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June 7th, 2010

Refunds Coming to Countrywide Borrowers

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In what is being called “one of the largest settlements in FTC history,” Bank of America (BofA) is being ordered to pay $108 million to the Federal Trade Commission (FTC) because Countrywide overcharged borrowers facing foreclosure and bankruptcy.

Since BofA acquired Countrywide about two years ago, the FTC says they are responsible for mistakes, past and present. The FTC says the money paid to them will be used to reimburse overcharged borrowers whose loans were serviced by Countrywide before BofA took them over. According to National Mortgage News, over 200,000 borrowers are expected to benefit from the settlement.

“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.”

Here’s how the FTC explains what Countrywide did wrong:

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.

When homeowners fell behind on their payments and were in default on their loans, Countrywide ordered property inspections, lawn mowing, and other services meant to protect the lender’s interest in the property, according to the FTC complaint. But rather than simply hire third-party vendors to perform the services, Countrywide created subsidiaries to hire the vendors. The subsidiaries marked up the price of the services charged by the vendors – often by 100% or more – and Countrywide then charged the homeowners the marked-up fees. The complaint alleges that the company’s strategy was to increase profits from default-related service fees in bad economic times. As a result, even as the mortgage market collapsed and more homeowners fell into delinquency, Countrywide earned substantial profits by funneling default-related services through subsidiaries that it created solely to generate revenue.

According to the FTC, 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. Homeowners do not have any choice in who performs default-related services or the cost of those services, and they have no option to shop for those services.

In addition to borrowers facing foreclosure, Countrywide also wrongly charged borrowers facing bankruptcy. According to the FTC:

In addition, in servicing loans for borrowers trying to save their homes in Chapter 13 bankruptcy proceedings, the complaint charges that Countrywide made false or unsupported claims to borrowers about amounts owed or the status of their loans. Countrywide also failed to tell borrowers in bankruptcy when new fees and escrow charges were being added to their loan accounts. The FTC alleges that after the bankruptcy case closed and borrowers no longer had bankruptcy court protection, Countrywide unfairly tried to collect those amounts, including in some cases via foreclosure.

Am I Eligible for a Refund?

The FTC says if you’re eligible for a refund, you will receive it by mail. The FTC says, “After the court approves the settlement, the FTC will notify eligible homeowners. This process can take several months. Check back here in 30 days for any updates.”

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4 Responses to “Refunds Coming to Countrywide Borrowers”

  1. KellyNero Says: June 7th, 2010 at 5:42 pm

    I’m so happy this finally came out. I kept telling them that they were over charging me. It was to the point where my note was $1200 one month then $17oo another. I asked them how I could reduce my payments they told me to pay my own insurance, so I did thinking it would bring it down. It continued to rise. I had a fixed rate ????? Go figure. I tried to speak to someone one day. I have it on record that I was on hold from 10:am till 2:00 p.m. no one could tell me why my note was so much. Everyone I spoke to me told me that they didn’t understand what was happining until one lady finally told me “honey, we have been charging you for your insurance and you have been paying it also.” I cried so much. This was our first home and RBM was our first morgage company, then countrywide bought us from them. It was HELL from day one. Many nights went by that I cried my self to sleep, praying that someone could figure out how and why this could of happen. I thank you from the bottom of my heart that someone finally figured out what was going on. May God Bless!

  2. Tim Manni Says: June 8th, 2010 at 8:55 am

    Kelly,

    Thanks for commenting, we hope everything works out well for you. Please (!) keep us posted on the progress of the refund (if you end up getting it), we’d love to hear more about it.

    Thanks,
    Tim

  3. Cynthia Arrington Says: June 9th, 2010 at 5:41 pm

    You may want to investigate the practices of BOA. I have a sneaky feeling they are doing the same thing.

  4. Tim Manni Says: June 10th, 2010 at 8:19 am

    Cynthia,

    Not sure they’re doing the same exact things (that would be really stupid on their part), but I’d bet there are a ton of frustrated borrowers who would agree with you that BofA has treated them unfairly.

    We’ll be sure to keep our eyes out. Thanks for commenting,
    Tim

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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