Firm Heeds Critics

Countrywide Financial Corp. said it is improving the way it services mortgages for homeowners in bankruptcy after U.S. trustees have raised concerns about its servicing practices and the fees it charges those borrowers who are seeking to restructure their debts and avoid foreclosure.

The Calabasas, Calif.-based company said it is implementing a three-point program that includes adopting "certain" best practices recommended by the National Association of Chapter 13 Trustees.

The giant servicer has arranged for an outside auditor to review a sample of loans in bankruptcy. This review will focus on pre- and post-petition filing and accounting for plan payments, CFC chief loan administrator Steve Bailey told a Senate panel last week.

Countrywide also is setting up a bankruptcy ombudsman's office so borrowers and their counsel get a high-level review of any discrepancies in the amount of mortgage debt due and any servicing fees.

Countrywide services 65,000 loans with borrowers in bankruptcy and Mr. Bailey testified that mistakes are made but internal reviews show minimal instances of errors.

Senate Judiciary Subcommittee chairman Charles Schumer, D-N.Y., pointed out that a U.S. trustee is reviewing 300 loans before the U.S. Bankruptcy Court in Pittsburgh, which suggests a higher error rate.

Sen. Schumer also expressed concerns that servicers like Countrywide pile on dubious and undocumented fees as a deliberate business strategy because they know homeowners are too overwhelmed to challenge these demands for payment.

"My message to unscrupulous lenders and servicers should be loud and clear: Congress will no longer countenance this vulture mentality," Sen. Schumer said.

Mr. Bailey denied Countrywide charges excessive fees or abuses the bankruptcy process. "Countrywide has always strived to accurately report and reflect the amounts due from borrowers so they can complete their bankruptcy plans and avoid foreclosure," he testified.

The director of the U.S. trustee program testified that mortgage servicers and their attorneys that file false financial information with the bankruptcy courts are coming under increased scrutiny.

So far, U.S. trustees have intervened in 16 bankruptcy cases involving mortgage servicers. "In addition, we are actively reviewing more than 30 cases in which we have not yet filed court papers," program director Clifford White testified.

These cases have become a "high priority" and they will be pursued aggressively, the Justice Department official told Sen. Schumer.

Sen. Schumer has raised questions about Bank of America's planned acquisition of Countrywide. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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