The New York Times reported today that Illinois Attorney General Lisa Madigan filed a lawsuit today in Illinois state court that accuses Countrywide and CEO Mozilo of relaxing underwriting standards, structuring loans with risky features, and misleading consumers with hidden fees and fake marketing claims, like its heavily advertised â€œno closing costs loan.â€ Countrywide also created incentives for its employees and brokers to sell questionable loans by paying them more on such sales, the complaint said.
Some practices that Madigan is honing in on sound like standard marketing practices these days for any retailer. This poses the question: Can you compare selling a house to selling a toy, software or video camera? Since when did homebuyers become “consumers?” For that matter, when did people who use financial services become “consumers?”
I reported on ties between Madigan’s investigation and Chicago’s Lincoln Square neighborhood in January.
Countrywide subpoened in Illinois
Jan. 9, 2008 â€” Lisa Madigan is honing in on Countrywide practices in Illinois, and it all started with a broker in Chicago’s Lincoln Square neighborhood.
By Sally Duros Real Estate Editorfirstname.lastname@example.org
A lawsuit against Chicago-area mortgage broker One Source Mortgage Inc. is the starting point for an investigation by Illinois Attorney General Lisa Madigan into possible fraudulent lending practices by Countrywide Financial Corp.
A subpoena was served on Calabasas, Calif.-based Countrywide, the biggest U.S. mortgage lender, seeking documents related to its home mortgage unit, according to Madiganâ€™s consumer protection head, Deborah Hagan.
â€˜â€˜Weâ€™re looking at Countrywideâ€™s origination practices in Illinois,â€™â€™ Hagan said Thursday of her office, the stateâ€™s top law enforcement agency.
The investigation into Countrywide follows the Attorney Generalâ€™s filing of a Nov. 26 lawsuit alleging broker One Source Mortgage Inc. and its president, Charles G. Mangold, duped borrowers into signing complex loans without regard to their ability to repay these loans.
One Source had operated primarily on Chicagoâ€™s Northwest side near the Lincoln Square neighborhood.
â€œWe looked at a slice of [One Source] loans,â€ Hagan said. â€œHalf were coming from Countrywide, and almost all of those loans were pay option ARMs.â€ An option ARM mortgage is an adjustable rate mortgage that allows a borrower to pay a minimum monthly payment that is only a small portion of the interest owed, and does not pay down any principal. A borrower using this mortgage can pay faithfully month after month and wind up owing more than he or she borrowed.
The subpoena seeks data on the life of Countrywide loans, from origination through their bundling for resale as asset-backed securities, she said.
â€œPay option ARMs will not show problems until 2009 and beyond because the borrower can keep making the minimum payment,â€ Hagan said.
Countrywide brought in $11.4 billion in revenue last year, and in the past 12 months has financed almost $5 billion in loans, of which 45 percent were adjustable rate mortgages, Hagan said.
Countrywide has lost approximately 76 percent of its value this year as subprime mortgage borrower defaults triggered a surge in loan foreclosures.
In November, foreclosures doubled from rates a year earlier, the company said today in a statement. Company spokeswoman Amber Cousins didnâ€™t immediately return a call seeking comment.
Contributing: Bloomberg News