mortgages, including many in foreclosure or bankruptcy.