Judge OKs subpoenas in Countrywide probe

posted on:
April 2, 2008

author:
Staff

category:
Fraud

PITTSBURGH (AP) — A federal judge ruled the Justice Department can subpoena documents and question Countrywide Financial Corp. executives under oath to determine whether the lender abused borrowers and the bankruptcy-court process.

U.S. Bankruptcy Judge Thomas Agresti said “it certainly has not been proven that Countrywide did anything wrong,” but noted a bankruptcy trustee “has made a showing of a common thread of potential wrongdoing” in several cases. The cases are a representative sample of nearly 300 Pennsylvania bankruptcy cases involving Countrywide borrowers.

The potential wrongdoing warrants further inquiry by a bankruptcy trustee on behalf of the Justice Department, Agresti said.

Fed plans BofA-Countrywide hearings

Countrywide and other mortgage companies have come under scrutiny amid a surge in home loan defaults by borrowers with poor credit histories.

Countrywide (CFC, Fortune 500), the nation’s largest mortgage lender and home loan servicer, has sought to address the growing number of defaults on its books by modifying loan terms, working out long-term repayment plans and other actions.

The company has acknowledged errors in handling some debts, but has denied any systematic effort to thwart bankruptcy protections to collect money.

Some bankrupt borrowers, however, have accused the company of threatening them with foreclosure even after they made payments under court-approved bankruptcy plans that were meant to shield them from Countrywide’s subsequent efforts to collect the debts.

Agresti’s 50-page ruling was issued late Tuesday in Pittsburgh. A Countrywide attorney did not immediately return a call for comment Wednesday.

Countrywide attorneys had previously argued that the subpoenas were beyond the scope of the bankruptcy trustee’s powers and that the trustee’s requests to interview Countrywide executives under oath amounted to an illegal “fishing expedition.”

Agresti said in his opinion that he retains the power to rein in the trustee to prevent any such abuses.

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The decision is likely to speed up legal action taken by federal bankruptcy trustees in Ohio, Florida and Georgia who have sued Countrywide seeking court orders to bar the allegedly illegal practices.

Agresti is overseeing 293 cases filed in Pittsburgh that include allegations that Countrywide sought improper fees or payments from bankrupt homeowners and otherwise violated bankruptcy court orders and regulations.

Countrywide had previously agreed to produce documents detailing its protocols for receiving, recording, processing and accounting any payments made by its bankrupt customers, among other items.

Under Agresti’s order, the lender will now also provide mortgage notes and other documents used to compute the outstanding debt in the relevant cases. The government will also be allowed to question a Countrywide executive about its policies, including how the company keeps customer records and files various bankruptcy court documents.

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