Several mortgage firms getting federal funds have spotty records

McClatchy NewspapersOctober 4, 2009 

WASHINGTON -- Several firms now participating in the Treasury's program to modify troubled mortgages have run into problems with federal or state regulators for their treatment of their customers over the years. Included are:

_ Select Portfolio Servicing Inc., a Utah-based company formerly known as Fairbanks Capital Corp. In 2003, Fairbanks agreed to pay $40 million because of mortgage servicing practices that included "force-placed insurance" — or sticking customers with unnecessary insurance costs — and failing to properly credit payments that came in on time. The company promised to improve its business practices — then it changed its name.

In 2007, the company, now called Select Portfolio Servicing, was back at the negotiating table with the federal government. According to an internal Federal Trade Commission memo, Select Portfolio customers continued to complain about the company, saying they'd been charged for what were called "optional products" such as prescription discount plans and life insurance. The federal government negotiated a new settlement that strengthened parts of the 2003 agreement.

Select didn't respond to requests for comment.

- Countrywide Home Loans Inc., part of Countrywide Financial, the company that was one of the major forces behind the rash of risky mortgages and which Bank of America Corp. purchased in July 2008.

According to a 2008 lawsuit by the Illinois attorney general and other states, consumers who fell behind on their mortgages and then called Countrywide were "shuffled from person to person and even department to department before reaching someone who can actually address their concerns." Even then, the lawsuit said, Countrywide demanded an upfront payment before working on a modification — and often, consumers paid up front even though there was no chance their loan could be reworked.

Beyond that, Countrywide refused to work with some homeowners. When one fell behind on her mortgage payment because she was being treated for breast cancer, her church raised money to help her out and sent the money to Countrywide. However, the company refused it because the check had been drawn on the church's account, the lawsuit said.

Other consumers were given modifications that actually raised their monthly payments. In one case, the attorney general's office had to intervene after Countrywide boarded up and changed the locks on a borrower's house before it had a legal judgment to do so.

In October 2008, Illinois Attorney General Lisa Madigan and 10 other states announced that Countrywide (and its new owner, Bank of America) had agreed to settle the case for $8.7 billion, the largest predatory lending settlement in history. Nationwide, about 400,000 homeowners were expected to get settlement funds to help them rework their Countrywide loans.

In announcing the Countrywide settlement, Bank of America said it has "committed significant resources and developed innovative programs to help as many Countrywide customers as possible."

Since then, the bank said it's surpassed projections for helping customers under the settlement agreement and Allen H. Jones, a Bank of America executive, said the bank is "committed to doing everything we can do keeping borrowers in their homes."

- Carrington Mortgage Services LLC, based in California, was sued in July by the Ohio attorney general for "providing incompetent, inadequate and inefficient customer service" for homeowners seeking modifications. The state said Carrington imposed unjustified fees and pressured borrowers into loan modifications that are "unconscionably one-sided" in Carrington's favor.

A Carrington spokesman said the company has modified loans for approximately half its customers and that company officials are "proud of our track record." He called the Ohio lawsuit "meritless."

- Saxon Mortgage Services Inc., a unit of Morgan Stanley, was sued in 2008 by the attorney general of Missouri. According to the lawsuit, Saxon failed to properly credit loan payments even after customers had proved the payments had cleared their bank accounts. Saxon then charged late fees to those customers, who couldn't get anybody on the phone when they called in for an explanation. While not admitting wrongdoing, Saxon settled the case and agreed to a voluntary compliance agreement.

A Saxon vice president, Greg Smallwood, said that after Missouri's investigation, the case resulted in no violations and no fines, and that the compliance agreement only stipulated that the company would continue to comply with the law.

- EMC Mortgage Corp. in 2008 settled with the Federal Trade Commission over its practices. According to the FTC, the firm charged homeowners unauthorized property inspection fees, unfair late fees, and "engaged in unlawful and abusive collection practices." It charged borrowers for "property inspection fees" even when the purpose of the inspector's visit was to attempt to collect on the loan. It masked its caller identification information to trick people into answering its multiple phone calls, the FTC said. EMC agreed to pay $28 million to settle the charges.

(The firm is now a subsidiary of J.P. Morgan Chase & Co., although it wasn't at the time of the infractions the FTC cited; Chase had no comment on the settlement.)

- Green Tree Servicing, a Minnesota company, agreed to a settlement with the Texas attorney general in 2006 over its handling of mobile home mortgages. According to Texas officials, Green Tree repossessed mobile homes and then sold them to unlicensed dealers. Those dealers, in turn, sold the homes to unwitting customers; some were uninhabitable, with overdue taxes and unpaid lot rents assessed against them. Green Tree agreed to stop working with unlicensed dealers and help homeowners who had been issued invalid titles.

Green Tree had no comment on the settlement.

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