The Federal Trade Commission has posted an article about how two Countrywide mortgage servicing companies are to pay $108 million to the struggling homeowners they overcharged with "illegal and excessive fees" before it was acquired by Bank of American in July of 2008. This case has one of the largest settlements of any FTC case.
“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 FTC's filed complaint accuses Countrywide's loan-servicing operation, which is responsible for the daily management of mortgage loans, of deceiving homeowners who were behind on mortgage payments and trying to catch up. Homeowners, who can't pick their mortgage servicer, were charged inflated fees that ranged anywhere from hundreds to thousands of dollars.
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, the complaint states.
When homeowners under Countrywide's servicing fell behind on payments the company offered to do things like lawn mowing and property inspection 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.
The FTC alleges that Countrywide knowingly did this with the intent to increase their own profits through charging exorbitant fees.
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. Homeowners do not have any choice in who performs default-related services or the cost of those services, and they have no option to shop for those services.
The complaint also accuses Countrywide of failing to inform homeowners who were already in bankruptcy to save their home, when fees or charges were being added to their account. The FTC says that after the accounts closed and the company no longer had the protection provided by bankruptcy court, they still tried to collect. Sometimes even through foreclosure.
The FTC’s complaint and settlement name two mortgage servicers as defendants: Countrywide Home Loans, Inc. and BAC Home Loans Servicing LP, formerly known as Countrywide Home Loans Servicing LP.
Countrywide is being required as part of the settlement to pay $108 million back to homeowners who were overcharged prior to July 2008. Additionally, the settlement prevents Countrywide from taking advantage of homeowners in the future by informing homeowners if it intends to use "affiliates for default-related services" and then provide a schedule of fees that the affiliates will charge.
In the servicing of loans, the defendants are permanently barred from:
-Making false or unsubstantiated representations about loan accounts, such as amounts owed.
-Charging 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.
-Charging any fee for a default-related service unless it is a reasonable fee charged by a third party for work actually performed. If the service is provided by an affiliate of a defendant, the fee must be within limits set by state law, investor guidelines, and market rates. Defendants must obtain annual, independent market reviews of their affiliates’ fees to ensure that they are not excessive.
The company is also required to make changes to its bankruptcy servicing practices. Homeowners in Chapter 13 bankruptcy will be sent a monthly notice detailing their amount owed, including any fees. Also, a data integrity program will be implemented to ensure the accuracy of information of homeowners undergoing Chapter 13.
This is one of the largest settlements of a case brought forth by the FTC, although, Countrywide's punishment is certainly deserved!
If you would like more information on foreclosures, please check out our articles The Three Stages Of Foreclosure In Alabama and Wrongful Foreclosures In Alabama.
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