The FTC says that Countrywide (now part of Bank of America) has agreed to pay $108 million to settle charges that the company “collected excessive fees from cash-strapped borrowers were were struggling to keep their homes.” So, what exactly did they do? Well apparently, while acting as a mortgage servicer, the company actually hired vendors to service properties after the homeowners had fallen behind on their mortgages, marked up the cost of the services (lawn mowing and property inspections, for example,) and then passed the cost along as fees. Doesn’t sound legal? It wasn’t.
The FTC explains that it’s acceptable for homeowners to have to pay for necessary services that protect the value of the property for the mortgage holder, but mortgage servicers “may not mark up the cost to make a profit or charge homeowners for services that are not reasonable or appropriate. ” This is because homeowners do not have a choice in who gets the contract for these services and can’t shop around for the best price.
Here’s how Countrywide used this uneven relationship to make a profit, according to the FTC’s statement:
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.
The money from the settlement will be used to reimburse homeowners.
“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.”
Think this may have happened to you? Check out the FTC’s Countrywide website.