Countrywide Financial Corp. is the target of a multi-state federal investigation aimed at determining whether the Calabasas-based lender has been levying unjustified fees on consumers going through bankruptcy.
The U.S. trustee's office, the agency charged with monitoring the bankruptcy courts, has filed subpoenas in at least a dozen cases in Florida, Pennsylvania and Texas asking Countrywide for information about questionable claims for fees.
Countrywide has objected to the subpoenas, saying in court filings that the sweeping nature of the requests is unprecedented and part of a "series of attempts by the U.S. trustee to conduct a wholesale investigation into Countrywide's policies and procedures."
When asked to comment, company spokesman Rick Simon said in a written statement: "Countrywide's filings in these cases adequately set forth our public positions. In accordance with our accustomed policy, we won't comment further on these matters while they remain in litigation."
At issue are fees claimed by mortgage lenders against consumers attempting to work out payment plans through the U.S. Bankruptcy Court, said Michael A. Frank, a Miami-based attorney representing borrowers Manuel del Castillo and Maria E. Pena of Florida.
In that case, Countrywide filed a claim stating that the couple were behind in their mortgage payments by $16,417.67, which included $11,923.85 in advances to the couple's escrow account before the bankruptcy filing and a $682.88 "insufficient funds fee." The couple objected, saying that the lender "failed to attach any backup documentation" verifying the claims. Countrywide never responded, resulting in Del Castillo and Pena winning a default judgment, Frank said.
The lender also asked the court to boost the couple's required monthly payments from about $1,700 to $4,773.54.
The couple also objected to the proposed payment hike, saying that the company hadn't provided any details on how it was calculated.
"The question is whether [lenders] are doing this on purpose," Frank said. The claimed charges "are wrong all the time, and most people don't have the money to fight it."
The U.S. trustee asked Countrywide to provide details of how the company calculated the pre-petition escrow advance and the insufficient funds fee.
In another Florida case, Countrywide claimed that William and Joyce Chadwick owed $2,400 in overdue mortgage payments. Countrywide didn't appear at a hearing to review the charges, so the Chadwicks prevailed. The U.S. attorney in South Florida has also filed a subpoena to examine Countrywide's documents in that case.
The trustee's office said in legal filings in the Del Castillo-Pena case that it opened an inquiry to determine whether Countrywide's claims contained "factual misrepresentations" and "threatened an abuse of the bankruptcy system or its procedures."
In its court filings, Countrywide has called the subpoena requests "fishing expeditions" that exceed the regulator's authority. The trustee's office countered that it had a statutory obligation "to represent and protect the public."
Countrywide has acknowledged in legal filings that it has received 10 additional examination notices related to pending bankruptcy cases filed in Pennsylvania. An official in the U.S. trustee's office confirmed that a similar petition had been filed in a Texas bankruptcy as well.
It is unclear whether Countrywide is the only lender under scrutiny. Frank contends that mortgage lenders commonly overcharge borrowers in bankruptcy.
"It's not just Countrywide. It's everybody," he said. Mortgage lenders and servicers "make their money on these little junk fees."
Frank said borrowers in bankruptcy were strapped and ill-equipped to fight deep-pocket lenders over questionable charges.
A recent study of more than 1,700 foreclosures by Katherine M. Porter of the University of Iowa came to the same conclusion.
Questionable and unsubstantiated charges are commonly levied against troubled borrowers, Porter said in her study, which urged regulators to investigate further.