On June 7, 2010, Countrywide, now owned by Bank of America, agreed to pay in settlement $108 million to the Federal Trade Commission to resolve the FTC’s charges that excessive fees had been collected from borrowers who had defaulted on their home loans. The settlement represents one of the largest fines ever imposed by the FTC, and the largest ever collected from a mortgage servicer.
In addition to the size of the settlement and the FTC’s continued involvement in the lending marketplace, the case’s resolution has other implications of interest to the lending community. The FTC’s Complaint alleged, when certain Countrywide homeowners fell behind on their loans, Countrywide’s mortgage servicing companies routinely ordered certain services ostensibly designed to protect the lender’s interest in the property, such as property inspections, lawn mowing and other services. Rather than simply hire third-party vendors, Countrywide created subsidiaries to hire the vendors. Those subsidiaries allegedly marked-up the price of the services charged by the vendor, and Countrywide then charged the homeowners the marked-up prices. The FTC alleged that the company’s strategy was to unfairly profit from default-related services. While the FTC acknowledged that under most mortgage contracts homeowners can be obligated to pay for necessary default-related services, the mortgage’s servicers may not mark up the cost to make a profit, or charge for services which are not reasonable or appropriate to protect the mortgage holder’s interest in the property. As homeowners generally will not have any choice in who performs default-related services or the cost of those services, they have no option to shop for the most cost-effective service providers and the servicers are under an implicit obligation to act in good faith in the procurement.
In addition the FTC’s Complaint alleged that Countrywide, in servicing loans for those borrowers who had filed under Chapter 13 of the Bankruptcy Code, made false or unsupportive claims within the cases about the amounts owed by the borrower-debtors. It was alleged that Countrywide failed to tell borrowers in bankruptcy when new fees and escrow charges were being added to their loan balances. According to the FTC, after the bankruptcy case closed, Countrywide improperly attempted to collect such amounts, including in some cases via foreclosure actions. As one remedy imposed through the announced settlement, Countrywide must change its bankruptcy servicing practices to send borrowers in Chapter 13 bankruptcies a monthly notice with information about what amounts the borrowers owe, including the fees assessed during the prior month.