Illinois And California Are Suing Countrywide For Deceptive Lending And Fraud

The Attorneys General of Illinois and California announced today that they are suing Countrywide Financial for its role in the subprime mortgage meltdown.

The Illinois lawsuit alleges Countrywide “caused significant harm to the public, the market, and scores of Illinois borrowers and homeowners,” and seeks damages for residents affected by foreclosure. Attorney General Jerry Brown of California accuses Countrywide of deceptively marketing risky mortgages to consumers and plotting to “mass produce loans for sale on the secondary market.” The California lawsuit also seeks restitution for affected borrowers. Both lawsuits also named Countrywide CEO Angelo Mozilo as a defendant.
Illinois to Sue Countrywide Over Lending Practices [CNN]
Calif AG Sues Countrywide Over Alleged Loan Scheme [NYT]

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  1. Pennsylvanian123 says:

    I admire the AGs trying to hold these companies accountable, but I predict this will be yet another case wherein lawyers make lots of money and the public gets nothing for their trouble. Too little, too late. Where were the AGs three years ago when all of this was actually happening and everyone knew what was coming down the line in a year or two? They were probably courting giant campaign contributions from Countrywide.

  2. snoop-blog says:

    Now I wonder what will be said about those who “walked away” from their homes.

  3. DarrenO says:

    Yeah, let’s not blame the idiots who bought homes that they couldn’t afford at all for the problems. It had to be the company giving the loans and their big flashy ads. What’s next? Are we going to sue Coors because there is actually no love train that sweeps in and cools everything off on a hot day??

  4. tedyc03 says:

    This was a tactical move by the AG’s. Countrywide only today approved the sale of itself to Bank of America. Now that the two companies are joined together, there’s money at the end of the line (assets owned by BofA) rather than debt. A lawsuit earlier would have scuttled the deal to be sure.

  5. Vanguardtruth says:

    @DarrenO: I’m completely on your side here, but let’s examine the situation from another perspective to gain clarity: When someone goes for a mortgage, they are offered a rate, they examine their finances and decide they can handle it, and accept the terms that the mortgage company has laid out for them. Shouldn’t the company issuing the mortgages seen that these people had no ability to pay back these loans? Also, consider the amount of fine print that goes into mortgage documentation. I believe that it really is joint responsibility here. It wasn’t stupid consumers jumping into something they didn’t examine fully, but by the same token it surely wasn’t big evil corporations stealing money from innocent consumers. The question is what is the balance of responsibility? 50/50? 60/40?

  6. bohemian says:

    Part of the purpose of a lawsuit is to deter that behavior in the future either from that specific company. It also hopes to deter other companies from doing the same thing because of the one made example out of. Since you can’t jail a company financial punishment is about the only recourse. With exceptions of individuals like the two Bear Stearns employees recently arrested for their actions.

  7. smirkette says:

    @DarrenO: I think there were a number of irresponsible buyers out there, and yes, they should have to face the consequences for their actions. I also think that the large lenders weren’t entirely honest and upfront with the realities of their mortgages. Some were downright dishonest. None of the parties involved should get off without some sort of negative consequence.

  8. Somebody has to restore some sanity to the home mortgage lending markets. I’ve been reading about some of these loans that were approved -fake jobs, fake W2′s, fake credit reports, manipulated FICO’s, fake assets.

    Three years ago I refinanced my home mortgage, and I had to all but give a drop of blood to prove my economic and personal info. I am at a loss to see how these fraudulent apps went on for so long and people continued to approve them, and no one appears to have said boo.

    I want to see some rolling heads.

  9. snoop-blog says:

    @DarrenO: yep. That’s exactly what were going to do. Lets sue the fuck out of coors for their false advertising and piss water! I can’t believe the nerve of coors advertising a train, which the whole time I’ve been waiting for to rescue me from my heat exhaustion, but then to find out the train doesn’t exist?! What, does Coors actually think we wouldn’t find out about this? What was I supposed to think when those commercials came on, that drinking an ice cold coors would cool me down on a hot day? Because I totally was under the impression, until DarrenO pointed it out, that the train passed by my house 3 times a day, instantly cooling off my neighborhood by spewing ice, snow and cold air.

