California sues Countrywide over loan practices
By Jim Wasserman - This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
Published 9:06 am PDT Wednesday, June 25, 2008



California Attorney General Jerry Brown filed a lawsuit Wednesday against the nation's largest home loan lender, charging Calabassas-based Countrywide Financial Corp. with deceptively pushing homeowners into risky, mass-produced loans that have caused thousands of residents across the state to lose their homes.

Brown joins the state of Illinois, which is also expected to file a similar lawsuit today against the lender. Both states are alleging that Countrywide's practices are liable for thousands of foreclosures that have damaged their economies and housing markets.

Brown was scheduled to hold a 9 a.m. news conference in Beverly Hills. In a statement early Wednesday, the attorney general said, "Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market.

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

The lawsuits, filed in Los Angeles Superior Court, seek unspecified financial damages for homeowners who lost homes or money as a result of the company's loan practices. It also seeks civil penalties of $2,500 per violation.

Countrywide could not immediately be reached for comment.

The Florida attorney general has also subpoenaed Countrywide for an investigation into its loan practices.

During the housing boom, Countrywide became the nation's largest lender.

But Brown charges its success resulted from intense pressure and financial incentives for managers and sales staff to sell risky loans without regard to the borrower's ability to repay them. The lawsuit singles out a variety of "teaser rate" loans that Countrywide and other lenders specialized in as housing prices rose. Those offered interest rates as low as 1 percent.

The state's lawsuit said many borrowers assumed those were permanent rates, then quickly found themselves making higher monthly payments than they expected or could afford.

Now thousands of borrowers across California are defaulting on those loans. The lawsuit notes that 20,000 Californians lost their homes in May alone and 72,000 were in default, meaning they were at least two months behind on payments. It also cited Countrywide's own February 2008 records that 27 percent of its subprime loans given to borrowers with spotty credit histories were delinquent.

The suit alleges that Countrywide lowered its lending standards to place large numbers of loans in the "secondary market," a term for packaging them into mortgage-backed securities and selling them to global investors. The suit alleges that the company set up a division in Texas to grant exceptions to even those standards.

Countrywide and its affiliates was the largest home loan lender from June 2005 to June 2007 in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties.

The lender and affiliates made 34,304 loans during that period, 7.5 percent of all home purchase loans, refinancings and home equity loans, according to statistics from DataQuick Information Systems.