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$108 Million Settlement on Countrywide's Servicing Practices

posted by Katie Porter

Last week, the FTC announced a $108 million settlement with Countrywide based on allegations that Countrywide's loan servicing operations collected excessive fees. The complaint describes Countrywide's servicing practices for default fees as part of its strategy to keep on profiting from consumers, even in hard economic times. I've previously commented on Countrywide's description of this as a "countercyclical diversification strategy" that it trumpeted to investors, and what Senator Schumer thought of such a strategy. The complaint alleges that Countrywide used subsidiaries to mark-up fees--often by 50-100%--on default services such as property inspections. Instead of Countrywide loan servicing working directly with vendors for these default services, Countrywide loan servicing would contract with its subsidiary, who would then work with the vendor. And that extra step--from one Countrywide entity to another--dramatically boosted the fees that got charged to struggling homeowners. To me, the lesson of the FTC's enforcement action is that businesses can use subsidiaries but they can't use subsidiaries to upcharge consumers and obscure the real costs of services.

The settlement also addresses the problems with Countrywide's mortgage servicing in bankruptcy. The FTC alleged many of the same wrongs that I identified in a law review article on mortgage servicing in 2008, including that filing claims that it could not substantiate. The UST Program cooperated with the FTC on the enforcement activity, and the settlement also resolves the UST litigation against Countrywide.

If you are a consumer who filed a chapter 13 bankruptcy case with a mortgage serviced by Countrywide, you may be eligible for a cash award. The FTC website has more details.


Gee... Charges sound eerily familiar to both FTC v. EMC/Bear and USA/Curry v. Fairbanks. At least the FTC was able to get each victim $500 +/- for the privilege of possibly losing their home, credit and/or livelihood to Countrywide or BAC.

Once again, until and unless servicers are required to admit wrongdoing the FTC can file these cases all day, every day and they will serve as nothing more than the cost of doing business for the servicers. $108 Million. That's what - the yearly office supply budget between the two corps?

I wonder who the class members actually are? I've spoken to several C-wide and BAC serviced borrowers who have heard nothing about this action. And the number of BAC Home Loan Servicing-related foreclosures locally - well there are 98 listings in today's public notices involving BAC. Many being sold to Fannie Mae. Many also involving MERS. Go figure.

Don't forget - opt out and/or opposition to settlement must be filed by June 24 otherwise you're automatically in. At least SOMEONE learned something from USA/Curry v. Fairbanks. Unfortunately, it was the servicers lesson on how to structure enforcement actions to maximize class participation and minimize private litigation. I still haven't taken the time to read the case - was Tom Hefferon counsel for C-wide and/or BAC on this one? How about Gilardi? They administrating as well?

I used to be disgusted... Now I'm just not quite, really even amused.

There is a long comment on the above. $108 Million Settlement on Countrywide's Servicing Practices is a good practice.

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