Throwdown! Connecticut Sues Countrywide For Deceptive Lending

Someone ring a bell because Connecticut Attorney General Richard Blumenthal has just sued Countrywide (and, of course, Bank of America) for deceptive lending practices. They’re seeking damages of $100,000 for each violation, as well as “up to $5,000 per violation of state consumer protection laws, disgorgement of all ill-gotten gains and an order compelling the company to cease its illegal practices.”

Blumenthal, also known as the badass who sued Best Buy over their deceptive secret website, said this about our 2008 “Worst Company in America”:

“Countrywide was at their side — as an insolvency enabler. Countrywide inflated homeowner incomes to qualify them for loans they couldn’t pay back and misled consumers about loan terms.

“Countrywide stacked the deck and the deal against its customers: Our goal is to un-stack the deck — and undo the deals — restoring fairness and fiscal sense to mortgages. I will fight for restitution — money back to homeowners used and abused by Countrywide — as well as fines and forfeitures to the state. Our lawsuit seeks to invalidate loans that violate state law, allowing consumers to shed illegal, unreasonable fees and conditions that leave them at the precipice of foreclosure. We must vigorously fight predatory lending practices that trap consumers on a debt treadmill,” Blumenthal said.

Blumenthal has released a list of ways in which Countrywide allegedly violated Connecticut lending laws. Here it is in all its shady glory:

Blumenthal alleges Countrywide violated state consumer protection and banking laws by:

  • Encouraging consumers to take out loans the company knew or should have known they could not afford;

  • Improperly inflating consumers’ incomes to qualify them for loans they otherwise could not have received;

  • Providing loans with different and more expensive terms than consumers were promised;

  • Pressuring consumers into mortgages with temporary interest only payment options when the company knew or should have known they could not afford the higher payments that would come due later;

  • Providing variable rate loans to consumers with the assurance they could refinance before interest rates reset, only to later refuse to do so;

  • Sending at least one consumer rejected for a home equity loan at one Countrywide office to another company branch where the loan request was approved;

  • Demanding Connecticut consumers facing foreclosure pay excessive and inaccurate legal fees in order to reinstate their loans;

  • Promising to help homeowners “in financial difficulty to establish suitable payment plans,” but instead demanding loan modifications and repayment plans that were unsustainable, unaffordable or unsuitable.

If you’re interested, you can read the entire complaint here (PDF). Bank of America told the Wall Street Journal that they couldn’t comment on pending litigation, which is just as well because we had a “taking it seriously” post yesterday and we wouldn’t want to bore you or anything.

State Sues Countrywide For Allegedly Deceptive Loans And Loan Renegotiations, Unjustified Legal Fees [State of Connecticut]

Comments

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  1. sleze69 says:

    “Our lawsuit seeks to invalidate loans”

    Does that mean that the “victims” will get their houses for free? Sounds like they might be hitting the mortgage jackpot.

    There should be no questions remaining as to how Countrywide was able to defeat Comcast for the golden turd award.

  2. It’s still the home owners’ fault.

    Remember: blame people, not large corporations with billions of dollars and thousands of employees trained in finance.

    This has been a message from People Taught to Not Question Authority At a Young Age.

  3. evslin says:

    @sleze69: Does that mean that the “victims” will get their houses for free? Sounds like they might be hitting the mortgage jackpot.

    Nah, they’re asking for the loans to be invalidated, not forgiven. I’m guessing they restructure all the loans so everybody can continue making payments.

  4. theblackdog says:

    @evslin: Do you think they’ll be able to get fixed rate loans, or get stuck with another ARM?

  5. axiomatic says:

    its going to take a 100 year loan to correct some of these to the mortgage owners income rate. ouch.

  6. ElizabethD says:

    “Disgorgement” sounds violent. As it should be.

  7. Burgandy says:

    Its simple, the ones that can afford the payments get offered either a) a fixed rate or b) another ARM, those that pick B get a swift kick in the ass from every tax payer in the country. 2 if you helped screw up their property taxes. Those that can’t afford the mortgages at all, there are plenty of apartments for rent.

  8. TomCruisesTesticles says:

    BoA can kiss me. That’s right, you know what I am

  9. TomCruisesTesticles says:

    @TomCruisesTesticles: I can’t believe it! Somebody pinch me (couldn’t resist).@twophrasebark: I don’t disagree with you, but you can’t say that it is solely the homeowners’ fault what with the egregious and predatory practices. Not everyone is particularly bright (hard to believe, I know). It’s like someone falling for a pyramid scheme or that elderly couple that paid thousands of dollars on a timeshare deal for a Red Lobster coupon. Maybe a lot of people weren’t very smart but that doesn’t make the scammer (essentially that’s what they are) any less at fault.

  10. xphilter says:

    It was my assumption that mortgage brokers would have dealt with countrywide, not actual customers. Would it not be the brokers fault for putting false information in the document (like pumping up income) or sending it to multiple countrywide offices? Maybe countrywide has actual mortgage brokers, anyone know?

  11. DeepFriar says:

    This would be great, excpet for one small matter – Richard Blumenthal is Eliot Spitzer, without all the class and tact.

