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Paul Kiesel
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Connecticut Attorney General: Countrywide Conned Customers into Loans

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Another state is accusing Countrywide Financial of mortgage fraud. Connecticut joined California, Florida and Illinois among the states that have sued Countrywide, which was responsible for one in every six mortgages in 2007, according to the New York Times.

The State of Connecticut is accusing the mortgage giant of steering customers into mortgages they could not afford, and charging excessive legal fees to borrowers in default. Most of these practices were executed through the use of vague language and misinformation on the loans’ Truth in Lending disclosure forms (TILA violations, such as not stating that many of the subprime loans Countrywide wrote were negative amortization loans; a violation of the Truth in Lending Act).

Richard Blumenthal, Connecticut’s attorney general, said today that, “Countrywide conned customers into loans that were clearly unaffordable and unsustainable, turning the American dream of homeownership into a nightmare.”

Connecticut, in the lawsuit that was filed with Hartford Superior Court, is demanding that Countrywide make restitution to affected borrowers, give up improper gains, and rescind, reform or modify all mortgages that broke state laws.

Connecticut’s complaint described the lending practices of Countrywide as, “oppressive, unethical, immoral and unscrupulous,” (New York Times, 8/7/08).

The Connecticut AG accused Countrywide of inflating borrowers’ incomes to qualify them for loans they could not afford and then misleading consumers about loan terms. The latter practice typically occurred through TILA violations on option-ARM loans, like teaser rate payment options (where the monthly mortgage payment only includes paying part of the interest being charged, the remaining interest is compounded monthly resulting in a negative amortization loan; the principal balance is never paid during the teaser rate period).

Bank of America has yet to comment on Connecticut’s lawsuit. Bank of America purchased Countrywide for $2.5 billion last month. Analysts have said the bank might face $10 billion or more of future losses or write-downs tied to deteriorating credit and legal bills stemming from lawsuits against Countrywide.