Legal News

Countrywide?s Legal Woes Spread Country-wide; Next Stop: Illinois

By Dan Slater

Repeated slammings by bankruptcy judges and the DOJ for alleged misconduct against borrowers. Speculation by the FBI of widespread fraud in originations. A shareholder derivative suit. Ouch.

Countrywide CEO Angelo Mozilo speaks during a panel discussion on the subprime fallout in Beverly Hills, California, October, 2007. (Credit: Associated Press/Ric Francis)

What’s next for embattled Countrywide? Today, the Illinois AG’s office plans to file a civil suit against the mortgage lender and its CEO, Angelo Mozilo, alleging that the company engaged in “unfair and deceptive practices” in the sale of mortgage loans. A draft of the 78-page complaint, according to the WSJ, says the company loosened its underwriting standards, structured loans with “risky features” and engaged in “marketing and sales techniques” that incentivized employees and mortgage brokers to push loans whether or not homeowners had the ability to repay them. Here’s another story on the expected suit from the NYT.

The complaint reportedly says C’wide’s actions were driven by its desire to boost market share and to satisfy Wall Street’s appetite for mortgage securities. “Investor demand and secondary market valuation…became the primary concern when determining what kinds of loans to market and sell and at what price, rather than the consumers’ ability to repay the loans,” says the complaint.

According to the NYT, Illinois AG Lisa Madigan said her her office discovered e-mail messages automatically sent by C’wide to its borrowers offering complimentary loan reviews one year after they obtained their mortgages from the company. “Happy Anniversary!” the messages reportedly stated. “Many home values skyrocketed over the past year. That means that you may have thousands of dollars of home equity to borrow from at rates much lower than most credit cards.”

Countrywide,whose shareholders are expected to vote today to approve the purchase of the company by BofA, didn’t return calls seeking comment.

Full post as published by Law Blog - WSJ.com on June 25, 2008 (boomark / email).