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Countrywide Settles Lending Suit in Pennsylvania

Gretchen Morgenson|The New York Times
Wednesday, 16 Jul 2008 | 4:04 AM ET

Countrywide Home Loans has agreed to pay $325,000 to the Chapter 13 bankruptcy trustee in Pittsburgh, settling a matter that accused the lender of abusive practices in almost 300 mortgage loans overseen by the court.

AP

Skip to next paragraph The settlement, which has been filed with the court and must be approved by the federal judge overseeing it, arose out of motions filed last October by Ronda J. Winnecour, the Chapter 13 trustee for the district of Western Pennsylvania.

Saying that the company had lost or destroyed more than $500,000 in checks paid by homeowners in foreclosure from December 2005 to April 2007, Ms. Winnecour asked the bankruptcy court to impose sanctions against Countrywide, the nation’s largest loan servicer.

Ms. Winnecour said she was concerned that Countrywide had been charging borrowers late fees and legal costs even though it was responsible for misplacing or destroying their checks.

“The integrity of the bankruptcy process is threatened when a single creditor dishonors its obligation to provide a truthful and accurate account of the funds it has received,” Ms. Winnecour said in requesting sanctions.

Countrywide, which was acquired by Bank of America this month, disputed Ms. Winnecour’s allegations about the lost checks, saying the company had no record of having received the payments which the trustee said had been sent. But on June 18, Countrywide settled the case with her office.

David Schrempf, a spokesman for Ms. Winnecour, declined to comment on the settlement pending its approval by Thomas P. Agresti, United States bankruptcy judge for the Western District of Pennsylvania.

A Bank of America spokesman also declined to comment. Under the terms of the settlement, Countrywide will pay the trustee’s office $325,000 to cover its costs of prosecuting the troubled borrowers’ cases. The settlement also requires Countrywide to reconcile the amounts it contended the roughly 300 borrowers owed with the figures Ms. Winnecour’s office has compiled.

If there are discrepancies, Countrywide will either adjust its records to be consistent with the trustee’s or provide evidence showing why Ms. Winnecour’s numbers are inaccurate, the settlement states.

Questionable practices by loan servicers have been under investigation by the Office of the United States Trustee, a division of the Justice Department that monitors the bankruptcy system, since October. It said then that it would move against mortgage servicing companies that file false or inaccurate claims, assess unreasonable fees or fail to account properly for loan payments after a bankruptcy has been discharged.

Last March, the United States Trustee sued Countrywide over a 2005 bankruptcy filing involving John Wayne Atchley and Robin April Atchley, homeowners in Waleska, Ga. Countrywide serviced their loan and levied improper fees on the borrowers; the company also claimed that the Atchleys were behind on their mortgage on two occasions when they were current on the loan, the trustee’s suit contended.

As more borrowers enter foreclosure, the fees charged by loan servicers during the process are coming under increased scrutiny. Countrywide generated $285 million in late fees last year, up 20 percent from 2005. Late fees accounted for 7.5 percent of Countrywide’s servicing revenue last year.

One aspect of the settlement between Countrywide and the trustee’s office involves improper demands for escrow made by the company to borrowers Rodney and Lori Thompson. The couple disputed the amounts levied by Countrywide to cover property taxes and insurance.

Under the agreement, the lender will eliminate the amounts it said are owed, waive all future escrow requirements and pay their lawyer $7,000 to settle claims the couple may have against Countrywide relating to the escrow matter.

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