SACRAMENTO, Calif. (Legal Newsline) - California Attorney General Kamala Harris has announced a $6.5 million settlement with two former officers of Countrywide Financial Corporation stemming from a predatory lending case.
The settlement with former Countrywide officers Angelo Mozilo, the CEO of Countrywide, and David Sambol, Countrywide's president, concludes litigation that former state Attorney General Jerry Brown filed in June 2008 against Countrywide Financial Corp., Countrywide Home Loans and Full Spectrum Lending, as well as Mozilo and Sambol.
The $6.5 million in financial relief, which will be used in establishing an innovative statewide California Foreclosure Crisis Relief Fund meant to combat the effects of California's high rates of foreclosure and mortgage delinquency, augments $3.5 billion in relief from an October 2008 settlement with Countrywide for loan modification and other foreclosure relief.
"Our prior settlement with Countrywide provided restitution for foreclosed homeowners and set in motion loan modification programs that have helped tens of thousands of consumers," Harris said.
"We will use the current settlement to help Californians affected by the mortgage crisis by providing grants to help homeowners facing foreclosure with relocation assistance and providing money to state and local agencies to prosecute mortgage fraud."
Countrywide, the lawsuit alleged, lured borrowers with "teaser" rates that were as low as 1 percent adjustable rate loans. The downside of these loans, including rapidly rising rates once the teaser rate expired, large prepayment penalties and negative amortization that saw a borrower's total loan costs rise even as additional payments were made, were allegedly obscured by loan officers, Harris says.
Additionally, Countrywide allegedly loosened the standards and verification procedures for its mortgages in order to write more loans.
As a result of the changes to Countrywide's mortgage procedures, tens of thousands of homeowners ended up in default and foreclosure, Harris says.
Mozilo and Sambol, Harris alleged, were aware of Countrywide's practices and allowed them to continue. The two left Countrywide when it was purchased by Bank of America in July 2008.
Bank of America assumed responsibility to make restitution to mortgage holders who qualified under the terms of the 2008 settlement, making more than 32,000 modifications worth more than $1.3 billion. Bank of America has also paid $28 million in cash to Californians who lost their homes to foreclosure.