California, Jerry Brown Goes After Countrywide
Paul KieselJuly 18, 2008 7:57 PM
Countrywide Financial Corp. was accused in a lawsuit, filed by California officials, of making risky loans to people who couldn't afford them. One in five mortgages went bad because of these insidious lending practices alleged in the complaint.
In one instance, an adjustable-rate mortgage (ARM) was approved for an 85-year-old disabled veteran with a poor credit history. The loan was in default within six months.
California Attorney General Jerry Brown said of Countrywide in a statement today that, "These shocking new details provide further evidence of Countrywide's dangerous lending practices, which included ignoring borrowers' low credit scores and rewarding employees for selling risky loans," (Bloomberg News, 7/17/08).
The lawsuit accuses Countrywide of paying loan officers commissions for selling loans with higher rates and fees than consumers' credit scores qualified them for, and ignoring scores, debt ratios and minimal down payments that ultimately compromised the mortgages.
Countrywide is one of many lenders that allowed for mortgage fraud to take place throughout the subprime boom -- in fact, that is one of the main reasons for how the subprime bubble was ble to grow so large. Like IndyMac and Bear Stearns, Countrywide wrote their loans in a misleading way; this was done through TILA violations and in many cases the TILA disclosure forms, at least when the loan was an option-ARM or a teaser rate payment loan (paying only part of the interest), did not reveal that the loan was a negative amortizing loan.
Countrywide was just purchased by Bank of America. Bank of America shares have been hit hard since announcing the acquisition of and acquiring Countrywide, falling from almost $50 a share to as low as $20 a share last week. This hit to their stock is likely due to the amount of bad loans that Countrywide wrote throughout the subprime boom (again, 21% of their loans have gone bad, and, unfortunately, many more loans will continue to default).