California sues Countrywide mortgage
Story By: Bea Karnes
Source: MSNBC
Countrywide Financial Corp. is accused of using misleading advertising and other unfair business practices to trick borrowers into taking on risky home loans they did not fully understand, in a lawsuit filed Wednesday by the California attorney general's office.
The lawsuit — filed on the same day Countrywide shareholders were scheduled to vote on the company's takeover by Bank of America Corp. — stems from information gathered under subpoena after the state launched a probe last year into the troubled company's business.
It also came on the same day the Illinois attorney general was filing a lawsuit alleging that Countrywide engaged in "unfair and deceptive" practices to get homeowners to apply for risky mortgages far beyond their means.
As the largest U.S. mortgage lender and servicer, Countrywide has been under scrutiny by federal and state authorities. It also faces numerous other lawsuits related to its lending practices
In the complaint filed in Superior Court, California Attorney General Jerry Brown asserts that Countrywide violated the state's unfair business practices and false advertising laws with just about every action it took to market and originate some of the most popular — and potentially risky — types of home loans in recent years.
"Defendants viewed borrowers as nothing more than the means for producing more loans, originating loans with little or no regard to borrowers' long-term ability to afford them and to sustain homeownership," the state claims in the suit, which also names as defendants Countrywide Chairman and CEO Angelo Mozilo and David Sambol, the lender's chief financial officer.
Countrywide did not immediately return a call seeking comment.
The state claims the company misled customers about the workings of home-equity loans and some types of adjustable-rate mortgages, including pay-option loans and low-documentation loans.
These loan types, which many other lenders offered during the housing boom, featured low initial payments and the potential for sharp increases after a few years. They now account for a large portion of the mortgages that have become delinquent or gone into default in the past year.
The lawsuit alleges Countrywide obscured the potential risks in the loans, misled consumers about payment terms, prepayment penalties and other obligations, and told borrowers they would be able to refinance before the interest rate on their loans adjusted.
The lender agreed in January to sell itself to Bank of America for about $4 billion in stock. The acquisition, now valued at around $2.8 billion, received clearance from the Federal Reserve earlier this month.
Assuming shareholders give their approval, Charlotte, North Carolina-based Bank of America has said it could close the deal as early as July 1.
