Countrywide Subpoenaed by Illinois Attorney General

Lisa Madigan, the attorney general of Illinois, is investigating subprime mortgage lender Countrywide “as part of the state’s expanding inquiry into dubious lending practices that have trapped borrowers in high-cost mortgages they can no longer afford,” says the New York Times.

Lisa Madigan, the attorney general, has subpoenaed documents from Countrywide relating to its loan origination practices, a person briefed on the matter said. Rick Simon, a Countrywide spokesman, said the company was cooperating with the investigation but declined to comment further.

The inquiry follows an investigation by Ms. Madigan’s office into One Source Mortgage, a Chicago mortgage broker that recently closed its doors. Ms. Madigan sued One Source on Nov. 27, contending that the company misled borrowers by promising low rates on mortgages without advising them that their payments would jump sharply shortly after the loans were made. Countrywide was One Source’s primary lender, according to the lawsuit.

One Source is being investigated for tricking borrowers into signing up for loans in which only a part of the interest is paid, resulting in a mortgage that grows, rather than shrinks as time goes on. These loans are illegal in 25 states, but, of course, not in Illinois—the Sucker State.

The attorney general’s lawsuit contended that One Source put borrowers into loans with terms they did not understand, especially so-called pay option adjustable-rate mortgages. These loans allow borrowers to pay only a fraction of the interest owed and none of the principal, resulting in a growing rather than a shrinking mortgage balance. Countrywide was One Source’s main provider of pay option loans, documents in that case show.

“This company’s conduct is a prime example of unscrupulous mortgage brokers that has led to a foreclosure crisis for many Illinois homeowners,” Ms. Madigan said when she filed the suit against One Source.

One Source mortgage brokers are accused of inflating borrowers incomes, telling customers that they had to close before the terms of the deal were explained, lying about the terms of the mortgages, and closing mortgages in as little as 15 minutes.

Countrywide Subpoenaed by Illinois [NYT]