Bear Stearns and EMC Mortgage to Pay $28 Million to Settle FTC Charges

Resubmitted by Dan Edstrom. Good Question where is the FTC now?

Bear Stearns and EMC Mortgage to Pay $28 Million to Settle FTC Charges of Unlawful Mortgage Servicing and Debt Collection Practices

The Bear Stearns Companies, LLC and its subsidiary, EMC Mortgage Corporation, have agreed to pay $28 million to settle Federal Trade Commission charges that they engaged in unlawful practices in servicing consumers’ home mortgage loans. The companies allegedly misrepresented the amounts borrowers owed, charged unauthorized fees, such as late fees, property inspection fees, and loan modification fees, and engaged in unlawful and abusive collection practices. Under the proposed settlement they will stop the alleged illegal practices and institute a data integrity program to ensure the accuracy and completeness of consumers’ loan information.

“Like other companies that send a bill, mortgage servicers must make sure that the amount they say is due really is the amount due,” said Lydia B. Parnes, Director of the FTC’s Bureau of Consumer Protection. “Consumers have the right to expect accuracy from the company that collects their mortgage payments.”

As stated in the FTC’s complaint, Bear Stearns and EMC have played a prominent role in the secondary market for residential mortgage loans. During the explosive growth of the mortgage industry in recent years, they acquired and securitized loans at a rapid pace, but they allegedly paid inadequate attention to the integrity of consumers’ loan information and to sound servicing practices. As a result, in servicing consumers’ loans, they neglected to obtain timely and accurate information on consumers’ loans, made inaccurate claims to consumers, and engaged in unlawful collection and servicing practices. These practices occurred prior to JP Morgan Chase & Co.’s acquisition of Bear Stearns, which became effective on May 30, 2008.

According to the complaint, EMC is the mortgage servicer for many of the loans Bear Stearns and EMC acquired. Many of these loans are subprime or “Alt-A” (less than prime) loans, including nontraditional mortgages such as pay option adjustable rate mortgages (“pick-a-payment” loans), interest-only mortgages, negative amortization loans, and loans made with little or no income or asset documentation. EMC’s loan servicing portfolio has grown significantly in recent years; as of September 2007, it serviced more than 475,000 mortgage loans with a total unpaid balance of about $80 billion.


The complaint charges Bear Stearns and EMC with violating the FTC Act, the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Truth in Lending Act’s (TILA) Regulation Z.

FTC Act Violations: The defendants are charged with unfair and deceptive loan servicing practices in violation of the FTC Act. They allegedly misrepresented the amounts consumers owed; assessed and collected unauthorized fees, such as late fees, property inspection fees, and loan modification fees; and misrepresented that they possessed and relied upon a reasonable basis for their representations about consumers’ loans.

Fair Debt Collection Practices Act Violations: The defendants allegedly violated several provisions of the FDCPA in collecting loans that were in default when they obtained them. They also allegedly made harassing collection calls; falsely represented the character, amount, or legal status of consumers’ debts; and failed to communicate that debts were disputed. In addition, they allegedly used false representations or deceptive means to collect, and failed to send consumers a validation notice containing the amount of the debt and the consumer’s right to dispute the debt and obtain verification of the debt.

Fair Credit Reporting Act Violations: The FTC alleges that the defendants furnished information about consumers’ payment status to credit reporting agencies (CRAs). When consumers informed the defendants that they disputed the completeness or accuracy of the reported information, the defendants failed to report the dispute to the CRAs as required by the FCRA.

Truth in Lending Act’s Regulation Z Violations: The complaint also states that the defendants charged borrowers a loan modification fee, typically $500, and automatically added the fee to the modified loan’s principal balance. In doing so, the defendants failed to provide the borrowers with required TILA disclosures.


The proposed settlement requires Bear Stearns and EMC to pay $28 million to redress consumers who have been injured by the illegal practices alleged in the complaint. In addition, the settlement bars the defendants from future law violations and imposes new restrictions and requirements on their business practices. Specifically, the settlement:

bars the defendants from misrepresenting amounts due and any other loan terms;
requires them to possess and rely upon competent and reliable evidence to support claims made to consumers about their loans;
bars them from charging unauthorized fees, and places specific limits on property inspection fees even if they are authorized by the contract;
prohibits them from initiating a foreclosure action, or charging any foreclosure fees, unless they have reviewed all available records to verify that the consumer is in material default, confirmed that the defendants have not subjected the consumer to any illegal practices, and investigated and resolved any consumer disputes; and
prohibits the defendants from violating the FDCPA, FCRA, and TILA.
The proposed settlement further requires Bear Stearns and EMC to establish and maintain a comprehensive data integrity program to ensure the accuracy and completeness of data and other information that they obtain about consumers’ loan accounts, before servicing those accounts. The defendants must obtain an assessment from a qualified, independent, third-party professional within six months and then every two years, for the next eight years, to assure that their data integrity program meets the standards of the order.

