Under the largest mortgage servicing settlement in the Federal Trade Commission's history, Bank of America is to repay former Countrywide Financial customers $108 million for what the FTC called "false or unsupported claims" in Chapter 13 bankruptcy proceedings and "illegal and excessive fees" charged to desperate homeowners.

Bank of America purchased Countrywide in July 2008 and admitted no wrongdoing on behalf of the company.

The FTC's complaint alleges that Countrywide acted improperly in numerous Chapter 13 bankruptcy proceedings where it was a creditor. The FTC also charges that Countrywide deceptively and illegally jacked up certain fees on properties in foreclosure in order to pad its bottom line during the housing crisis.

Making an End Run Around Chapter 13 Bankruptcy Protection

In the Chapter 13 cases, the FTC contends that Countrywide made "false or unsupported claims" to borrowers who had filed for Chapter 13 protection. When some borrowers filed for bankruptcy, Countrywide misled them about the amounts they owed and the status of their loans.

Countrywide also failed to tell some borrowers in bankruptcy that it was adding new fees or escrow charges to their loans, which may have violated bankruptcy law.

In other cases, Countrywide unlawfully continued to collect on the loans after the Chapter 13 cases were closed and the borrowers no longer had the protection of the bankruptcy courts. In some cases, Countrywide carried on trying to foreclose on the borrowers' homes -- and it failed to mention those collection actions to the bankruptcy courts.

'Taking Advantage of Borrowers Who Have Fallen Behind on Their Payments'

"Life is hard enough for homeowners who are having trouble paying their mortgage," FTC Chairman Jon Leibowitz said in a recent press release. "To have a major loan servicer like Countrywide piling on illegal and excessive fees is indefensible."

When homeowners default on their mortgages, it is customary for loan servicers to perform property inspections and regular maintenance on the properties in order to protect the value of the real estate during foreclosure.

According to the FTC's allegations, however, Countrywide set up an elaborate scheme to overcharge desperate homeowners in order to make up for losses it was experiencing as the housing market tanked.

"[R]ather than simply hire third-party vendors to perform the services," the FTC explained in its press release, "Countrywide created subsidiaries to hire the vendors. The subsidiaries marked up the price of the services charged by the vendors -- often by 100% or more -- and Countrywide then charged the homeowners the marked-up fees."

"[E]ven as the mortgage market collapsed and more homeowners fell into delinquency," the FTC continued," Countrywide earned substantial profits by funneling default-related services through subsidiaries that it created solely to generate revenue."

Around 200,000 former Countrywide mortgage borrowers could receive refunds under the $108 million settlement. Those who think they may be eligible do not need to take any action. Affected consumers will be mailed a letter in upcoming months.

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