Struggling homeowners who were overbilled by two Countrywide Financial subsidiaries for services such as lawn care and home inspections at the height of the subprime crisis will share a $108 million settlement, the Federal Trade Commission announced on Monday.
The Center for Public Integrity previously identified Countrywide as the biggest U.S. subprime lender in an analysis of mortgage data published one year ago. The lender, which was acquired by Bank of America Corp. in July 2008, was responsible for at least $97 billion in high-interest loans from 2005 to 2007, according to the Center’s investigation.
The FTC settlement involves mortgage servicing contracts, which typically allow lenders like Countrywide to charge homeowners who are in default on their mortgages for services directed at preserving the lender’s financial interest in the properties. These services include lawn cutting, winterizing, and inspections. Countrywide Home Loans, Inc. and BAC Home Loans Servicing LP hired third-party contractors to do much of this work. In “numerous instances,” according to the FTC’s complaint, the subsidiaries marked up the cost of the maintenance by 100 percent or more, and then billed the homeowners for the fraudulent amount.
“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 in a statement. “We’re very pleased that homeowners will be reimbursed as a result of our settlement.”
As part of the settlement, Countrywide must also send homeowners in bankruptcy a monthly notice with information about how much the borrower owes – including any fees assessed during the prior month.
In a statement, Bank of America said it was "commitment to transparency and fair and responsible customer treatment," and that it agreed to the settlement to avoid the expense and distraction associated with litigating the case.
The FTC said that the $108 million settlement is the largest ever in a mortgage servicing case, after a $40 million settlement with Fairbanks Capital in 2003 and a $28 million settlement with Bear Stearns Cos., LLC and its subsidiary, EMC Mortgage Corp. in 2008.
For Countrywide, though, the sum is a relative drop in the bucket. In 2008, Countrywide agreed to pay $8.4 billion to modify home loans as part of a settlement of a predatory lending lawsuit by 11 state attorneys general. In May, Countrywide agreed to pay $624 million to settle a fraudulent lending practices class action lawsuit brought by several state pension funds.
Lucy Morris, the FTC attorney who led the case against Countrywide, told the Center that it evolved out of individual Chapter 13 bankruptcy suits that the U.S. trustee for the Central District of California had brought against Countrywide. Morris said that Monday’s settlement was a two-year undertaking meant to resolve egregious conduct by the mortgage giant. “At every stage of the default process [Countrywide] was marking up the cost to owners,” she said.
Homeowners eligible for a payment will receive notification through the mail, Morris said.