Countrywide Financial is in serious trouble on the same day that its stockholders approved the company's sale to Bank of America.
The attorney generals of Illinois and California both filed lawsuits today, alleging a wide range of suspect dealings with customers, which led to spiking foreclosures. The Illinois suit, filed in Cook County (Ill.) Court, names the company and CEO Angelo Mozilo; the California lawsuit, filed in Los Angeles Superior Court, names the company, Mozilo, and president David Sambol.
Washington Gov. Chris Gregoire made her state the third to go after Countrywide Financial, announcing plans to fine Countrywide $1 million, force the company to pay $5 million in back assessments, and revoke its license to do business in the state.
Countrywide, based in Calabasas, Calif., did not return a reporter's phone call or emails today requesting comment. Its pending owner, Bank of America, also declined to comment on the situation.
The Illinois suit contends that Countrywide sold risky and expensive loan products to borrowers who could not afford them. As failure rates increased, the company did not slow down its mortgage originations, but intensified its effort to push, "unaffordable and poorly underwritten loans to satisfy its obligations to Wall Street investors," according to a statement.
"Countrywide's unfair lending practices have harmed tens of thousands of borrowers who've been placed in unaffordable loans and, as a result, our communities are now being destabilized by a skyrocketing number of home foreclosures," Illinois Attorney General Lisa Madigan said in a statement.
Madigan, whose office conducted a nine-month investigation into Countrywide, goes on to charge the company with relaxing underwriting standards to qualify borrowers with insufficient income and assets, inflating borrowers' income on loan applications, and underwriting borrowers for less than the full amount of the loan.
"As a result, Countrywide put borrowers into loans that they could never afford, leading to high failure rates," Madigan said in a press release.
California Attorney General Edmund G. Brown Jr.'s lawsuit makes many of the same allegations.
"Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market," Brown said in a statement. "The company sold ever-increasing numbers of complex and risky home loans as quickly as possible. Countrywide was, in essence, a mass-production loan factory, producing ever-increasing streams of debt without regard for borrowers. Today's lawsuit seeks relief for Californians who were ripped off by Countrywide's deceptive scheme."
Among the charges levied by Brown is that Countrywide employees overrode the company's computerized underwriting system (CLUES), which issued analysis reports on loans, recommending or discouraging loans based on a number of factors.
"As the pressure to produce loans increased, Countrywide set up an entire department in Plano, Texas, at the direction of Mozilo and Sambol, where employees could submit requests for underwriting exceptions," the press release reads. "In 2006, 15,000 to 20,000 loans a month were processed through this exception process."
Washington state Department of Financial Institutions conducted a fair lending examination of Countrywide in 2007, looking over 600 individual loans, and uncovered evidence that Countrywide engaged in discriminatory lending that targeted Washington's minorities.
"I hope to learn eventually just how much this may have contributed to foreclosures in our state," Gregoire said in a statement announcing the charges. "The allegation offers evidence that Countrywide engaged in a pattern to target minority groups and engage in predatory practices."
Saying the allegation was, "extremely troubling to me," Gregoire talked tough on the mortgage lending giant that currently finds itself in the midst of several lawsuits alleging bad lending practices.
"We intend to bring the full weight of the state on Countrywide to rewrite home loans for minority borrowers who may have been misled into signing predatory mortgages," Gregoire said in a statement.
The Illinois suit asks the court to rescind or reform all Countrywide loans originated under unfair or deceptive practices, including providing financial relief to borrowers who lost their homes to foreclosure, refinancing, sale, or have loans still being serviced by Countrywide. The suit asks Countrywide to repurchase loans from current investor owners where necessary. Madigan is also asking the court to allow the attorney general's office 90 days to review loans currently serviced by Countrywide that are moving toward foreclosure or that were originated using deceptive or unfair practices, to see if the loans can be modified to be more affordable, Madigan's statement says.
The California attorney general's statement makes less clear its desired outcome but does ask Countrywide to unclassify some material it supplied the state investigators.
The story of the Illinois lawsuit was first reported in The New York Times and other news sources. The Wall Street Journal was among the first to report today that the California attorney general has filed a civil lawsuit.
Ethan Butterfield is senior editor, business, at BUILDER magazine.
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