Conn. sues Countrywide over lending practices

August 06, 2008 1:56 PM EDT
HARTFORD, Conn. – Connecticut sued Countrywide Financial Corp. on Wednesday, becoming the latest state to take the mortgage lender to court over its lending practices.

State Attorney General Richard Blumenthal alleges that Countrywide misled borrowers into taking on risky home loans they could not afford. California, Illinois, Florida and the city of San Diego have made similar claims in their own lawsuits against the company.

Countrywide, once the nation’s largest mortgage originator before a jump in bad loans ravished its business, has been blamed for helping to cause the nation’s mortgage meltdown.

The lawsuit was filed in Hartford Superior Court on Wednesday, and the company was served with the legal papers earlier in the day, Blumenthal said.

Blumenthal’s office and Connecticut’s departments of Banking and Consumer Protection are the plaintiffs in the lawsuit. They’re alleging that the company violated state consumer protection and banking laws and charged unjustified fees to homeowners who defaulted.

“Countrywide conned homeowners into mortgages they simply could not afford,” Blumenthal said, adding that hundreds, possibly thousands, of Connecticut homeowners were affected.

Countrywide, based in Calabasas, Calif., said in a statement Wednesday that it cannot comment on pending litigation.

But the company noted that it had previously announced its commitment to responsible lending practices, including an effort to keep an estimated 265,000 customers in their homes by modifying at least $40 billion in troubled mortgages.

“We will respond to the AG in due course,” the company said, referring to Blumenthal.

Countrywide’s shareholders approved a takeover by Charlotte, N.C.-based Bank of America in June.

“Since taking ownership of Countrywide in July, Bank of America has been involved in a detailed review of Countrywide’s operations,” Countrywide’s statement said. “Practices that established Bank of America’s positive reputation and record in home lending are an illustration of how we will operate the combined company.”

Like Connecticut, the other states suing Countrywide want the company to pay restitution to borrowers who lost their homes or paid excessive fees.

Blumenthal said Wednesday that when homeowners defaulted on their Countrywide loans, the company “bullied” them into repayment plans known as “workouts” with excessive fees that made it nearly impossible for consumers to dig out of the debt.

“Countrywide stacked the deck and the deal against its customers,” Blumenthal said. “Our goal is to unstack the deck and undo the deals, restoring fairness and fiscal sense to mortgages.”

Countrywide, which faces numerous other lawsuits related to its lending practices, has also been under scrutiny by federal authorities.

A federal grand jury has been investigating Countrywide, New Century Financial Corp. and IndyMac Bancorp Inc. – a sign that prosecutors are looking into whether fraud and other crimes might have contributed to the mortgage crisis that led to the demise of all three California-based lenders.

Washington state Gov. Chris Gregoire also has accused Countrywide of discriminatory and predatory lending practices that targeted minority borrowers, and of cheating Washington state out of $5 million in fees.

That state’s Department of Financial Institutions is seeking to revoke Countrywide’s license and impose a $1 million penalty for predatory lending practices.