California, Illinois sue Countrywide
TEXT OF STORY
Bob Moon: Today shareholders in Countrywide, the nation’s largest mortgage lender, approved a $3 billion takeover by Bank of America, but before they could take a breath, Countrywide got slapped with law suits brought by states attorneys general from California and Illinois.
Both states allege that Countrywide engaged in unfair and misleading business practices.
Here’s Marketplace’s Jeff Tyler.
Jeff Tyler: To get a sense of just how freely Countrywide gave out loans, consider the case of Peter Sherman.
He wasn’t sure if he could afford a house worth half a million dollars. The Countrywide agent told him he could think bigger.
Peter Sherman: And I said, “A million dollars?” They said, “Done.” I said “Two million dollars?” They said, “No problem.” I said, “But you know how much I make. I’ve given you all my paperwork. You know I can’t pay that back.”
Sherman borrowed only what he needed to buy a $300,000 home outside Los Angeles, but other buyers fell for riskier loans.
Illinois Attorney General Lisa Maddigan wants Countrywide to fix the mess it made.
Lisa Maddigan: All of the loans that were originated with unfair or deceptive practices, we want those loans to be either modified or rescinded.
The Illinois and California lawsuits plus scores smaller ones will become headaches for the new owner Bank of America.
Morningstar equities analyst Jamie Peters estimates that Countrywide already has between $5-18 billion in losses hidden on its balance sheet. She says she’s split on the merits of the merger.
Jamie Peters: Bank of America is getting an amazing technology platform. It will become the number one mortgage business in the United States. However, the liabilities associated with Countrywide and the losses building up on its books make it questionable that the company is getting a good deal.
Bank of America has an escape clause in its contract though, so far, the financial giant appears committed.
The deal is expected to close next month.
I’m Jeff Tyler for Marketplace.
Editor’s Note: After the deadline for Marketplace’s radio show, Countrywide Financial provided the following statement:
“We are not going to comment on the specifics of the lawsuit, except to say that we are fully cooperating with the offices of the California and Illinois Attorneys General. Our mission remains to assist our customers. We are particularly focused on working with our customers who are having difficulty making their mortgage payments, or who foresee difficulty with future rate resets.”
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