POCKET CHANGE!! BofA’s Countrywide settles with FTC for $108 million

(Reuters) – Bank of America Corp has agreed to pay $108 million to settle government charges that its Countrywide unit, the mortgage lender that became synonymous with risky lending practices, bilked borrowers with misleading and excessive fees.

Housing Market

The Federal Trade Commission said two Countrywide mortgage servicing units deceived cash-strapped homeowners by overcharging them by hundreds or thousands of dollars, sometimes when they were already in bankruptcy.

The alleged activity took place before Bank of America acquired the distressed lender in 2008.

The settlement is a small win for regulators trying to hold to account those who contributed to the deep financial crisis.

The agency called the $108 million settlement one of the largest in an FTC case and the largest in a mortgage servicing case. The FTC has no jurisdiction over banks but does have jurisdiction over deceptive practices by non-bank financial services and products firms.

Countrywide, which was once the nation’s top mortgage lender, “profited from making risky loans to homeowners during the boom years, and then profited again when the loans failed,” said FTC Chairman Jon Leibowitz, noting that some fees during the foreclosure process were marked up more than 400 percent.

Bank of America said in a statement that it agreed to the settlement to void the expense and distraction of litigating the case. There was no admission of wrongdoing.

The FTC said the $108 million, which represents the amount consumers were overcharged, would be used to repay borrowers but could take months to sort out.

“The record-keeping of Countrywide was abysmal,” said Leibowitz. “Most frat houses have better record-keeping than Countrywide.”

In May, Countrywide agreed to a $624 million settlement of a class action lawsuit accusing it of misleading investors about its lending practices. The case was led by several pension funds, including the New York State Common Retirement Fund, that state’s $129.4 billion public pension fund, and five New York City pension funds.

Once the largest U.S. mortgage lender, Countrywide and its long-time chief executive, Angelo Mozilo, became known for risky lending practices that helped fuel the U.S. housing boom and subsequent bust.

Countrywide nearly collapsed as credit markets tightened, before Bank of America agreed to buy it in January 2008 in a stock deal valued at about $4 billion.

Mozilo and two other former Countrywide executives remain defendants in a U.S. Securities and Exchange Commission civil fraud lawsuit.

The SEC alleges that Mozilo hid from investors the deteriorating prospects of Countrywide, and conducted insider trading by entering a systematic stock selling plan in late 2006, knowing that the mortgage lender’s prospects would worsen.

The SEC claimed Mozilo violated insider trading rules in generating a $139 million profit by exercising stock options in 2006 and 2007.

It said the exercises came after he admitted in an email to colleagues that Countrywide was “flying blind” as to the quality of its loans.

Sen. Charles Schumer, a New York Democrat and a member of the panel working out final wording on a comprehensive overhaul of Wall Street, called the FTC settlement “a major breakthrough that closes one of the ugliest chapters of the entire subprime mortgage crisis.”

“Anyone who believes the blame for the housing crisis rests with borrowers should read this settlement and learn just how shameless these lenders were during these years,” Schumer said.

(Additional reporting by Diane Bartz in Washington and by Joe Rauch in Charlotte; editing by John Wallace and Gerald E. McCormick)

Assignee Liability in the Secondary Mortgage Market

“Rather, the ASF’s concern is the ad hoc body of federal and state law that currently subjects innocent secondary market assignees to liability.”

Interesting point:

Shifting the burden for predatory practices from cheated subprime borrowers to passive investors and other subprime borrowers simply shifts the burden of predatory practices among innocent parties

Irony!

The primary market actors directly responsible for harmful predatory practices already are subject to extensive, if sometimes ineffective, government regulation.
Position Paper
of the
American Securitization Forum
June 2007
snip…………………………………………
It is important to remember that, although the holder-in-due-course doctrine constitutes an important protection for innocent assignees, it does not afford an absolute protection to all assignees. In order to benefit from holder-in-due-course status, an assignee must take the loan in good faith and cannot have actual or implied knowledge of a variety of loan defects, including that the loan was originated through fraudulent means. Courts will also deny holder-in-due-course status to an assignee that has such a close connection with the originator that the originator effectively is an agent of the assignee35 or where knowledge of the originator’s wrongdoing can be imputed to the assignee on some other basis, such as joint-venture or aiding-and-abetting theories.36 In addition, assignees that engage in wrongful conduct themselves in connection with mortgage loans are subject to potentially serious liability under a variety of federal and state legislation.37

The ASF does not contest the scope of liability under these laws for secondary market assignees that are culpable. Rather, the ASF’s concern is the ad hoc body of federal and state law that currently subjects innocent secondary market assignees to liability. This body of law lacks coherence and is often internally inconsistent, in part because the perception that assignees must be held responsible for the sins of loan originators becomes more politically salient during periods of turmoil in the housing market. At such times, there is a tendency for lawmakers to turn to the secondary market as the deep pockets available to compensate for the failure of regulatory authorities to effectively oversee and punish those loan originators that engage in illegal conduct.