Washington Federal sued Countrywide Financial, now owned by Bank of America, alleging that it misrepresented the quality of approximately 1,000 mortgages it purchased, HousingWire reported Oct. 18. The claim also suggested that Countrywide did not appropriately service the mortgages.
The loans, which were acquired over a three-year period beginning in 2004, reached $400 million in the original aggregate balance, according to the complaint by Seattle-based Washington Federal. The bank also accused Countrywide of breaching at least one representation of warranty in the mortgage loan purchase and servicing agreement.
Although Bank of America did not commented on the case, it already has sought a declaratory judgment in a California court stating that Countrywide did not breach its contractual obligations to Washington Federal, HousingWire reported.
Washington Federal asserted that Countrywide was tasked with servicing the mortgages and did not adhere to guidelines regarding how to handle borrowers, foreclosure proceedings or how to maintain real estate-owned properties.
Among the alleged deficiencies uncovered by Washington Federal were mortgages listed as having full documentation when the loans lacked income verification, discrepancies between loan interest rates listed on the mortgage schedule and mortgage notes with fiscal deficiencies
Additionally, the suit alleged that Countrywide and its affiliates failed to “take reasonable measures to protect the value of Washington Federal's collateral by taking control of abandoned properties or evicting persons in unlawful possession,” HousingWire reported.
The bank further contended that Countrywide’s failure to adhere to the contract resulted in diminished market value on underlying collateral of the entire portfolio and therefore servicing fees paid to Bank of America should be returned; because of alleged incompetence, the fees were not earned.
Washington Federal has asked the court to order Bank of America to buy back all its defaulted or charged-off loans under the agreement, requested that all servicing fees be refunded and asked for an order stating that Countrywide’s failure to properly service the loans breached the original contract.