Countrywide Postpones Foreclosure Sales Amid Row with Borrowers, U.S. Trustee

Countrywide Financial Corp. voluntarily delayed 103 foreclosure sales in Texas yesterday, the Wall Street Journal reported Wednesday. The nation’s largest servicer is reeling from lawsuits by the U.S. Trustee Program in three states that claim “bad-faith conduct” and “abuse” of the courts, as well as a class-action lawsuit in Texas claiming that the lender has routinely attempted to foreclose on borrowers recently discharged from bankruptcy.

From the WSJ:

The Texas lawsuit, a putative class-action suit filed last month by five borrowers in Brownsville, alleges that the country’s No. 1 home lender by volume is foreclosing or attempting to foreclose on borrowers who had been discharged from bankruptcy and were current on their loans, and that Countrywide added hidden fees to debtors’ accounts. The suit seeks to stop the company from doing those alleged acts and asks for damages. The suit claims the company, in part because of flawed computer systems, “does not have policies and procedures in place” to properly account for borrower payments.

“Countrywide denies the allegations in the related complaint,” the company said in a statement.

“Countrywide’s failure to ensure the accuracy of its claims and pleadings has resulted
in an abuse of the bankruptcy process and has prejudiced, and will continue to prejudice, parties in interest in the bankruptcy cases in which Countrywide participates,” the U.S. Trustee said in court filings in Florida, Georgia and Ohio.

“Absent injunctive relief … Countrywide’s practices and conduct are likely to continue to prejudice parties in interest and result in additional abuses of the bankruptcy process.”

The core issue spanning all cases appears to be what one industry source, a manager at a national servicing operation, called “sloppiness” on the part of Countrywide. “They’re lacking in both systems and process, as are many servicers,” he said. “It’s just that these sort of deficiencies get magnified when you’re talking about the company that’s responsible for servicing 40 percent of the residential mortgage market.”

Most servicers operate on small margins and didn’t invest heavily in default management during the recent housing boom, or outsourced much of the default functions to vendors that haven’t experienced a strong industry downswing. The result is that many servicers have found themselves ill-prepared to manage a flood of borrower defaults and an associated spike in bankrtupcy activity, the source suggested.