The proposed settlement also contains record-keeping and reporting provisions to allow the FTC to monitor compliance with the order.

The Commission vote to authorize staff to file the complaint and proposed stipulated final order was 4-0. The documents were filed in the U.S. District Court for the Eastern District of Texas.

Including the case announced today, the Commission has brought 23 actions in the past decade alleging deceptive or unfair practices by mortgage brokers, lenders, and servicers. Several of these landmark cases have resulted in large monetary judgments that have returned more than $320 million to consumers.

CONSUMER HOTLINE: If the court approves the settlement, consumers who are eligible for redress will be contacted by mail. The Commission’s consumer hotline regarding the settlement is 1-877-787-3941. Consumers who have changed their address recently may provide updated contact information by calling the hotline. Consumers also can find information about the settlement on the FTC’s Web site at

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. The stipulated final order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

Frank Dorman,
Office of Public Affairs
Lucy Morris,
Bureau of Consumer Protection
(FTC File No.0623031)

Dan Edstrom

11 Responses

  1. Repeating excerpt from NYT here because this is really unbelievable. All is about politics. They want to “bribe” us so we will go away.

    Excerpt from NYT – do not buy into this –

    Program Will Pay Homeowners to Sell at a Loss
    Published: March 7, 2010

    “In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

    This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.

    More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.

    For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.

    Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.

    “We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser. “

  2. Q. When does “Without Recourse” mean “With Recourse?”
    A. When a “Purchase and Assumption Agreement” is also a “Repurchase Agreement.”

    The securitizers want it all different ways: REMIC status for “true sales” that were never “true sales,” the ability to assign assets that were already assigned to other parties years earlier, treatement as “holders in due course” to avoid claims by borrowers (which relies on “without recourse” transfers of note) as well as the suggested ability to force “loan originators” (who probably tabled funded the loan for another non-disclosed entity anyway) to “repurchase” “defective” loans from GSE’s without apparent regard or remedy for borrowers who were victimized by said loans, etc., etc., etc.

    And the GSE’s apparently now have gotten taxpayer backing for mortgage securitization that has ZERO public disclosure – like selling land without ever disclosing WHAT or WHERE it is, it has to be “good” because it has “government backing!” I mean, these MBS didn’t even get rated by the ratings agencies… they are just PRESUMED to be AAA because of the “implied” government backing. What a gigantic PONZI SCHEME.

    So $21 billion in mortgages are going to be “repurchased” because they were improperly underwritten. The “banks” will have to eat the cost and turn around and force the borrowers to eat the cost. But how many borrowers does $21 billion represent? , all in secret, silent darkness. How many families that were or are about to be thrown out of their homes? What do Fannie and Freddie have to say about the borrowers?

  3. “What in Blazes in Going On Here?” – is an expression from an old movie (I do not know which movie or who said it). An attorney I know, who went to law school late, repeated the phrase to her classmates (under her breath), during one of her classes – generating much laughter from her peers. This attorney wound up graduating number 1 in her class, and went on to help numerous people who could not afford legal help (she is still working hard and has tough guts in courts where clearly the power is lopsided). Thanks to all the attorneys who take a stand to fight for the people and to Mr. Garfield for this blog which allows people to share and to express our thoughts. I know what it feels like to have no one listen. .

    Even as we try to unfold exactly what really happened with the mortgages, the government continues to allow financial institutions (and Fannie Mae) to conceal and manipulate the situation -thus, further complicating an already concealed process.

    My quote – “What in Blazes in Going On Here?” refers to Washington – a place that is rapidly losing credibility in the eyes of Americans. What Washington has done, and continues to do, to foreclosure victims and victims of mortgage fraud is simply incomprehensible. And, in my mind, much laughter, directed at Washington, resonates across the country. Equally incomprehensible is that courts were designed for the people – for the people to have a voice. What good are courts if the people voices are silenced? What good are laws if they are not used to protect the people? “What in Blazes in Going On Here?”, therefore, also refers to our courts – where the law is being manipulated to protect the very perpetrators of the crime.

  4. Anonymous,

    Thanks for that! Apparently you have greater insight to this then most of us , but I have learned so much from everyone here. And am very grateful for the time all take to help/explain these matters.

