Livinglies's Weblog

WHILE the wheels of justice have turned very slowly in the years since our nation’s financiers and regulators nearly cratered our economy, the Federal Trade Commission’s settlement last Monday with Countrywide Home Loans suggests that they haven’t entirely ground to a halt.

Countrywide, now a unit of Bank of America, was once led by Angelo Mozilo and was the nation’s largest mortgage lender in the glorious, pre-crisis days of the housing boom. But it was also a predatory institution, and the F.T.C., citing Countrywide’s serial abuse of troubled borrowers, extracted a $108 million fine from Bank of America last week.

That money will go back to some 200,000 customers whom Countrywide forced to pay outsized fees for foreclosure services. These included billing a borrower $300 to have a property’s lawn mowed and levying $2,500 in trustees’ fees on another borrower, when the going rate for that service was about $600.

Though Countrywide’s mortgage contracts specifically barred such practices, they served the company well by generating income during downturns when it was harder to keep making money off new mortgages. This “counter-cyclical diversification strategy,” as Countrywide called it, was designed to “extract the last dollar out of the pockets of the most desperate consumers,” said Jon Leibowitz, the F.T.C. chairman.

Mr. Leibowitz also said Countrywide made bogus claims about what homeowners owed during the resolution of bankruptcy cases and added fees to borrowers’ obligations without notice. His office’s investigation turned up cases in which Countrywide tried to collect improper fees years after a bankruptcy case was over.

In some cases, Mr. Leibowitz said, even after a distressed homeowner became up-to-date on all of his or her payments, Countrywide would start another foreclosure proceeding against the same borrower.

PRETTY shameful, all in all. But nothing new to lawyers who represent troubled borrowers. They say these kinds of abuses still occur.

“We’ve been screaming about these practices for I don’t know how many years now,” said David B. Shaev, a lawyer in New York City who represents consumers. “A lot of the fees seem like nickel-and-dime charges, but they add up to big money. The $108 million in the Countrywide case is the tip of the iceberg.”

The other dubious Countrywide actions identified by the F.T.C. — pursuing foreclosure improperly, adding fees without notice — also sound familiar to consumer lawyers across the country.

Consider a recent federal bankruptcy case in Houston involving Wells Fargo. The facts of the case were outlined last month in a harsh contempt ruling against the bank by Judge Jeff Bohm.

Back in 2003, Antoinette and Lenord De La Fuente filed for bankruptcy protection after they fell behind on their Washington Mutual mortgage. Court filings show they proposed a restructuring plan that called for 60 monthly payments to the bankruptcy trustee, who would in turn distribute the money to their creditors. The bankruptcy court agreed to the couple’s plan in June 2004.

The couple dutifully made their payments. Wells Fargo took over their loan in June 2007 and the next January sent the couple a letter accusing them of being delinquent by $8,400. Wells told them that they had until mid-February to come up with the money or the bank would start foreclosure proceedings.

The court documents show that the borrowers tried unsuccessfully to argue that Wells was wrong. But Wells refused to back down; afraid they would lose their home, the couple struck a forbearance agreement and received a loan modification in April 2008.

This loan modification violated the borrowers’ repayment plan. “Wells Fargo frightened the De La Fuentes into making payments to Wells Fargo in violation of the confirmation order,” Judge Bohm wrote.

In June 2008, the couple hired a lawyer to investigate the dispute with Wells; they filed a lawsuit against the bank that August. About a year later, Wells offered to settle with the couple. In a court-approved settlement, Wells stated that the couple were indeed current on their $66,572 mortgage and owed no outstanding fees or charges. Wells agreed to pay the couple about $30,000 for their legal fees.

With that, the couple thought their problem with Wells had been solved.

But in November 2009, Wells told them their mortgage balance had mysteriously increased to almost $71,000, even though they had made all of their payments. Two months later, Mrs. De La Fuente noticed that Wells had reversed several of the mortgage payments she and her husband had made. When she asked Wells why, she was told her loan was in bankruptcy status; if she wanted to resolve the problem, she would have to pay almost $9,000. Late fees were also accruing.

The couple and their lawyer went back to court and accused Wells of violating the settlement agreement. After hearing testimony, the court agreed. It also didn’t buy the argument of Wells that errors, including a computer glitch, caused the couple’s problems.

“The court certainly agrees that ‘mistakes happen,’ ” Judge Bohm wrote. “However, when mistakes happen not once, not twice, but repeatedly, and when actions are not taken to correct these mistakes within a reasonable period of time, the failure to right the wrong — particularly when the basis for the problem is a months-long violation of an agreed judgment — the excuse of ‘mistakes happen’ has no credence.”

Judge Bohm also punted Wells’s claim that its problems with the couple were anomalies. He cited three other federal cases — one in Florida and two in Louisiana — in which Wells improperly collected money from borrowers, applied payments inappropriately, overcharged borrowers or failed to keep accurate records. The judge imposed $11,825 in fines on Wells and required it to pay $4,544 in lawyer’s fees to the De La Fuentes.

Teri Schrettenbrunner, a Wells Fargo spokeswoman, said, “There is no doubt here that we didn’t handle this case well, but it is rare that you see a confluence of this many errors coming together as you did on this case.”

She contended that a vast majority of Wells’s mortgage customers are satisfied with it and that its operations are nothing like Countrywide’s. “There are significant contrasts between the way Countrywide did business and the way we do business,” she said.

NEVERTHELESS, for imperiled borrowers, the new scrutiny on foreclosure practices is long overdue. Thankfully, the United States Trustee, the Department of Justice unit that oversees the nation’s bankruptcy courts, is also investigating possible improprieties among lenders, mortgage servicers and the law firms that represent them in bankruptcy cases against homeowners. The trustee’s office assisted the F.T.C. in the Countrywide matter.

It’s a slow process, to be sure. But at least it is proceeding.