  10. Gev says:

    Wow, making a Countrywide logo that looks like the Enron logo. How edgy.

    Do you folks by chance spell Microsoft with a ‘$’ too?

    I’m also curious as to why no one is blaming the people who bought way more house than they could afford. Just because someone is willing to give you a loan does not mean you should take it.

  11. The Stork says:

    @Pennsylvanian123: “They were probably courting giant campaign contributions from Countrywide.”

    Doubtful for IL’s Lisa Madigan. She seems to take her job as AG far more seriously than most…and it’s why she’ll most likely be elected governor in 2010.

  12. snoop-blog says:

    @Alex Chasick, can we get a post exposing this whole coors love train. As DarrenO pointed out, this post is pretty much in that same catagory.

    How can you commenters sit here and discuss the mortgage crisis when there’s a whole coors love train being falsely advertised to us? Are we really just going to sit here and do nothing about this? What an outrage!

  13. csdiego says:

    @SF_iris: Sure. Throw the book at EVERYONE who drove up my housing costs, mortgage brokers and higher-ups on the financial food chain, speculators and houseflippers, while I plodded along like a chump, working and saving money for a downpayment. I’ve got no problem with that.

  14. CSchnack says:

    Having problems submitting so this may be a duplicate…sorry.

    Many in the real estate and mortgage industries SHOULD go to jail. Some apparently less well connected ones are. But when it’s a big company, they often pay inconsequential fines without admitting wrong-doing.

    There seems to be a pervasive attitude in corporate thinking that it’s good business practice as long as it’s profitable AND you get away with it. Too many American citizens are resigned to this. And when they do speak up they’re considered rabble rousers or nuts. Consumers and consumer org’s were reporting on these types of fraud years ago, even issues as serious as forged documents, etc. Little was done to help them, but now that banks and investors have been harmed, it’s “mortgage fraud” and something may be done. It was fraud when it was just consumers getting burned too.

    Consumers didn’t invent toxic loans and aggressively push them, nor did they sell the bad loans as investments, etc. This was industry doing. In fact the FBI reported two yrs ago that 80% of mortgage fraud was done by insiders. While I certainly don’t defend any consumer who knowingly went along with fraud, or who threw caution to the wind even though they had the information necessary to avoid problems, who is the burden on to be a “professional?” Aren’t the professionals in the industry at least as obligated to do their due diligence? Are they not the ones with the education, training, credentials, etc, to make loans? Personal responsibility should extend to “persons” working for companies, too, not just consumers.

  15. WiglyWorm must cease and decist says:

    Is it just me or does the countrywide logo look alot like the enron logo?

    Same folks, perhaps? ;)

  16. donopolis says:

    @Pennsylvanian123:

    Well, as a Texas resident, I can tell you that the general public never got a taste of that 300 billion dollar tobacco lawsuit, but the lawyers are sitting pretty…

    @DarrenO:

    While a consumer should certainly be held accountable for their actions in buying a home they couldn’t afford, I don’t think it’s out of order to believe that the widespread epidemic of this type of foreclosures and money problems might be a clue that perhaps there were some predatory lending practices being used…ie: lying on applications to get them approved to start.

    Remember that part of a money lending institutions responsibility is to educate. Not prey on a first time home buyer.

    Donopolis

  17. Sargasm says:

    @tedyc03: Eek! We ended up with Countrywide after our standard mortgage was sold to Countrywide two weeks after we closed. I’m new to Consumerist and these BofA stories have me quaking in my financial boots. As long as BofA doesn’t send me the same amount of junk mail begging me to refinance that Countrywide does, maybe all will be well? We have a fixed, so nothing aught to change, right? Famous last words?

  18. Sargasm says:

    @Sargasm: *OUGHT – sorry

  19. Starfury says:

    Sort of why Youtube wasn’t sued over piracy until Google bought them.

    As for blame: It’s probably both parties faults: Countrywide for pushing the loans and people stupid enough to take them. I’m sure some of the foreclosures were speculators but in those cases that was a risk they took.

  20. scientician says:

    @CSchnack:
    Well said.

