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Another Huge Countrywide Settlement

Amid allegations of excessive servicing fees and mishandled bankrupt borrowers, Countrywide Home Loans Inc. has agreed to a settlement of more than $100 million. The latest settlement is just one of several since 2007 by the former lending giant.

A $108 million settlement was announced today by the Federal Trade Commission. Also named in the settlement was BAC Home Loans Servicing LP, which was formerly known as Countrywide Home Loans Servicing LP.

According to the government, borrowers whose loans were serviced by the Calabasas, Calif.-based lender before its July 2008 acquisition by Bank of America Corp. were hit with illegal and excessive fees. Delinquent borrowers were allegedly deceived into paying hundreds or thousands of dollars to Countrywide subsidiaries that performed default services which protected the lender’s interest.

“Countrywide created subsidiaries to hire the vendors. The subsidiaries marked up the price of the services charged by the vendors — often by 100 percent or more — and Countrywide then charged the homeowners the marked-up fees,” the announcement said. “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 claims Countrywide was able to earn substantial profits even as the mortgage market collapsed and delinquency increased. And borrowers had no choice in which service providers were used.

Countrywide is also accused of misstating loan balances and the status of loans that were in Chapter 13 Bankruptcy. It also allegedly neglected to inform borrowers when new fees and escrow charges were added to their accounts. After the bankruptcies were discharged or dismissed, Countrywide would allegedly attempt to collect the fees.

“The $108 million represents one of the largest judgments imposed in an FTC case, and the largest mortgage servicing case,” the agency stated.

The proceeds from the settlement will be passed on to impacted borrowers.

In addition to halting the practices, Countrywide agreed to advise borrowers when it intends to use affiliates for default-related services and to provide a fee schedule of the amounts charged by the affiliates.

The settlement also requires the lender to make significant changes to its bankruptcy servicing practices — including providing borrowers in Chapter 13 Bankruptcy with monthly statements that reflect fees charged and amounts owed.

“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 added.

Last month, Countrywide Financial Corp. agreed to settle allegations of investor fraud with New York for $600 million. A 2008 settlement over alleged predatory lending amounted to $8.4 billion — though residential mortgage-backed securities investors bore the brunt of those costs. A 2007 settlement with the State of Connecticut over alleged overcharging cost the company $0.5 million.

Federal Trade Commission, Plaintiff, v. Countrywide Home Loans, Inc. and BAC Home Loans Servicing, LP, Defendants.
FTC File No. 082 3205 (U.S. District Court for the Central District of California).

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