Legal News

Calif. AG sues Countrywide, alleging unfair, deceptive practices

By Jason Siegel

Troubled mortgage lender Countrywide Financial Corp. misled borrowers with unfair and deceptive practices that led them to take out risky home loans, according to a lawsuit filed on June 25 by California Attorney General Jerry Brown.

The suit came one day after the Illinois attorney general's office indicated that it intended to file a similar civil suit against the mortgage lender and its chief executive, Angelo Mozilo.

Meanwhile, Countrywide shareholders voted to accept a $3 billion takeover proposal by Bank of America Corp.

The California suit, filed in Los Angeles Superior Court, is People v. Countrywide Financial Corp., No. LC081846.

Countrywide, which lost $2.5 billion in defaults and foreclosures and has come to symbolize the subprime mortgage market collapse, focused a portion of its company on loans to consumers with poor credit by offering adjustable-rate mortgages, allegedly without disclosing that payments would rise rapidly months down the road. This would produce dramatic increases in monthly mortgage payments, according to the suit.

Countrywide avoided the risk of default from the subprime loans by repackaging them and selling them in the larger credit markets.

"Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market," Brown said.

"Countrywide was, in essence, a mass-production loan factory, producing ever-increasing streams of debt without regard for borrowers," he said.

"We are not going to comment on the specifics of the lawsuit, except to say that we are fully cooperating with the offices of the California and Illinois Attorneys General," according to a Countrywide's prepared statement. "Our mission remains to assist our customers. We are particularly focused on working with our customers who are having difficulty making their mortgage payments, or who foresee difficulty with future rate resets."

The company also issued a statement to announce that shareholders had approved its merger with Bank of America with a 69% majority.

The California suit alleges deceptive advertising and unfair competition against the firm, Mozilo and president David Sambol.

Brown pointed to Countrywide's 2006 annual report, which touted rapid grown in its loan production from $62 billion in 2000 to $463 billion in 2006 ­? triple the rate of increase for the U.S. residential loan production market during the same period.

-- Pamela A. MacLean

"AG Files Suit Against Countrywide," The Recorder
"State attorney general sues Countrywide," The San Francisco Chronicle

Full post as published by Legal Pad | LA on June 26, 2008 (boomark / email).