Judge OKs probe of Countrywide

The Justice Department can question Countrywide Financial Corp. executives under oath and subpoena company documents to determine whether the lender abused borrowers and the bankruptcy process, a federal judge ruled.

The department’s Office of the U.S. Trustee, which monitors bankruptcy proceedings, “has made a showing of a common thread of potential wrongdoing” by Countrywide in a sample of 293 cases, Bankruptcy Judge Thomas Agresti said in a ruling Tuesday. But he added that “it certainly has not been proven that Countrywide did anything wrong.”

The nearly 300 cases filed in Pittsburgh include allegations that Countrywide sought improper fees or payments from homeowners and otherwise violated Bankruptcy Court orders and regulations.

Some borrowers have accused the company of threatening them with foreclosure even after they made payments under plans approved by the Bankruptcy Court to shield them from subsequent efforts to collect the debts.

Calabasas-based Countrywide has acknowledged errors in handling some debts but has denied any systematic effort to thwart bankruptcy protections.

The company had argued in court that the U.S. trustee’s requests amounted to an illegal “fishing expedition” outside the agency’s scope.

A Countrywide attorney did not return a call for comment Wednesday.

The ruling could influence other Bankruptcy Court judges as the trustee’s office pursues alleged abuses by Countrywide. U.S. trustees have also filed lawsuits in Florida, Georgia and Ohio.

Countrywide, which has agreed to be acquired by Bank of America Corp. for more than $4 billion in stock, had argued that the existence of a bankruptcy case “does not open the door for the U.S. trustee to hale a creditor into an examination room to give sworn testimony and produce documents relating to its general corporate affairs.”

The judge disagreed, saying he was unaware of “any clamor” for trustees to investigate other lenders.

“The decision in this matter should not be based on a scenario that will likely never occur,” the judge wrote.