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Thursday, July 18, 2024 | Back issues
Courthouse News Service Courthouse News Service

U.S., States & Banks Reach Sweeping $25 Billion Deal

(CN) - The nation's five largest mortgage lenders agreed Monday to settle foreclosure-abuse claims filed the same day for $25 billion.

Misconduct by more than a dozen mortgage lenders led to the waste of taxpayer funds, according to the complaint filed by the federal government, 49 states and the District of Columbia. Oklahoma is the lone state that did not participate in the 49-page federal complaint, filed in Washington, D.C.

Bank of America, J.P. Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. filed the unprecedented joint agreements that resolve violations of state and federal law.

"In the course of their conduct, management and oversight of loan servicing in the plaintiff states, the banks have engaged in a pattern of unfair and deceptive practices," the lawsuit states.

These alleged failures include charging excessive fees when an account enters default, failing to maintain accurate account statements, improper oversight of third-party contractors and misleading borrowers.

Mortgage lenders and their services approved by the Federal Housing Administration are required to avoid the foreclosure of single-family residential mortgages insured by the Department of Housing and Urban Development, according to the complaint.

And the government says the banks were supposed to modify the mortgages for borrowers in default under the terms of the 2008 bailout.

"In the course of their conduct, management and oversight of loan modifications in the plaintiff states, the banks have engaged in a pattern of unfair and deceptive practices," the complaint states.

The missteps of the now-defunct Countrywide Bank account for a great deal of the lawsuit. As an FHA-approved "direct endorsement lender," Countrywide was allegedly responsible for determining whether proposed single-family insured mortgage met the agency's rules and requirements.

"During the period 2003 through April 30, 2009, Countrywide knowingly failed to comply with HUD regulations and requirements of the Direct Endorsement Program governing the origination and underwriting of FHA-insured loans," the lawsuit states. "As a result, the FHA has thus far incurred hundreds of millions of dollars in damages with respect to claims paid for loans that Countrywide knowingly made to unqualified borrowers. Additionally, thousands of the Countrywide loans are currently in default and have not yet been submitted as claims to the FHA."

The government says it has received many claims from Bank of America, which bought Countrywide in 2008 and merged with its loan-servicing operation, over the bad loans.

Another section of the lawsuit addresses the banks' allegedly inadequate bankruptcy procedures.

Since many borrowers in foreclosure are members of the military, the government says the banks are in violation of the Servicemembers Civil Relief Act.

"The banks wrongfully charged interest rates in excess of 6 percent per annum to servicemembers who were on military service or otherwise protected by the SCRA on mortgage debts that were incurred by servicemembers or servicemembers and their spouses jointly before servicemembers entered military service and after servicemembers had made valid requests to lower their interest rates, as provided for by the SCRA."

In addition to the SCRA claim, the complaint alleged unfair and deceptive consumer practices, violations of the False Claims Act, violation of the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

The plaintiffs are represented by Assistant U.S. Attorney Keith Morgan.

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