Judge Authorizes Probe Into Countrywide Practices
>>>Often have I mentioned the impact of the continuing negative press on the general markets in the summer of '02. And then the crash and burn in October - nine months after the final interest rate cut. Deja vu all over again. I think that orange will match Tan Angelo skin tone very well. "An investigatory free for all???" Count on it. Its an election year and some sacrificial lambs are required. Only in this case we are talking wolves.<<<
By PEG BRICKLEY
April 2, 2008 1:28 p.m.
In a key victory for the U.S. Justice Department, a federal judge has authorized an in-depth probe of Countrywide Financial Corp.'s mortgage processing systems by bankruptcy investigators hunting for evidence the lender systematically abuses borrowers.
Judge Thomas Agresti of the U.S. Bankruptcy Court in Pittsburgh on Tuesday gave the green light to an inquiry into "the impact of Countrywide's bankruptcy procedures on the integrity of the bankruptcy process" by the Office of the U.S. Trustee, a Justice Department arm that polices the bankruptcy courts.
In a 50-page opinion, Judge Agresti dismissed Countrywide's protests that authorizing a probe by the trustee's office could have "staggering implications" for other big mortgage lenders by triggering an investigatory "free-for-all."
He said an investigation was warranted because the trustee's office had demonstrated "a common thread of potential wrongdoing" in several bankruptcy cases involving Countrywide.
The trustee's office asserted it needed to look into widespread allegations that Countrywide chronically mishandles mortgage payments, pumps up bills with improper fees and charges and ignores court orders while pursuing troubled consumers.
Countrywide, the nation's biggest mortgage lender, has acknowledged some errors. But it denies that mistreatment of homeowners is a built-in feature of its mortgage processing backroom systems.
Judge Agresti is presiding over 293 cases in the U.S. Bankruptcy Court in Pittsburgh that involve allegations of misconduct by Countrywide. The allegations include claims that the lender slapped improper fees on bankrupt homeowners, refused to cash checks from court officials, and violated court orders. Countrywide has also been accused in one case of fabricating documents.
The Calabasas, Calif., company faces similar accusations from the Justice Department in courts nationwide.
Judge Agresti's ruling marks an advance for bankruptcy watchdogs in a closely watched test of their authority. Countrywide had argued that the trustee's office had no authority to question its practices.
If the investigation were authorized, Countrywide argued, credit card companies, home lenders, auto finance agencies and other lenders could also find themselves targets of a probe.
"There are 5,000 cases where Countrywide is involved," a Countrywide attorney, Richard Connop, said at a Feb. 28 court hearing. "Who can guess how many are involving other mortgage lenders, how many involve credit card companies,...how many involve automobile-financing companies?"
Judge Agresti brushed aside that argument saying, a widespread investigation of all types of lenders was a "scenario that will likely never occur." He said he was "not aware of any clamor" to conduct investigations of companies that aren't in bankruptcy proceedings.
Judge Agresti's decision could speed action in lawsuits filed in February in courts in Ohio, Florida and Georgia. Brought by the U.S. Trustees for those regions, the suits target the same alleged wrongful practices as the Pittsburgh cases, and seek an injunction barring Countrywide from continuing with them.
Recent court filings indicate the U.S. Trustee and Countrywide are in talks about resolving their disputes. Neither the company nor the Justice Department would say Tuesday how broad-ranging the settlement talks are. Rick Simon, Countrywide spokesman, said the company does not comment on active litigation.
With Bank of America Corp. poised to acquire the company, Countrywide could be under pressure to resolve its battles with the Justice Department, observers said.
"Countrywide has simply been out of control for several years with these bogus fees, obviously because with the drop in origination income they needed to ramp up the servicing income," said O. Max Gardner III, a consumer bankruptcy lawyer. "Bank of America, on the other hand, does not want to buy "Rosemary's Baby.'"
A settlement also could have broader implications. "I have the impression that the U.S. Trustee believes that any national settlement with Countrywide can then be used as a model or benchmark in the form of a best practices guide for all other mortgage servicers," Mr. Gardner said. |
