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Countrywide to Pay Back $108 Million for Charging Homeowners Excessive Fees

Two mortgage firms, Countrywide and Bank of America, have agreed to pay $108 million to settle charges that they misled and overcharged troubled homeowners who were falling behind on their mortgage payments, according to a report released by the Federal Trade Commission on Monday.

The dollar amount represents one of the largest judgements imposed in an FTC case, and the largest case involving mortgage servicing. The $108 million settlement will go directly back to reimburse the consumers who were overcharged by Countrywide before it was acquired by Bank of America in July of 2008.

"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."

According to claims by the FTC, Countrywide Mortgage's loan-servicing operation piled on excessive fees that could have added hundreds or even thousands of dollars.

Mortgage-servicers are responsible for the day-to-day management of homeowners' mortgage loans, including collecting and crediting monthly mortgage payments. Before it was acquired by Bank of America, Countrywide was ranked as the top mortgage servicer in the U.S. in March 2008 with more than $1.4 trillion in its servicing portfolio.

The FTC complaint states that many of the borrowers had taken out loans that were originated or funded by Countrywide's lending arm, including different types of non-traditional mortgages such as sub-prime, interest-only, and Alt-A mortgages (mortgages with little or no income documentation).

According to the FTC claims, when homeowners fell behind and were in default of their mortgage loans, Countrywide ordered home inspections, lawn maintenance, and other services meant to protect the lenders' interest in the property.

But rather than simply hire the vendors to perform these services, Countrywide created subsidiaries to hire these vendors in an effort to increase profits during bad economic times, the FTC alleges. The Countrywide subsidiaries then marked up the price of the vendor services by as much as 100% or more and passed the jacked-up price along to the homeowners, according to the FTC's complaint.

The FTC says that 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.

In addition, it is alleged that Countrywide made false or unsupported claims about the amounts owed or the status of their loans to borrowers who had filed for Chapter 13 bankruptcy protection in an effort to save their homes. Countrywide also failed to tell borrowers in bankruptcy when new fees and escrow charges were being added to their loan accounts. The FTC alleges that after the bankruptcy case closed and borrowers no longer had bankruptcy court protection, Countrywide unfairly tried to collect those amounts, including in some cases via foreclosure.

While the judgement is not an indication that Countrywide and Bank of America broke the law, the defendants are permanently barred from making false statements about loan accounts; charging any fee for a service unless it is authorized by law, by the mortgage contract, or by the consumer; and charging any fee for default-related services unless it is a reasonable fee charged by a vendor for work actually performed and must fall within limits set by state law, investor guidelines, and market rates.

Countrywide must also advise homeowners who are behind on their payments if they plan to use affiliates for default-related services and provide a fee schedule of the amount charged by the affiliates.

The settlement also requires Countrywide to make significant changes to its bankruptcy servicing practices. For example, Countrywide must send borrowers in Chapter 13 bankruptcy a monthly notice with information about what amounts the borrower owes – including any fees assessed during the prior month. The defendants also must implement a data integrity program to ensure the accuracy and completeness of the data they use to service loans in Chapter 13 bankruptcy.

The FTC is the nation's consumer protection agency against abusive, deceptive, and unfair business practices. For more information about the case and the FTC’s refund program, see

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Thursday, 30 November 2023

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