California sues Countrywide, alleging 'exploding' mortgages

News item this morning from the L.A. Times: "Countrywide Financial Corp. and its chief executive, Angelo Mozilo, were sued today by California Atty. Gen. Jerry Brown, who accused them of forcing thousands of Californians into foreclosure by deceptively marketing risky adjustable-rate mortgages to borrowers who didn't understand that their monthly payments would one day 'explode.'

"In a complaint filed in Los Angeles County Superior Court, Brown alleges that Countrywide and its top executives, beginning in 2004, plotted to loosen or ignore lending standards so they could make more sub-prime mortgages and other adjustable-rate loans that were promoted by emphasizing low initial rates.... Countrywide spokesman Rick Simon said the company would have no immediate comment on the lawsuit. The mortgage lender, the nation's largest, is expected to face a similar suit today in Illinois."

The New York Times first reported the Illinois lawsuit last night.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo Credit: Los Angeles Times

Comments

[Laker]

From the article: :"...The California suit,..demands that homeowners victimized by the alleged scheme have their money and property returned. The complaint doesn't specify what procedures might be used to accomplish this restitution...."

Let me get this straight. If you bought a house and got 100% 80/20 financing Option ARM and therefore put nothing down of your own money...Why Jerry Brown wants CW to return what money???and what property?
It was never the buyer property in the first place.
The buyer signed the contract which was 100% legal. If there was something not right, Congress should have down something to change the laws.
This law suit is Bull SH**.
I hate Mozillow and CountryWide, but they did nothing against the law for giving money away. They were stupid to do that, but not violated any law by doing that.
What a joke, now you will have California get country wide/ bank of America or ultimately the FED and the tax payers paid money to all the speculators/flippers who lost homes to foreclosures.....
ARM means Adjustable mortgage, every moron knew that their payment could adjust higher, but they were told by their realtards that they could always refinance or sell and make money...

[anonymous]

The federal government used federal tax dollars to help fund B of A buying out Countrywide. This is supposed to help you as a taxpayer, afterall, they represent you, right?
The state governments used state tax dollars to sue Countrywide for treating taxpayers unfairly. This is supposed to help you as a taxpayer, afterall, they represent you, right?
I don't know how much more help we can stand.

[LeftLA]

ANonymous: Where's the proof that one penny of your tax dollars or mine went to BofA for the buyout. Show it. Come on, smart guy, put up or shut up.

[anonymous]

"SEATTLE —
Gov. Chris Gregoire's office will release results of an investigation it says points to discriminatory lending practices by Countrywide Home Loans, the nation's biggest and much embattled mortgage lender.

Gregoire plans a news conference on the investigation Wednesday morning. Earlier Wednesday, the states of California and Illinois filed lawsuits against Countrywide. The Illinois attorney general's office claims Countrywide misled borrowers.

Gregoire's office alleges that Countrywide targeted Washington's minority communities.

Shareholders from California-based Countrywide on Wednesday approved a takeover by Bank of America."

I predict a brand new LAWYER bubble.

[laura]

Good one #1

Yeah I know all this help from the government is just too much, just too kind of them.

As much as I don't like Countrywide, I'm not sure suing them is the solution. I really don't have any sympathy for the borrowers, so I can't get behind this lawsuit. Perhaps if they sued Mozzilo personally, and he was forced to live in a 1bedroom apt, I could get behind that....

[laura]

If you don't lend to minorities you are a racist, if you do lend to them you are a racist...enough already.

Victims everywhere. Maybe if all these borrowers READ what was before them, well we would still be here actually....everybody knew what they were getting themselves into, everybody. There are some nuances in these transactions from which mortgage brokers did rip off people e.g. closing costs, points etc...but the actual terms no....

[laura]

Laker,

Really, WOWOW. I'm writeless....

This is really disgusting. Everything is upside down. You get free real estate for being an idiot, flipper, speculator, etc...this is legally wrong actually. It's a breach of contract, it goes against property rights, it goes against established lending laws.....