  12. jscott73 says:

    @TomCruisesTesticles: I believe/hope that twophrasebark was being facetious since whenever a story like this appears on consumerist a whole throng on people still want to point out how stupid the homeowners were/are for taking out the loans they did, how much better they are then those people and how those people get what they deserve.

  13. goodpete says:

    So if Countrywide goes under, do I still have to pay my mortgage? :-D

  14. Canino says:

    @sleze69: Does that mean that the “victims” will get their houses for free? Sounds like they might be hitting the mortgage jackpot.

    I had a contract law prof in college who got a free house because she proved the interest rate was illegally usurious. The judge said the contract was invalid and gave her the house.

    Won’t happen in this case, but who knows what will?

  15. Marshfield says:

    It’d be nice if the actual victims got some compensation out of all the fine money.

  16. jscott73 says:

    @Canino: Amazing, I should have totally done that with my first house, my wife and I had great credit but got a nasty interest rate, refied a few months later but if I had know what the word “usurious” meant maybe we would have gotten a free house too. I guess it does pay to be smart.

  17. Keter says:

    My mortgage (normal 30 year, low fixed rate, no prepayment penalty) was sold to Countrywide by the local bank originator. I had good credit, borrowed what I could afford (half of what I was ‘qualified’ for), and don’t need any help. If my state does something similar, will MY mortgage be restructured too? What if I just want it left alone?

  18. BytheSea says:

    This is nice, but unless they Robin Hood the money back to the people who Countrywide scammed, I don’t think this will be anything but putative.

  19. timmus says:

    Isn’t this just going to get settled out of court with Countrywide having to send $20 rebates to all its Massachusetts customers?

  20. timmus says:

    ack, CONNECTICUT, sorry

  21. Ryan H says:

    @timmus:
    No, no, I mean when is the last time you saw an out of court settlement that made sense? I figure the good people of Massachusetts have about as good a chance at seeing some cash from this as the folks in Connecticut.

  22. ColoradoShark says:

    Mr Blumenthal,
    The horse has left the barn, the barn has burnt down and the wolves are now attacking the horse. It might be a little late to be closing that barn door….

  23. Norcross says:

    @xphilter: Countrywide had a lot of their own people, they actually had storefront offices around the country.

  24. howie_in_az says:

    The acquisition of Countrywide is proving to be a real money maker for BoA.

  25. Egakino says:

    @twophrasebark: Does this message still count for the people that were outright lied to and had contracts changed after the fact, cause um yeah there were a lot of those.

  26. floraposte says:

    @twophrasebark: I thought your tone was pretty clear, myself.

    When I refinanced (still 30-year fixed but to a lower rate) the bank’s math was wrong in two places on the closing statement. Not by much, but, you know, adding numbers together and all would seem to be something a bank ought to be able to do. They said they didn’t know how to fix it and that it was just something “the computer” must have done. Since it was in my favor, I didn’t press it further, but I wondered if “the computer” got it wrong in the bank’s favor sometimes and didn’t get caught.

  27. @Keter:

    Good question. Actually a real serious question.

  28. Ein2015 says:

    @Corporate-Shill: I have a feeling that they’re not really targeting you, and will probably just send out offer letters asking for people who need help to respond. Or something to that degree.

    On another note: HURRAY CONNECTICUT!

  29. It is a little late for the State to intercede. Where in Hades was the State will this criminal activity was actually taking place?

    Yes, lets use the right word. Criminal. As in Fraud.

    Ooops, I know, the State was profiting from the excess property taxes collected due to overvaluing the house. Only now, when the values have declined, does the State intercede. Gosh darn convenient of them.

  30. It is a good thing, for all the losers out there that signed mortgages even they knew they couldn’t afford, that society is so quick to pat them on the back and bail them out from the consequences of their actions. If not for this people might learn to be more responsible. It is a good thing that isn’t happening.

    (Though I have no sympathy for the other deceptive lender practices).

  31. lastingsmilledge says:

    the most dangerous place in connecticut is in between dick blumenthal and a camera.

  32. arl84 says:

    Wow. Get it Connecticut.

    I heard a rumor that Cali and Florida will be following suit soon too. Does anyone have more information about that?

  33. trillium says:

    Anyone have the legal insight as to how BoA could be held liable for the actions of Countrywide prior to the purchase?

  34. drjayphd says:

    With apologies to the Dudley Boys, the only three commandments you need to know:

    * Thou shalt not kill.
    * Thou shalt not steal.
    * Thou shalt not fuck with Dickie B.

    I love having a proactive state attorney general.

    :)@lastingsmilledge: Probably, but as long as he gets things done, I won’t mind. Bonus points if it means Lieberman gets punched in the junk. :)

  35. Trai_Dep says:

    @trillium: How else would it work? BofA assumes all the revenues AND liabilities when they bought CW. Supposedly, the financial experts (cough) discounted the purchase price sufficiently to account for the latter.
    Of course, these are the same experts that predicted wildly ballooning prices would never encounter gravity. Whoops.

