The Housing Chronicles Blog: California sues Countrywide

Wednesday, June 25, 2008

California sues Countrywide

In a clear sign that government is taking the residential lending bust to a new level, California Attorney General (and former Governor) Jerry Brown has sued Countrywide Financial, arguing that the company set out to deliberately relax underwriting guidelines and deceive borrowers with Option ARM and other adjustable rate loans that were in fact financial ticking time bombs. From an L.A. Times story:

Countrywide Financial Corp. and its chief executive, Angelo Mozilo, were sued today by California Atty. Gen. Jerry Brown, who accused them of forcing thousands of Californians into foreclosure by deceptively marketing risky adjustable-rate mortgages to borrowers who didn't understand that their monthly payments would one day "explode."

In a complaint filed in Los Angeles County Superior Court, Brown alleges that Countrywide and its top executives, beginning in 2004, plotted to loosen or ignore lending standards so they could make more sub-prime mortgages and other adjustable-rate loans that were promoted by emphasizing low initial rates.

By deceiving borrowers about the risks of these loans, Countrywide's top executives sought to double the lender's share of the national mortgage market to 30%, mass-producing loans that could be sold off and transformed into complex bonds, the suit said...

The California suit, which also names Countrywide President David Sambol as a defendant, asks the court to order an end to what it calls the misleading and unfair practices, and demands that homeowners victimized by the alleged scheme have their money and property returned. The complaint doesn't specify what procedures might be used to accomplish this restitution.

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