Bank of America (BOA) [official website] subsidiary Countrywide Home Loans, Inc. on Monday reached a $108 million settlement agreement [text, PDF] with the Federal Trade Commission (FTC) [official website] to resolve charges that the subsidiary collected excessive fees from homeowners facing foreclosure. The agreement allows the FTC to create a fund to provide refunds to borrowers affected by Countrywide's improper fees. The FTC complaint [text, PDF] claimed that Countrywide made risky loans to homeowners, then used third party vendors to increase service charges [press release] after borrowers began to default on their loans:
When borrowers fall behind on their payments, Defendants obtain a number of default-related services (such as property inspections and foreclosure trustee services) by funneling the work through a panoply of Countrywide subsidiaries. As a matter of practice, Defendants and the subsidiaries add a substantial mark-up to their actual costs for the services and then charge the borrower the marked-up fees. Defendants' marked-up fees violate the mortgage contract because they exceed the actual cost of the services and are not reasonable and appropriate to protect the note holder's interest in the property and rights under the security instrument. Borrowers do not have any choice in who performs default-related services or the cost of those services, and they do not have the option to shop for those services.Countrywide also failed to tell borrowers when it added new charges to their mortgages and made "false or unsupported claims" to borrowers about the how much they owed on their loans. The settlement does not include an admission of wrongdoing by BOA but requires the company to stop the improper practices. The $108 million represents one of the largest judgments imposed in an FTC case, and the largest mortgage servicing case.
In February, a district court judge accepted a $150 million dollar settlement agreement [JURIST report] between BOA and the Securities and Exchange Commission (SEC) [official website]. The SEC had charged [JURIST report] BOA with misleading investors regarding billions of dollars paid to Merrill Lynch [corporate website] executives during the acquisition of the firm. The judge twice rejected a proposed settlement [JURIST report] between the SEC and BOA for $33 million, which did not admit any fault or directly penalize any corporate executives, calling the settlement unfair to the shareholders.