[sfvrealestate]

Supposedly, I'll be interviewed by Fox 11 today at 5:45 about this. It will be just a quicky sound bite. Preview: I will be saying that Countrywide gave loans away like candy, and anybody who could fog a mirror got one.

[I live in LA, too]

It's ironic that if these suits prevail, people who were supposedly duped into buying homes they couldn't afford will end up keeping the homes, anyway. That's pretty cool. Seriously, though, I'm not sure everyone did understand what they were getting themselves into. So, for the lawyers in the house, what happens if a contract is entered into under a false premise? I would think it nullifies the contract, which then would mean NOT that the borrowers get to keep the homes but that they are able to walk away from the loans without their credit scores being affected. But I'll leave the legal ramifications to the professionals ...

[Jeremy R]

“If you don't lend to minorities you are a racist, if you do lend to them you are a racist...enough already.”

Laura, lets no oversimply things.

If you don’t lend to minorities who want to make an offer in a white community with 20% down, a DTI of 30%, and 750 credit score, then you are a racist. I have seen this happen two decades ago, but not recently.

If you make unsolicitied calls to uninformed working class citizens with poor credit, and spend an hour trying to convince them to refinance their home to “save” money, then you lack ethics. If you strongly encourage people to buy ARMs, and refuse to sell fixed rate loans at reasonable rates to people with poor credit, then you are not ethical.

All in all, the people who were duped the most were people with poor credit and financial savvy. That happened to be largely minorites. It wasn’t racist, and maybe not even illegal, but it was certainly unethical and it has damaged different communities disproportiantely.

PS: I don’t find you racist at all. I don’t think the CONTEMPORARY lenders are racist. They seek to profit on anyone. In this case, the most profitable type of predatory lending greatly effected minorities. It was more coincidence than direct racism.

PSPS: I do not support bailouts.

[LA]

Is it just me, or is Jerry Brown looking more and more like Peter Boyle?

[MyLessThanPrimeBeef]

I apologize to our AG and moonbeam as I whined too prematurely this morning on another thread.

That was not prime of me.

[laura]

I for the most part agree with you Jeremy. I just don't think being a "minority" is relevant in the real estate bubble, in other words what race you were at the time you signed the loan documents is utterly irrelevant.

The media loves this racial stuff, but it really has nothing to do with real estate fraud or misrepresentation. Everybody wanted to make money, if Countrywide could have found those UFOS they would have lent to them.

Again I have no sympathy for anyone involved in this "bubble". I'm tired of some of these borrowers who have that " I'm so dumb it wasn't my fault look" on their face.

BY the way I know that all these borrowers, minorities included knew exactly what they were getting themselves into, but they figured hey somebody will just bail me out later, like they always do...

Worst case scenario they can walk away from their loans, but to get an entire piece of real estate for free is ridiculous and it doesn't put them back in the place they were before, that's overcompensation, there is a legal term for it not coming to mind at the moment, oh yes WINDFALL!!!

[laura]

Thanks Peter for not even posting my comment that's really lame. It wasn't even controversial....geez PC has really ruined a good, satisfying and honest discussion.

I liked you---notice past tense!!

[pete viles]

Laura -- Sorry, I went out to dinner and did not bring your comment with me. I hope you will reconsider.

[Racist]

We do live in a racist society. I should know, me and all my friends and family are racist.

We disproportionately:
Deport 'em
Lock 'em up
Sentence them to death
Pull them over
Charge them higher interest rates
Put thier kids in crappy schools (so they grow up and can't understand loan documents)
Deny them promotions
Give them lower pay

Please give credit where it is due. We do a heck of a job screwing over minorities.

[jag]

Racist, you make a good point. I believe that our society unconsciously suppresses minorities. However, being a minority myself I'm not dumb enough to have jumped the bandwagon and purchased a home that I couldn't afford.

[Laura]

Well in that case Peter I like you again. You shouldn't have to take your work to dinner with you.

You did post my comment. Good. I don't like censorship. Although your blog takes a lot longer to post comments than other blogs. Regardless you did post. Thanks.

