Bank of America to Pay $108 Million to Settle Countrywide Case
Jun 7, 2010 | Business Ethics, Corporate Social Responsibility, Economy & Society, Regulation & Legislation
by Michael Connor
Countrywide Home Loans Inc. will pay $108 million to settle Federal Trade Commission charges that it collected excessive fees from borrowers who were struggling to keep their homes.
Countrywide, which was acquired by Bank of America in 2008, was the top mortgage servicer in the United States at the time of that acquisition, with a balance of more than $1.4 trillion in its servicing portfolio.
FTC Chairman Jon Liebowitz said the $108 million represents one of the largest judgments imposed in an FTC case, and the largest mortgage servicing case. He said it will be used to reimburse overcharged homeowners whose loans were serviced by Countrywide.
The FTC's announcement made it clear that the practices pre-dated Countrywide's acquisition by Bank of America. Bank of America said in a statement that it agreed to settle the charges "to avoid the expense and distraction associated with litigating the case," which also resolves litigation by bankruptcy trustees. The settlement contains no admission of wrongdoing and "allows us to put all of these matters behind us," the company said.
Bank of America added that in its current home loan business "our commitment to transparency and fair and responsible customer treatment is carried through in provisions of the settlement with the FTC, particularly additional disclosure of affiliate relationships and fees for default-related services."
"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 the FTC's Mr. Leibowitz. "We're very pleased that homeowners will be reimbursed as a result of our settlement."
The FTC said that when 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 lender's interest in the property. But rather than simply hire third-party vendors to perform the services, Countrywide created subsidiaries to hire the vendors.
"The subsidiaries marked up the price of the services charged by the vendors – often by 100% or more – and Countrywide then charged the homeowners the marked-up fees" as part of a strategy to increase profits from default-related services in bad economic times, the FTC said. "As a result, even as the mortgage market collapsed and more homeowners fell into delinquency, Countrywide earned substantial profits by funneling default-related services through subsidiaries that it created solely to generate revenue."
According to the FTC, under most mortgage contracts, homeowners must pay for necessary default-related services, but mortgage servicers may not 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.
The FTC also charged that 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.
Photo by TheTruthAbout, courtesy Flickr
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