In the first state action against Countrywide Financial, the Attorney General of Illinois is suing Countrywide and its chief executive, Angelo Mozilo, claiming that the company and its executives engaged in unfair and deceptive practices that defrauded borrowers by selling them costly and defective loans that quickly went into foreclosure.
The lawsuit, which will be filed on Wednesday in Cook County, accuses Countrywide and Mozilo of improper underwriting standards, structuring loans with risky features, and misleading consumers with hidden fees and fake marketing claims, including its still heavily advertised “no closing costs loan.”
The complaint also alleges that Countrywide created incentives for its employees and brokers to sell questionable loans by paying them more on such sales.
The lawsuit asks for an unspecified amount of monetary damages and requests that the court require Countrywide to rescind or reform all the questionable loans it sold from 2004 through the present.
In addition, the lawsuit asks the Court to require that Mozilo personally contribute to paying the damages.
Illinois Attorney General Lisa Madigan also asks the court for 90 days to review any loans currently in foreclosure or moving toward foreclosure.
The complaint states that Countrywide was the largest lender in Illionis from 2004 through 2006, selling about 94,000 loans to consumers in the state. The company operated about 100 retail branch offices in Illinois and its loans were also offered by Illinois mortgage brokers. Countrywide also purchased loans through a network of 2,100 correspondent lenders in the state.
The complaint also describes dubious practices in Countrywide’s huge servicing arm, which oversees $1.5 trillion in loans.
For example, the complaint alleges that an Illinois consumer whose Countrywide mortgage was in foreclosure came home to find that the company had changed her locks and boarded up her home, although no judgment had been entered and no foreclosure sale conducted, and that It took a week for the homeowner to regain access to her home.
Attorney General Madigan claims that “People were put into loans they did not understand, could not afford and could not get out of. This mounting disaster has had an impact on individual homeowners statewide and is having an impact on the global economy. It is all from the greed of people like Angelo Mozilo.”
The lawsuit is being filed on the same day that Countrywide’s shareholders will meet to decide whether to agree to a sale of the company to Bank of America.
We’ve written before about why we think that Bank of America will ultimately pull out of the deal.
Adding to the arguments that we earlier made against Bank of America’s purchase of Countrywide, the New York Times notes that “The lawsuit adds to the considerable legal risks facing Bank of America as it prepares to absorb Countrywide in a takeover announced in January. Countrywide and its executives have been named as defendants in shareholder lawsuits, and the company’s practices are the subject of investigations by the Securities and Exchange Commission, the F.B.I. and the Federal Trade Commission, which oversees loan servicing companies.”
In addition to the Illinois lawsuit, at least three lawsuits against Countrywide have been filed by offices of the U. S. Trustee, part of the Department of Justice that monitors the bankruptcy system, contending that Countrywide’s loan servicing practices were an abuse of the bankruptcy system.
Countrywide CEO Angelo Mozilo also has troubles of his own.
Mozilo is the subject of a Securities and Exchanges Commission investigation into his sales of Countrywide stock before the price imploded; from 2005 to 2007 Angelo R. Mozilo sold much of his Countrywide stock realizing $291.5 million in profits.
And, as we’ve reported, Mozilo is at the center of the new controversy regarding recent revelations that politically connected “Friends of Angelo,” including U.S. Senators Christopher Dodd (D- Conn.) and Kent Conrad (D-N. Dak.), as well as members of both the current Bush and previous Clinton administrations, got special “V.I.P.” loans with extremely favorable terms from Countrywide.
In the last three quarters, Countrywide reported $2.5 billion in losses, and in the first quarter of 2008, total nonperforming assets reached $6 billion, almost five times that of the same period last year.
California has also sued Countrywide for deceptive practices.
You can read the story here.
You can also read the complaint in California v. Countrywide Financial Corp, Full Spectrum Lending, Angelo Mozilo, and David Sabol.