Jerry Brown (D)LOS ANGELES (Legal Newsline)--Attorney General Jerry Brown joined other states in suing mortgage lender Countrywide Financial Corp. on Wednesday, accusing the distressed financial giant of misleading borrowers and pushing loans on people who could never afford to repay.
"Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market," Brown said.
"The company sold ever-increasing numbers of complex and risky home loans, as quickly as possible. Countrywide was, in essence, a mass-production loan factory, producing ever-increasing streams of debt without regard for borrowers," the Democrat added.
By Dec. 31, 2007, 27.29 percent of Countrywide's non-prime mortgages were delinquent, the lawsuit says. At the time, about 26 percent of the company's loans were secured by property in California.
Also named in the complaint are Countrywide executives Angelo Mozilo, the chairman and CEO, and David Sambol, the chief financial officer, who are being sued as individuals.
The state is seeking civil penalties and fines. Countrywide has not returned a call seeking comment.
The lawsuit comes on the same day shareholders are voting on a buyout offer from Charlotte, N.C.-based Bank of America Corp.
The lawsuit particularly targets adjustable rate mortgages, or ARMs, that enticed borrowers with low "teaser" rates that doubled or tripled a few years into repayment.
Countrywide and the brokers "misrepresented or obfuscated the truth" of the Pay Option ARMs offered by Countrywide, including the amount of time that the interest rate would be fixed for the loan, the fact that the payment rate was not the interest rate and that the minimum payment would not apply for the life of the loan, the suit alleges.
Approximately 60 percent of all Pay Option ARMs by any lender were in California, the suit says.
"Driven by its push for market share, Countrywide did whatever it took to sell more loans, faster--including by easing its underwriting criteria and disregarding the minimal underwriting criteria it claimed to require," the complaint said. "By easing and disregarding its underwriting criteria, Countrywide increased the risk that borrowers would lose their homes."
The lawsuit says Mozilo and Sambol "actively pushed for easing Countrywide's underwriting standards and documentation requirements, allowed the liberal granting of exceptions to those already eased standards and requirements, and received reports detailing the actual underwriting characteristics and performance of the loans Countrywide funded."
At the same time as it was allegedly deceiving its customers, Brown says Countrywide was reaping record profits.
In Countrywide's 2006 annual report, the company touted the massive growth of its loan production from $62 billion in 2000 to $463 billion in 2006.
The Calabasas, Calif.-based mortgage company has been under scrutiny from the federal government and faces a similar lawsuit from the state of Illinois.