Capital Markets

Judge Rejects Countrywide Chap. 13 Settlement

Pittsburgh-based federal bankruptcy court sides with borrowers, saying it is "not comfortable" with terms and issues covered.
Stephen TaubAugust 18, 2008

Countrywide Financial Corp.’s reorganization suffered a setback when a federal bankruptcy judge rejected a settlement offer.

Chapter 13 bankruptcy trustee Ronda Winnecour said that the settlement, which calls for the one-time subprime lending giant to pay $325,000 to the trustee to cover costs and settle litigation in 293 separate cases, was not fair to those borrowers allegedly hurt by the mortgage lender’s abusive practices, according to a Reuters report.

Winnecour reportedly alleged that Countrywide had made inaccurate claims to borrowers, filed unnecessary court papers and demanded improper fees and charges. She also accused the lender, recently acquired by Bank of America Corp., of losing or destroying more than $500,000 in checks paid by homeowners in foreclosure.

In addition, the wire service noted that Pittsburgh-based U.S. Banktruptcy Court Judge Thomas Agresti had said that the settlement failed to address many issues. “While there definitely appears to be good intention in this regard, the court is concerned that the essential substance of the settlement agreement leaves too much open to future contingencies,” he wrote in his 13-page order, Reuters said. In a footnote, he added, “The court is not comfortable.”

Reuters also pointed out that Agresti criticized plans to make the entire $325,000 payment to the trustee because Winnecour once proposed that one-third of the payment should go to the borrowers’ lawyers. “Perhaps there is a justifiable reason for such a one-sided allocation,” but the evidence “is not sufficient,” the judge wrote.