  36. mac-phisto says:

    ok, hold on a second here. the state department of banking is suing countrywide for violating state laws that all financial institutions operating in this state have to follow & some commenters are suggesting that this shouldn’t be done?

    can i ask why? that makes absolutely no sense at all to me. a company violates the law, they pay. period. it’s our single bastion against having corporations ride roughshod over our entire society.

    it’s not as if they’re suing grandma’s quilting bee here – this is countrywide, winner of the golden poo. they deserve every lawsuit that comes their way.

  37. trillium says:

    @Trai_Dep: Actually it doesn’t. All it does it take a search at google to find plenty of news regarding the fact that they may not gaurantee CWs debt.

  38. aikoto says:

    Awesome. I wish every state AG was as proactive as this.

  39. dragonvpm says:

    @XianZhuXuande: Jeez, bitter much?

    It sounds like you weren’t doing too much reading during the heyday of sketchy loans a few years back. There was a while there when everyone out there seemed to be pitching or at least not warning people away from a lot of these loans. I distinctly remember talking to my folks at one point and having to explain the “gtocha” to various loan programs out there because that information was often glossed over. Seriously, I wish there was some way to document what various “experts” were saying at the peak of the sub prime lending fiasco.

    I strongly suspect that a significant part of the problem was that, for a while, even the loan programs that were really sketchy were being pitched by EVERYONE (newspapers, magazines, news programs) as ways for people to get their dream home and the negative stuff was played down. If you have banks/lenders telling you it’s a good thing, and you have media “experts” telling you it’s a good thing, a lot of people are going to believe it.

    That’s why you see so many people who freak out when they are confronted by the reality of the situation, they honestly thought they had made a good financial decision only to find out they and their dreams of home ownership were screwed. I think this whole mess really highlights how inherently trusting people are (some cynics aside) and how someone with some degree of power/expertise (e.g. a mortgage broker) can talk people into going along with things because “that’s the way it’s done”

    Anyways, I’m just glad that someone is finally pursuing a company like CW so we can hopefully get a more accurate picture of what was going on from the corporate side of things. Maybe that’ll help muffle the ever popular “Well, I wouldn’t do something that stupid, so it must be the consumer’s fault” brigade that chimes up every time we start discussing mortgages and finances.

  40. TheStonepedo says:

    “We must vigorously fight predatory lending practices that trap consumers on a debt treadmill,” Blumenthal said.

    Does this mean they’ll start to do away with high APR credit cards as well? As much as I enjoy the convenience of not carrying wads of cash, too many people fail to connect that convenience to an actual obligation to pay what they owe. With luck, the same rules applied to shady mortgage lending may some day be applied to shady lending in other not-so-far-off arenas.

  41. Rectilinear Propagation says:

    @Corporate-Shill: I hate that you’re almost certainly right.

  42. wilstanton says:

    I think CW and BofA and every other shady lender should be sued in every state for deceptive lending practices, and prosecuted. That being said, there should also be a round of prosecutions for all the “victims” that knowingly lied on applications, or allowed the bank to do so without saying no.

    How different is this from filing suit against a grocery store when a child steals gum from the checkout line? Shouldn’t the child have the fear of God put into them for stealing, even if they “didn’t know” it was wrong?

    Not blame the victim, blame everyone who was part of the problem equally.

  43. dragonvpm says:

    @wilstanton: Actually to be accurate your store analogy needs to factor in that some people were told by the cashier to just put the gum in their pockets and in some cases the cashier just flat out chose to not scan the gum and didn’t charge them for it.

    In each case, if the person was stopped by store security it would look like they stole the candy, but clearly they wouldn’t be equally at fault.

    What’s going to really suck for lenders is if any of them did something stupid like documenting their practices through emails and memos. If/when those pop up in court, anyone who got loans that they didn’t qualify for will be able to claim they were lied to or deceived and most of them will probably get away with it.

    Unless this was the most brilliantly run conspiracy ever (which I seriously doubt), I suspect a lot of companies are going to end up getting screwed when documents and witnesses come out showing that they knew people were getting loans they couldn’t qualify for and they wanted that.

  44. Amy Alkon000 says:

    It was my assumption that mortgage brokers would have dealt with countrywide, not actual customers. Would it not be the brokers fault for putting false information in the document (like pumping up income) or sending it to multiple countrywide offices? Maybe countrywide has actual mortgage brokers, anyone know?

    This is a good question. I live in Los Angeles, and thus cannot afford to buy a house, so I’m not familiar with the ins and outs of getting a mortgage. A friend who has one contends that Countrywide is just a wholesaler of a product, essentially, and that brokers and (independent?) loan officers who signed the people up are at fault. Can somebody in the know on this please explain?

  45. mac-phisto says:

    @Amy Alkon: countrywide had a broker program (in which case, yes, a broker should be responsible for fluffing applications AS WELL AS the underwriter that approved the loans at countrywide), but they also had an entire lending division that marketed loans directly to consumers.

    it’s much like insurance cos. – geico is a wholesaler to insurance brokers, but you can also “buy direct” by calling their 800 number or visiting their website.

  46. jswilson64 says:

    I like the Google ad for Countrywide that accompanies this story…