    If you are asking “what in blazes is going on here and why is the government concealing it”, just imagine how those of us with no banking/investment expertise feel. But even people with a sliver of common sense are beginning to figure this out, albeit, I fear three steps behind the culprits.

    However your explanation has confirmed what was surmised after hours of research, that finding where and within a Fannie Mae “owned” loan sits is an impossibility. That is particularly egregious since the American people now finance Fannie & Freddie.

    Thanks again!

  5. Glad to see Repurchase Agreements are becoming a focus. When loans are sold to off-balance sheet conduits, this is achieved by a “Mortgage Loan Purchase Agreement”, which is not usually publicly available on SEC website. Most do not know that the “Mortgage Loan Purchase Agreement” is also a “Repurchase Agreement” – they are combined into one agreement. Therefore, even if loans are sold to a conduit- no one knows if they are “repurchased” in the sale process. All that is produced in courts are (invalid) assignments for loan purchase, and no one asks “Was the loan ever repurchased?”.

    Fannie Mae/Freddie Mac are private entities – they were not required to publicly report securitizations of their loan purchases. You cannot find these securitizations anywhere (although I did find a couple of very old ones).

    Fannie Mae is also repurchasing default loans that they have already sold. Heard one economist state that Fannie Mae’s balance is a mess due to the new FASB rules which require that default loans be brought back onto balance sheet from off-balance sheet conduits.

    It is becoming increasing apparent that finding your mortgage loan is nearly impossible. And, as the case appears, then why are judges just accepting that they have “found” where loans are by false submissions by pretend lenders?.

    Question remains – “WHAT IN BLAZES IS GOING ON HERE?” And why is the government concealing it?

  6. DNY

    PS the big wig @ Fannie Mae, quoted in the article was with PHH Mortgage Corporation, which was smacked down in the October 09′ White Plains ruling for being unable to produce the note.

    Another question that this article raises is that how is a person to know if their mortgage was taken back on the books of the initial lending institution, shouldn’t that be part of the equation for people seeking loan modifications or at least information that can lawfully be requested and answered in a QWR?

  7. DNY

    I have been seeking information on the same issue, with Fannie Mae MBS. Was told by serviser that Fannie Mae owns loan, retrieved documents at county clerk show that loan was sold in 2005 to the SERVICER from local community lending institution, and has a stamp stating

    “this assignment is not subject to requirements of section 275 of the Real Property law because it is an assignment within the secondary mortgage market”

    There is a provision in NY State law that allows this disclosure but that is the last assignment, at least as of this month.

    The problem I have with this is that since the servicer is not a bank, who will Fannie Mae force to take back the loan, the community bank that sold it and was paid in full?

    If the loan was/is assigned via the servicer acting as a conduit to an MBS pool that was issued by Fannie Mae, how do you identify the “investor’s” and/or real party of interest since Fannie Mae does not file the same type of prospectus, 424B5, 8K, etc. as banks do with the SEC, or do they, and I am just to confused.

    I have found other filings, MBS prospectus by the servicer with the SEC, but there is no mention of Fannie Mae”owned loans” in the documents or in the flow charts. Just the same cast of characters identified , Wells Fargo, JP Morgan etc, and the servicer is clearly a conduit.

    Which has me even more confused, is Fannie Mae “owning” your loan considered one and the same as simply guaranteeing your loan for the investors in the MBS pool.

  8. So if the Freddie, Fannie mortgages were “faulty,” and the borrowers were to join together with the “investors” or “real owners” to go after the intermediaries who got rich off of all the frauds and undisclosed fees, just where would that place Freddie and Fannie? Would they be considered allies, or “meddling interlopers?” Part of the problem or part of the solution?

    Or do Freddie and Fannie simply have fragrant feces that exempts them from criticism or blame?





  10. I’m grateful for all you folks do.

    You rarely discuss mortgage securitization issues relating to the GSE’s.

    Could you comment on this article in today’s Bloomberg:

    “Fannie, Freddie Ask Banks to Eat Soured Mortgages” at

    and the implications for those fighting Fannie, Freddie foreclosures? An excerpt below:

    “March 5 (Bloomberg) — Fannie Mae and Freddie Mac may force lenders including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. to buy back $21 billion of home loans this year as part of a crackdown on faulty mortgages.”

  11. “The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.”

    my question is.. so who do we file a complaint with re; ftc’s complicity in this mortgage mess = [financial criss]..
    FTC will claim .what? Plausible Deniability …my ass !

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