[Laura]

Racist,

I was wondering if I should even respond. I will say this you need to enlarge your circle. I have had many African-American clients that have bought property, and still own them, they were prudent, not in foreclosure, got great interest rates. In fact I know all kinds of "minorities" that made real good money in the real estate bubble.

Your comment is really an insult to many successful minorities. It's unfortunate that you don't know any of them.

Personal racism exists, but institutional racism does not, if anything there is reverse racism.

Ultimately connections, nepotism will always prevail but that has nothing to do with race...that's human nature.

[sheila]

Don't say you know unless you know.

As I have FIRST HAND knowledge of the loan sweatshops that pushed very aggressively on certain very specific demographics, I can tell you without question that they ABSOLUTELY targeted people of color, low-income people, people with high balances on revolving credit, people with lower educational levels, the elderly and handicapped, and people with English as a Second Language. They saw them as pushovers who would only understand the general trend of price inflation and monthly payments and shoved terrible loan products down their throats, sometimes several times in a row, and lied like crazy to do it.

A very close friend worked for one of these companies for 3 months until she understood how it all worked and quit. They got paid for generating "leads" in this "easy money" demographic, paid again for getting signed applications, and a big bonus if loans closed, no matter how fraudulent. They filled in the paperwork themselves with an eye towards the bonus, which is how many of these loans got through underwriters, and often the applicant never even saw the paper, just a fax of the signature page. You and I may not go for that, but these people have not enjoyed the levels of education and worldliness that many of us have, which is exactly why they were pursued mercilessly.

That is not to say that ALL the lousy loans are the result of this type of targeting, nor that ALL the people who took these loans are victims, but there is NO doubt that many of them are. That also does not, in the strictest sense, make these sweatshop operators "racist," merely mercenary.

Crimes, lies, cons and fraud are not always the fault of the victims, and they DO exist, and they are a major part of this unraveling housing disaster. Some homeowners were greedy and fraudulent, so their lenders are victims, but the reverse is also true. If these people had been mugged on the street, we would feel badly, so why can't we extend a hand when they were mugged in their homes? A society is judged by how it treats its most vulnerable members, after all...

[HulaGirl]

Laura says. "Personal racism exists, but institutional racism does not, if anything there is reverse racism."

Wowza! Spoken like a true white girl.

Pray tell, where is this mythical planet where institutional racism does not exist?

[Michelle]

Countrywide Financial is nothing but sleazy for pushing loans that put over a million homes at risk of foreclosure. They deserve everything that's coming at them.

I encourage you to vote for them at Corporate Accountability International's Corporate Hall of Shame, and join the effort in giving them even more bad press. Google Corporate Hall of Shame 2008 and/or Corporate Accountability International.

[E]

Countrywide should file a lawsuit against California for not having a better education system where people actually learn basic math.

There was nothing really "exotic" about the math in the loans. In fact, the word "exotic" should just be thrown out when it comes to discussing mortgages as the loans were really just "toxic" for the most part.

All these no down, no doc, interest only (or neg-am) loanowners certainly didn't cry on the way up. In fact, if you tried to tell someone that the loan they were in was "toxic" they would just tell you that you didn't know what you were talking about and would then proceed to tell you how much they had already "made" on their house.

The consumers WANTED these loans. I'd be willing to bet that for every person that was "deceived" into one of them there were 10 that CHOSE them because it afforded them TWICE the house that they could have gotten with traditional financing. And who wouldn't want TWICE THE HOUSE!? After all...at 10% appreciation you get *richer* faster with a $1,000,000 home than with a $500,000 home.

As much as I dislike Mozilo & Countrywide (not to mention every other lender that allowed people to take on these loans) ...if the Judge who decides the outcome of this lawsuit, couldn't see the writing on the wall with what would eventually happen with these loans, that judge shouldn't be allowed to sit behind the bench and should be fired. Unless of course they are on record in 2004 on stating loud and clear that these loans would end up making their courtrooms very busy by 2009.

If I were the judge it would dismiss it with prejudice and then sentence the "victims" to math and reading classes on weekends.