Countrywide pact challenged by Justice Dept
NEW YORK (Reuters) - The U.S. Justice Department has challenged an agreement that Countrywide Financial Corp reached in a bankruptcy court in Pittsburgh, saying it would make it harder to investigate and sue the mortgage lending giant.
Last month, Countrywide agreed to pay $325,000 to the Chapter 13 bankruptcy trustee in Pittsburgh, Ronda Winnecour, to cover legal costs and settle litigation accusing it of abusive practices in 293 separate cases.
But the Justice Department said a "non-disparagement" clause in the Countrywide agreement might impede its own investigation of the lender. The Office of the U.S. Trustee is a Justice Department arm that handles bankruptcy cases.
"The non-disparagement provision is over broad and may impede, impair or otherwise chill witness testimony in the United States Trustee's ongoing investigation of Countrywide or in current or anticipated litigation against Countrywide," Acting U.S. Trustee Roberta DeAngelis wrote on August 4.
DeAngelis called for the non-disparagement provision to be stricken or revised to make clear it won't impede her office or other investigations or litigation by third parties.
She said Winnecour, acting as Chapter 13 trustee for the region that includes Pittsburgh, could not bind the U.S. Trustee in other regions. The Wall Street Journal earlier reported DeAngelis' request.
U.S. Bankruptcy Judge Thomas Agresti was expected Monday to consider at a hearing whether to approve the agreement. A clerk for the court did not immediately return a call for comment.
Bank of America Corp bought Countrywide last month for about $2.5 billion.
The Justice Department has sued Countrywide in Florida, Georgia and Ohio, claiming abuse or mismanagement in bankruptcy and foreclosure processes.
Countrywide is also under investigation by the FBI, which has said it has 21 corporate targets in its probe of potential corporate fraud in the mortgage industry.
A Bank of America spokeswoman had no immediate comment. Non-disparagement clauses are common in settlement agreements.
In her lawsuit, Winnecour has alleged Countrywide made inaccurate claims, filed unnecessary court papers and demanded improper fees and charges. She also accused Countrywide of losing or destroying more than $500,000 in checks paid by homeowners in foreclosure from December 2005 to April 2007.
Chapter 13 cases can allow people to avoid losing their homes to foreclosure if they pay all or some of their debts.
(Additional reporting by Tenzin Pema in Bangalore; Editing by Erica Billingham/Jeffrey Benkoe)
