Schumer Blasts "Vulture Mentality" of Servicers, Suggests BofA Reconsider Countrywide Deal
A Senate Judiciary subcomittee hearing on Tuesday became the latest example of the scrutiny now being placed on default servicing practices within the mortgage banking industry -- with an academic, a U.S. Senator, former owners, and a well-known Chapter 13 Trustee piling it on over alleged abuses of the bankruptcy process by the nation's largest servicer. The lone industry representative in the room was Steve Bailey, senior managing director of loan administration for Countrywide Financial Corp. (CFC), who characterized media reports of widespread abuse of the bankruptcy process by the nation's largest loan servicers as "inaccurate" and said that the lender's error rate was less than one percent for mistakes that "adversely impact a borrower." We're pretty glad we weren't in Bailey's shoes yesterday. Senator Charles Schumer (D-NY), chairman of the Judiciary Subcommittee on Administrative Oversight and the Courts, which held the hearing, took issue with the suggestion that errors were few and far between. "Indeed, Countrywide today says problems exist in only a small number – maybe 1 percent of their cases, or about 650 of the 65,000 cases Countrywide has in bankruptcy," Schumer said. "But court records seem to tell a dramatically different story." While he didn't produce evidence of court records showing a more widespread error rate than Countrywide claimed, the New York Senator did blame what he called a "vulture mentality" among mortgage servicers. "As bankruptcies swell and defaults rise and revenue streams dry up, I fear a vulture mentality is developing in some quarters," he said. "And that vulture mentality threatens to turn the dream of home ownership into an even worse nightmare than it has been for many already." Schumer went so far as to question whether Bank of America should continue with its $4 billion pending purchase of Countrywide. "I’ve always wondered why Bank of America – a fine institution with a good reputation – was willing to purchase Countrywide, given its recent history, and I understand that there has been encouragement by the financial regulators to make this transaction happen," Schumer said. "These latest revelations should make Bank of America think even harder about how they want to proceed with the deal." BofA, for the record, has said it will shutter the Countrywide brand upon acquisition. Debra Miller, a Chapter 13 trustee in the Northern District of Indiana, said in her testimony that "debtors tell us of demand letters for thousands of dollars and accuse us, their attorneys and the bankruptcy system for denying them the fresh start the Bankruptcy Code promises." Miller said the blame should instead be placed squarely at the feet of servicers, who she said face "systemic problems" in process management and execution. Countrywide's Bailey said that while the servicer has made mistakes, it's working to improve, including conducting an escrow analysis on each loan shortly after a bankruptcy filing date and engaging an independent auditor to review its handling of bankruptcy filings. Schumer suggested that whatever Countrywide was doing to improve wasn't enough. "There are too many horror stories, too many investigations, too many sanctions imposed for us to simply take the word of a company spokesman that 'mistakes were made' and that they were few in number," he said. "We need a thorough and public accounting of industry practices." Disclosure: The author was long CFC when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.