Jun 25, 2008 4:39 pm US/Central
State Sues Countrywide Over Lending Practices
Lawsuit Comes On Same Day Countrywide's Sale To Bank Of America Is Approved
CHICAGO (CBS) ―
Illinois filed a lawsuit Wednesday against Countrywide Financial, the nation's largest mortgage lender. CBS 2's Susan Carlson explains what the financial giant allegedly did to its customers.
Countrywide was the largest seller of subprime loans in the Chicago area in 2006, and operated about 100 retail branches in Illinois.
Investigators from the attorney general's office said they found that Countrywide created and implemented a corporate strategy that lured Illinois homeowners into unfair and unaffordable loans, which ultimately led to failure.
Then the lender allegedly got homeowners to refinance when the payments became too expensive.
Single mom and special education teacher Melissa White said she thought it was a saving grace when she went to Countrywide in 2005 for a new loan on her Schaumburg home.
"The reason I was refinancing was that I needed to pay doctors' bills," White said.
She later found out the terms were not what she expected and her life changed dramatically when her mortgage payments skyrocketed 61 percent.
"Going to a food pantry, deciding which medications I can take and which I can't afford," White said.
Illinois Attorney General Lisa Madigan said White is among tens of thousands of victims of allegedly deceptive practices by Countrywide.
"Borrowers were in loans they didn't understand, they couldn't afford and they couldn't get out of," Madigan said.
White was informed her home was in foreclosure when Countrywide refused to accept a mortgage payment donated by her church because it wasn't certified.
"Much of this comes from Countrywide's greed and their desire to dominate the marketplace. Unfortunately, this came at a very steep price to Illinois homeowners," Madigan said.
Illinois was ranked eighth among the hardest hit states in the nationwide foreclosure crisis. In May, there were 9,670 foreclosures, an increase of 42 percent from last year.
With the help of the attorney general's office, White has now acquired a new, affordable home loan with a fixed rate, but she said her credit has been destroyed.
"I won't gain anything from this. It's just ... if we can make changes so it doesn't happen to anybody else, that's what's important," White said.
The lawsuit was filed Wednesday just a few hours before Countrywide shareholders approved the company's takeover by Bank of America. Madigan said the timing was just a coincidence, but she hopes the new company will not use the same deceiving lending strategies.
A spokesman for Bank of America declined comment on the lawsuit.
Consumer groups said Wednesday that Countrywide has no morals.
"We think Lisa Madigan filing a lawsuit against Countrywide is fantastic. They are the biggest and the baddest out here right now," said Denise Dixon of the group Action Now. "They are foreclosing on families, they are making communities practically tumble and crumble. So we know that this tsunami of a crisis of home foreclosures is going to take some extraordinary measures."
Madigan said Countrywide's conduct has a devastating financial impact on families and communities in Illinois. The lawsuit asks that Countryside reform or rescind deceptive loans dating back to 2004, and that the attorney general be granted the power to step in and review any loans in foreclosure.
The state subpoenaed documents from Countrywide last fall when the number of foreclosures nationwide began to skyrocket.
Wednesday morning, Countrywide said stockholders controlling a majority of the mortgage lender's outstanding shares had approved the company's takeover by Bank of America Corp.
Countrywide said more than 69 percent of outstanding shares were voted Wednesday in favor of the transaction at a stockholders meeting in Calabasas, Calif.
The lender says the deal is expected to close on July 1.
Countrywide agreed to sell itself in January for about $4 billion in stock. The deal is now valued at about $2.8 billion, reflecting a decline in Bank of America's stock price over the past six months.
A Countrywide spokeswoman declined to comment on the Illinois attorney general's office litigation.
There is also word that the State of California is suing Countrywide.
CBS 2's Susan Carlson, Joanie Lum and the STNG Wire contributed to this report.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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