    Dealing with Countrywide is an exercise in frustration. The only thing that gets done is the work they have farmed out, mostly to law firm initiating actions on Countrywide’s behalf.

  21. scientician says:

    @donopolis:
    Attorneys, like the Illinois and Cali AG don’t see a dime of settlements arising out of lawsuits like this. They work for the state on salary to benefit the people of those states. The only attorneys that will benefit are those representing Countrywide because they charge by the hour.

    As far as tobacco settlements go, I believe that money is earmarked for health payments and tobacco education. Now whether that money is spent in that way is another matter.

  22. scientician says:

    I should add that if the work is too difficult for the state AG’s they will bring in outside counsel to work on the case

  23. Alex Chasick says:

    What is a coors love train? Is it something from Urban Dictionary?

  24. dragonvpm says:

    The NYT also has an article covering the Illinois lawsuit:

    [www.nytimes.com]

    and to those who love blaming the consumer, In reviewing one Illinois mortgage broker’s sales of Countrywide loans, the complaint said the “vast majority of the loans had inflated income, almost all without the borrower’s knowledge.”

    So much for the theory that most people were screwing the system to buy houses they couldn’t afford, etc… Makes sense really. Who is more likely to really try to con the system? Random home buyers who are just trying to buy a house, or companies who make their money based on closings and who reward their staff based on the number of loans they made, not (for instance) the number of loans they made that didn’t default.

  25. rmz says:

    @WiglyWorm: You’re a quick one.

  26. Jakuub says:

    Obviously you guys complaining about the supposed non-existence of the Coors Train aren’t true believes in the the cold, refreshing taste of the Rockies, hence it’s never coming to your area. The train stops by my apartment at least once a day, sometimes more frequently. I even sold my AC unit, because it’s been rendered pointless by the constant influx of snow and ice cold beer. Saving me a good $20/mo in electric.

  27. vildechaia says:

    An anagram for “countrywide” is “cry united ow.” I think it’s time for me to go home now.

  28. dragonvpm says:

    @Gev: The part of the equation you leave out is:

    Random Person: “This is my financial/credit situation, how much can I get to buy a house?”

    Mortgage Broker: “Oh well let me play with some numbers, and even though I personally wouldn’t lend you a quarter for the parking meter, if I fudge a few numbers we can get you 3x more house than you could possible pay for”

    Except they don’t say that, they only tell them a number and assure them it’s not a risk at all.

    Sure, everyone should do due diligence etc…, but I find it interesting how many folks love blaming the consumers because individual people should always be fully informed about everything and they should always act in honest and truthful ways, but the big companies aren’t blamed as much because all companies screw the little guy and people who got screwed should have known better.

    The only problem this time is that the big companies started believing their BS and quite a few of them were left holding some steaming piles of worthless paper.

  29. snoop-blog says:

    @Jakuub: thanks for making me laugh really hard!

  30. gnubian says:

    On top of being sued, Countrywide shareholders approved the BoA takeover today (CNN has said this several times now) .. here’s a link

    [money.cnn.com]

  31. snoop-blog says:

    @Jakuub: I’ll give you another lmao, because I re-read it, and laughed some more.

  32. Trai_Dep says:

    @dragonvpm: Awesome cite!

  33. sean77 says:

    @DarrenO: No, you sue coors because their “silver bullet” doesn’t kill werewolves.

  34. blainer says:

    @sean77: Thanks goodness for that. It could have ruined my bar mitzvah! Spooky! Scary!

  35. snoop-blog says:

    @sean77: Well it depends on how many the werewolfe drank?

  36. failurate says:

    @The Stork: Lisa Madigan’s dad has zero influence in that state.
    The Madigans are old school Chicago politicians… and we all know how squeaky clean Chicago politicians are.

  37. snoop-blog says:

    @failurate: so are you suggesting that politicians outside of chicago are saints?

  38. failurate says:

    @snoop-blog: More likely than not, there is a shakedown going on.
    Chicago politicians don’t talk about big ideas like justice, and fairness to get votes, like other politicians do. Voting doesn’t even matter in Chicago/Illinois.

