The Bear Stearns Companies LLC has settled with government regulators charges that its mortgage servicing subsidiary misrepresented loan balances and charged illegal fees. The cost of the settlement: $28 million.
The Federal Trade Commission announced today the settlement with Bear -- which was acquired by JPMorgan Chase & Co. in May -- and subsidiary EMC Mortgage Corp. The settlement was filed in U.S. District Court for the Eastern District of Texas.
Bear and EMC were charged with violating the FTC Act by misrepresenting amounts owed by borrowers and collecting unauthorized fees including late fees, property inspection fees and loan modification fees. The alleged violations occurred prior to JPMorgan's acquisition.
Violations of the Fair Debt Collection Practices Act included collecting loans that were in default when they obtained them, making harassing collections calls and failing to communicate that debts were disputed. Noncompliance also included false representations or deceptive means to collect and failing to send borrowers validation notices containing the amount of the debt and their right to dispute the debt and obtain verification of the debt.
Among Fair Credit Reporting Act violations EMC was accused of was its failure to report accounts as in dispute when borrower disputed the accuracy of reported information.
EMC was accused of violating Regulation Z by charging $500 loan modification fees, adding the $500 to the modified principal balance then failing to provide borrowers with required Truth In Lending Act disclosures.
The agency suggested Bear and EMC, which serviced more than 475,000 loans for around $80 billion as of September 2007, were acquiring loans too rapidly to properly manage the administration of the mortgages. Inadequate time was spent obtaining accurate borrower records, and bad information was passed on to the borrowers.
"Mortgage servicers must make sure that the amount they say is due really is the amount due," Lydia B. Parnes, director of the FTC's Bureau of Consumer Protection, said in the statement.
In addition to the $28 million payment to redress borrowers who were injured by the illegal practices alleged in the complaint, EMC has agreed to stop the alleged illegal activities and institute a data-integrity program to ensure the accuracy and completeness of borrower loan information.
During the next eight years, EMC must obtain a periodic assessment from a qualified, independent, third-party professional to ensure that their data integrity program meets the standards of the order.
Federal Trade Commission v. EMC Mortgage Corporation, a Delaware corporation, and The Bear Stearns Companies LLC, a Delaware limited liability company
Civil Action No.: 4:08-cv-338, FTC File No.: 062 3031 (United States District Court for the Eastern District of Texas)