Countrywide Home Loans is one step closer to possible federal criminal indictment following a bankruptcy judge’s decision to allow the Justice Department wide authority to investigate whether the largest U.S. mortage lender has serially cheated bankrupt borrowers in bankruptcy cases.
Judge Thomas P. Agresti of the U.S. Bankruptcy Court for the Western District of Pennsylvania said U.S. Trustee Kelly Beaudin Stapleton has the power to subpoena documents and question Countrywide officials under oath about questionable actions the lender allegedly took in borrower-bankruptcy cases.
Countrywide had argued that the U.S. trustee had limited authority to investigate specific issues in particular cases or proceedings and could not seek discovery related to general policies and procedures Countrywide followed in its business affairs.
The U.S. Trustee contends that Countrywide filed inaccurate proofs of claim, filed unwarranted motions for relief from the bankruptcy stay, inaccurately accounted for funds, and made unfounded payment demands to debtors after discharge.
According to Judge Agresti’s opinion in In re Countrywide Home Loans Inc., No. 07-00204, 2008 WL 868041 (Bankr. W.D. Pa. Apr. 1, 2008), similar allegations have been raised against Countrywide in at least 293 separate borrower-bankruptcy cases just in the Western District of Pennsylvania.
In addition, Countrywide has been accused of similar abuses against borrowers across the country, and faces additional trustee lawsuits in Georgia, Ohio and Florida.
The judge’s decision in Pennsylvania does not bind other bankruptcy courts, but it could influence judges in other courts as the Justice Department pursues alleged abuses by Countrywide in other states.
In rejecting Countrywide’s claim that allowing the probe would cause chaos in the mortgage industry, the judge wrote that “The U.S. Trustee has made a showing of a common thread of potential wrongdoing.”
“The apparent point of Countrywide’s argument is that recognizing the authority of the U.S. Trustee to conduct these examinations could have the unintended consequence of leading to an unregulated ‘free-for-all,”’ he continued. “The court find’s Countrywide’s argument … to be without merit.”
In 2006 Countrywide financed 20% of all mortgages in the United States.
Countrywide itself narrowly avoided bankruptcy due to its exposure to subprime mortgages when Bank of America agreed to purchase the home mortgage giant in January for $4.2 billion.
Countrywide is still in the business of making home loans, and according to a recent article in Slate.com, it is still making zero down-payment loans.
In some instances, according to the article, Countrywide is foreclosing on properties, then offering new buyers zero down-payment mortgages plus their own free appraisal of the foreclosed property.
According to the Countrywide Foreclosure Blog, Countrywide’s own website currently lists 14,541 bank-owned (REO) properties for sale with a combined asking price of $2,984,273,174. The largest number of these properties, by far, are in California, with 4,493 properties with a combined asking price of $1,294,972,540.
For an update on the federal judge’s decision to allow a multi-million dollar shareholders’ lawsuit against Angelo R. Mozilo and other Countrywide executives to proceed, click here.