Mortgage Lenders Exploit Homeowners in Bankruptcy Courts
Feature Story by Antoine Morris - 5/15/2008
Consumers facing financial difficulties often turn to bankruptcy courts in a good-faith effort to work out payment plans with their creditors. This includes families on the brink of losing their homes to foreclosure.
Lately, however, some mortgage servicers have come under scrutiny for foreclosing on homes prematurely and imposing unnecessary fees on borrowers during bankruptcy proceedings.
On May 6, the Subcommittee on Administration Oversight and the Courts, a subcommittee of the Senate Judiciary Committee, held a hearing to investigate the degree to which mortgage lenders and servicers are using predatory practices to take advantage of homeowners during bankruptcy proceedings.
Steve Bailey, the chief executive for loan administration at Countrywide Financial Corp., told committee members that criticism of the lending giant's treatment of its borrowers is unwarranted.
"Recent media reports alleging that mortgage servicers are systematically charging excessive fees and using the bankruptcy process to push borrowers into foreclosure or abusing the process more generally are inaccurate," Bailey said.
However, with Countrywide facing a federal inquiry examining their lending practices in several states, subcommittee Chairman Charles Schumer, D. N.Y., called Countrywide's claims of total innocence "dubious." He pointed out that in the Western District of Pennsylvania alone, 300 Countrywide cases were being reviewed by the Department of Justice.
"Companies know that the hapless homeowner is too poor, too unsophisticated or too overwhelmed to challenge often blatantly fraudulent demands for payment," said Sen. Schumer.
One witness, Robin Atchley of Georgia, told the subcommittee about her experience with Countrywide's practices. She said Countrywide tried to "take advantage of our predicament and to profit from our struggle" by adding an extra $14,000 to her mortgage balance and charging $2,250 in unspecified fees after the mortgage company prematurely initiated foreclosure proceedings against her.
The extra charges were dismissed after being vigorously challenged by her attorney in court.
Another witness at the hearing, bankruptcy law expert Katherine Porter, spoke about her recent study of bankruptcy cases. The study found that while Countrywide is the most notable example, other lenders, including Ameriquest and Fairbanks Capital Corp., also take advantage of borrowers in the bankruptcy system.
Of the 1,700 bankruptcy cases Porter studied, she said that "mortgage servicers disregard(ed) bankruptcy law in more than half of all cases."
"Rather than being a refuge for families trying to save their homes, bankruptcy creates new opportunities for mortgage servicing abuse," said Porter. "Systematic reform of the mortgage servicing industry is needed to protect all homeowners—inside and outside of bankruptcy—from illegal behavior."
