The Federal Trade Commission has just announced that Countrywide, once the number one mortgage servicer in America, will pay $108 million to settle charges that two of its subsidiary servicing companies overcharged and misled investors. The money is going to go back to the roughly 200,000 homeowners who were overcharged before Countrywide was taken over by Bank of America in 2008. From the FTC release:
"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 the complaint filed by the FTC, Countrywide’s loan-servicing operation deceived homeowners who were behind on their mortgage payments into paying inflated fees -- fees that could add up to hundreds or even 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.
So, basically, at the heart of the subprime meltdown, the nation's largest mortgage service provider was profiting off of those homeowners who were in the most trouble -- and constantly trying to profit more. One of the tricks they used was this: Once a homeowner fell behind on his or her payments, Countrywide ordered certain services (home inspections, landscaping) performed on the house to help it retain its value. Then, they charged the defaulting owners for these services. While that in itself seems a little cold, it's legal; what's not is the fact that Countrywide created subsidiary companies to hire the landscapers and inspectors, and those subsidiary companies marked up the costs, sometimes by 100 percent. So maybe a landscaping company charged $300 to mow the lawn for a month; the Countrywide subsidiary took that cost, marked it up to $600, and charged it directly to the defaulting borrower.
The FTC complaint also charges Countrywide's two servicers, Countrywide Home Loans Inc. and BAC Home Loans Servicing LP, with lying to homeowners who tried to save their homes by filing for bankruptcy, again telling these borrowers that they owed more than they should or charging exorbitant fees. Sometimes, Countrywide even pursued payment after homeowners had left bankruptcy court -- meaning you could declare bankruptcy, getting rid of other unpayable debts, feel like you're about to make a new start, and then come home to find you're facing foreclosure.
The settlement is the largest ever assessed in a mortgage servicing case. Eligible borrowers will be mailed notifications in the next few months by the FTC, and then they'll get refunds from the FTC directly, if the courts accept the settlement.
The settlement has one more interesting tidbit. Though the complaint is clear in saying that the bad behavior happened before the 2008 purchase by Bank of America, it also makes clear that Countrywide, by accepting this settlement, must change its behavior now. It is "permanently barred" from charging fees for services except as required by law or authorized by the lender or consumer, and it can no longer pull the subsidiary/vendor tricks that it once employed -- now, the company has to get yearly, independent reviews of the rates that it's charging for services to make sure they're reasonable. It also must provide monthly updates and specific fee schedules and outlines to all customers under bankruptcy protection.
So, it sounds like the FTC isn't actually so confident that Countrywide's bad behavior has been solved under the umbrella of Bank of America. At least the commision doing something to actively stop them, and to show them that, long-term, this kind of crime doesn't pay as well as one might imagine.