California Going After Mozilo, Countrywide
California alleges the mortgage company engaged in deceptive advertising and unfair competition by encouraging home buyers to opt for risky mortgages for the "sole purpose of reselling the mortgages on the secondary market."
June 25, 2008
California's attorney general, Edmund Brown, Wednesday announced a suit against mortgage lender Countrywide Financial, its chief executive, Angelo Mozilo, and its president, David Sambol.
In January, Bank of America announced plans to buy the Calabasas, Calif.-based mortgage lender for $4 billion in stock.
California's attorney general alleged Wednesday that the mortgage company and its CEO as well as Sambol engaged in deceptive advertising and unfair competition by encouraging home buyers to opt for risky mortgages for the "sole purpose of reselling the mortgages on the secondary market." In May, Bank of America announced that Sambol would retire after helping Bank of America's takeover of Countrywide.
“Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market,” Attorney General Brown said in a statement. “The company sold ever-increasing numbers of complex and risky home loans, as quickly as possible. Countrywide was, in essence, a mass-production loan factory, producing ever-increasing streams of debt without regard for borrowers. [The] lawsuit seeks relief for Californians who were ripped off by Countrywide’s deceptive scheme.”
Brown alleges that Countrywide Financial used deceptive tactics to push homeowners into complicated, risky, and expensive loans so that the company could sell as many loans as possible to third-party investors. According to the lawsuit, the company marketed complex and difficult to understand loans with very low initial or “teaser” interest rates or payments. "Countrywide employees, including loan officers, underwriters, and branch managers--who were under intense pressure to process a constantly increasing number of loans--misrepresented or obfuscated the fact that borrowers who obtained certain types of loans would experience dramatic increases in monthly payments," according to a statement issued by the attorney general's office.
Brown's office said on Wednesday that Countrywide’s deceptive sales practices resulted in a large number of loans ending in default and foreclosure. "According to Countrywide’s February 2008 records, a staggering 27 percent of its subprime mortgages were delinquent. Overall, approximately 20,000 Californians lost their homes to foreclosure in May 2008 and 72,000 California homes were in default, roughly one out of 183 homes," the California attorney general's office said in a statement on Wednesday.
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