COUNTRYWIDE HOME LOANS - Suit by IL Attorney General Puts Exclamation Point on Sub-Prime Lending Crisis!
81-PAGE LAWSUIT ALLEGES UNFAIR, DECEPTIVE CONDUCT IN LENDING PRACTICES!
Countrywide Home Loans is the biggest Mortgage Lender in the U.S. Now in the process of being acquired by the mammoth Bank of America, the lender has another headache today. Yesterday, Lisa Madigan, the Illinois Attorney General filed a civil suit in the Cook County Circuit Court contending the lender, among other things, sold risky loans to borrowers who most likely could not afford their terms, nor did they receive proper loan disclosures.
The IL suit also names Full Spectrum Lending, Countrywide's sub-prime lending division, as well as the firm's servicing unit, and their co-founder Angelo Mozilo. Countrywide has been at the heart of the sub-prime lending firestorm since mid-2007, when the crisis came to the fore.
While Madigan acknowledged that other sub-prime lenders were making similar loans, she called Countrywide "the largest and worst player in the market."
"Countrywide's unfair lending practices have harmed tens of thousands of borrowers, who have been placed in unaffordable loans. As a result, our communities are being destabilized by a skyrocketing number of home foreclosures," continued the IL Attorney General. Madigan delineated that Countrywide relaxed traditional underwriting guidelines to fund their loans, and made their loans to borrowers with in sufficient earnings and personal assets. In some cases, borrower's income was overstated on loan applications to assure they would qualify.
In Illinois last month, 9,670 homeowners were at some stage of the foreclosure process, up 42% from May, 2007. Madigan estimates the delinquency rates on loans issued by Countrywide or their affiliates between 2005 and the First Half of 2007 were even higher in Illinois than they were nationally.
Many of the loans issued by Countrywide, as well as other sub-prime lenders, started at a low rate, at which most borrowers would qualify. This rate would adjust higher after as little as one to three years, leaving many unable to afford their monthly house payment, the suit further alleges.
Countrywide employees were compensated on the basis on the volume of the loans sold, and, she alleges, were incentivized to write high-risk loans for many borrowers.
Madigan's suit asks the court to rescind or reform those Countrywide loans which originated using deceptive practices. She is also seeking a 90-day stay on Countrywide foreclosures, and restitution to Countrywide borrowers who have lost their home in foreclosure.
The Illinois lawsuit points up a bigger issue - were lenders simply feeding on public sentiment, and political pressure, to increase the percentage of home ownership across the U.S.? Bert Ely, a Virginia-based Financial Consultant, contends President Bush and his administration made an explicit goal to boost home ownership to record levels, and it succeeded!
The rate of home ownership approached 70 percent in 2004. Due to filed foreclosures since then however, many of these new homeowners eventually lost their homes. In the First Quarter of 2008, the national rate of home ownership has fallen back to where it was in 2002 - prior to the expansion of aggressive lending policies fostering increases in home ownership.
See yesterday's Chicago Tribune story by Susan Chandler and Becky Yerak for more detail, and relevant video.
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