  39. Concerned_Citizen says:

    Are they going to prove Countrywide lied about the variable interest rate’s risk? The variable interest rate is what killed everyone. The lying about incomes to get more loans approved hurt their stock holders, it did not hurt the people trying to get the loans.

  40. Snowblind says:

    The situation was created and identified some time ago:

    [findarticles.com]

    in short, pressured to enter minority ownership programs banks lowered lending restrictions. (Hey I got my house under that same minority program in 1998, except I am not defaulting on mine because I did not rape the equity out of it.)

    Once the gate was down, everyone could get a loan with the relaxed requirements.

  41. Coles_Law says:

    I’m torn by this whole mess. Undoubtedly there were people who bought a huge house hoping to flip it and make a quick buck. There were also people whose brokers slid a ARM with minimum payments less than the interest under their noses and assured them that was their “monthly payment”. Who falls into which camp? That’s a mess in and of itself. I’m sure Countrywide has loans in both camps and everywhere in between.

  42. JayDeEm says:

    There is plenty of blame to go around on this one, and it should be shared by all parties involved. What I really have a problem with is the repeated references to ‘stupid’ borrowers in these threads. The decisions a person makes are only as good as the information they have available to them. For some people that comes from experience, for most first time buyers I would imagine that comes from family, friends, their own research and perhaps most importantly the institution issuing the loans.

    Add in greed, personal agendas, speculation and a sense of urgency among first time buyers and you have an environment for plenty of bad, or if you prefer ‘stupid’ decisions. But what to do?

    I’m no financial guru, but why can’t lenders (or whoever is holding the loan) convert it to a reasonable fixed rate and add a few years of payments to cover the artificially low rate of the original ARM? Any viable solution is going to end up costing all parties some money, and it should, but no single entity should be left holding the bag.

  43. @CSchnack: My favorite answer here by far; thanks, and if you don’t mind, I’m posting it on my website (www.puredoxyk.com) as an example of the kind of point of view that’s sorely missing from this “debate” / blamefest.

    Even terms like “subprime” are designed to make it sound like there’s something wrong with these *borrowers*, rather than that the LOANS are bad.

    I help people with bad loans every single day — it’s my job, at a nonprofit — and in the 2 years I’ve been doing this I’ve seen less than ten people who were stupid or trying to get away with something when they got a bad loan. The vast, VAST majority are caused by bad deals brokered by “professionals” who were motivated to make those bad deals by the kickbacks and extra commissions offered BY BANKS on those loans. And the banks, who seem to feel so entitled to government help here while arguing that consumers don’t deserve any, most often did NOTHING to check or verify that these were in any way reasonable deals before signing the papers and selling the loan as fast as they could to somebody else.

    Anyway, thank you for the bit of rationality. I can’t read the rest of this thread, because I learned a while ago that it will make me want to punch holes in things. All you glib people who are so anxious to blame families for not knowing what brokers are supposed to be trained in, for not being able to out-smart a whole system weighed against them when they had no representation for their side whatsoever, come volunteer at my office any day you like. YOU tell the family that was just trying to get money to fix their driveway, or lower their monthly payment, whose only crime was listening to a crooked professional while a crooked bank colluded on the side, that they’re about to lose the home they raised their kids in. Oh, and don’t forget to explain to them that there’s no chance the bank will give them any mercy unless they shell out to hire a lawyer, thanks to the government’s decision to make fixing this problem “voluntary” on their parts. Have fun.

  44. RStewie says:

    I just bought a house, and I’m uber happy with it, and my lender (USAA…squee!), BUT they wouldn’t tell me what the monthly rate would be for the LONGEST time. Not because they’re sneaky, they just had to have all the paperwork done and blah blah blah…but STILL…I can understand how people could be suckered into getting a much larger mortgage than they could afford. Add to that the adjustable rate, that I’m sure was sold as “not really going to go up any time soon, and you’ll always have the option to refinance”, and I can see the problem.

    But I understood the REAL problem here was when they packaged mortages that were risky in an underhanded way to make them a A++ rated investment…

  45. MPHinPgh says:

    @DarrenO: You’re right about the buyers being idiots, but you still have to fault the mortgage companies. Those idiot buyers should never have been given loans, but since the companies saw that they could make a ton of money…you know the rest.