June 7, 2010
By EDWARD WYATT
WASHINGTON — Countrywide Home Loans and its mortgage servicing unit, which are now part of Bank of America, agreed on Monday to pay $108 million to settle federal charges that the company overcharged customers who were struggling to hang onto their homes.
The Federal Trade Commission claimed that Countrywide charged highly inflated amounts — $300 to mow a lawn, in one instance — to more than 200,000 homeowners whose mortgages Countrywide serviced as part of its home loan business.
The company assessed the fees on customers who had sought to reorganize their debts and save their homes or on homeowners who, the company claimed, sometimes falsely, were in default on their loans.
The filing closes one chapter of the mortgage crisis, but it does not end the story that has emerged from the unraveling of the housing market. The charges filed on Monday assert that Countrywide and its subsidiaries made false claims in filings in federal bankruptcy court.
Federal officials said those assertions could be followed up by the Federal Fraud Enforcement Task Force, an interagency group that includes the Justice Department, which, unlike the trade commission, can pursue a criminal case.
Countrywide was one of the nation’s biggest home mortgage companies before its questionable lending practices led it to the brink of bankruptcy and into the arms of Bank of America in 2008.
The $108 million payment resolves the largest mortgage-servicing case in the F.T.C.’s history with one of its largest overall judgments. The money will be used to reimburse homeowners who were charged the excessive fees by Countrywide before the July 2008 acquisition.
Jon Leibowitz, the chairman of the Federal Trade Commission, said Countrywide “profited from making risky loans to homeowners during the boom years, and then profited again when the loans failed.”
Bank of America neither admitted nor denied the charges. As part of the settlement, it agreed to be barred from making false representations about amounts owed by homeowners, from charging fees for services that were not authorized by loan agreements and from charging unreasonable amounts for work.
In addition, the settlement requires the company to establish internal procedures and an independent third party to verify that bills and claims filed in bankruptcy court are valid.
The charges were filed in United States District Court for the Central District of California. In a statement, Bank of America noted that the case involved conduct that predated its acquisition of Countrywide, adding that it “agreed to this settlement to avoid the expense and distraction associated with litigating the case.”
The F.T.C. and the United States Trustee Program, which enforces federal bankruptcy laws for the Justice Department, said that in numerous instances Countrywide misled customers or bankruptcy court officials.
The fees, which were billed as the cost of services like property inspections and lawn mowing, were grossly inflated as Countrywide created new subsidiaries to hire vendors to supply the services, allowing the company to increase fees in the process, the commission said.
The F.T.C. has not yet established how much will be paid to each consumer, in part, Mr. Leibowitz said, because Countryside’s record keeping was “abysmal.” The $108 million settlement represents the F.T.C.’s estimate of consumer losses, but does not include a penalty, which the commission is not allowed to impose.
About $35 million of the $108 million total was charged to homeowners already in bankruptcy proceedings. The rest was charged to customers who Countrywide said were in default on their mortgages.
The F.T.C. inquiry followed a March 2008 article in The New York Times that focused on mortgage servicing practices. The article highlighted the experience of Robin and John Atchley, a Georgia couple who were charged thousands of dollars in questionable fees by Countrywide after emerging from bankruptcy. The Atchleys were part of the F.T.C.’s presentation at a news conference here Monday.
The settlement comes as Congress is preparing to try to reconcile two bills that would tighten consumer financial regulation and create a new agency whose powers would overlap with some of those exercised by the F.T.C. in the Countrywide case.
While the F.T.C. chairman, Mr. Leibowitz, said that he supported the new agency, another commissioner, J. Thomas Rosch, said Monday’s case “gives the lie to the notion that we need a brand new agency” to enforce these issues.
Some lawyers say the practices that were engaged in by Countrywide have been going on for years and, without stronger action by government officials, are likely to continue.
“I would say this was standard operating procedure and still is,” said O. Max Gardner III, a lawyer in Shelby, N.C., whose practice is focused on homeowner bankruptcies. “The real problem is that this is an epidemic in the loan servicing industry. These companies make more income by servicing loans in default than in servicing those that are being paid on time.”