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Highlights from California’s complaint against Countrywide

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California and Illinois both filed suit against Countrywide Financial Corp. today, alleging deceptive business practices in the mortgage giant’s lending operations in the last few years.

These cases are likely to be the first of a flood of state suits against Countrywide (soon to be a unit of Bank of America Corp.) for its role in the mortgage boom and bust. But the end result of the legal pile-on is far from clear -- in particular, whether the states’ cases will mean even a penny of help for borrowers who were, in fact, victims.

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And how to separate the victims from the greedy borrowers who knew all too well that they were taking out loans they couldn’t afford?

In any case, the California and Illinois allegations will resonate with many people who did business with Countrywide (and with plenty of other lenders in the boom years). They’ll also resonate with people who were responsible borrowers and who were aggravated by Countrywide’s nonstop mail solicitations begging them to borrow more money. Yes, this is America, and you’re allowed to market your business. But it’s one thing to hawk, say, cable TV services; it’s another to help load a family with so much debt that it ruins their lives.

Here are some of the highlights of the California complaint against Countrywide, Chief Executive Angelo Mozilo and President David Sambol (none of whom is commenting). Note the generic nature of these allegations. This case could really use some meat on these bones:

-- ‘Defendants viewed borrowers as nothing more than the means for producing more loans, originating loans with little or no regard to borrowers’ long-term ability to afford them and to sustain homeownership. This scheme was created and maintained with the knowledge, approval and ratification of defendants Mozilo and Sambol.

-- ‘To further the deceptive scheme, defendants created a high-pressure sales environment that propelled its branch managers and loan officers to meet high production goals and close as many loans as they could without regard to borrower ability to repay.

-- ‘Countrywide received numerous complaints from borrowers claiming that they did not understand their loan terms. Despite these complaints, defendants turned a blind eye to the ongoing deceptive practices engaged in by Countrywide’s loan officers and loan broker ‘business partners,’ as well as to the hardships created for borrowers by its loose underwriting practices.

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-- In the case of home-equity lines of credit, or HELOCs, ‘Countrywide typically urged borrowers to draw down the full line of credit when HELOCs initially funded. This allowed Countrywide to earn as much interest as possible on the HELOCs it kept in its portfolio. For the borrower, however, drawing down the full line of credit at funding meant that there effectively was no ‘equity line’ available during the draw period, as the borrower would be making interest-only payments for five years.

-- ‘Underwriters were under intense pressure to process and fund as many loans as possible. They were expected to process 60 to 70 loans per day, making careful consideration of borrowers’ financial circumstances and the suitability of the loan product for them nearly impossible.

-- ‘Because of the intense pressure to produce loans, underwriters increasingly had to justify why they were not approving a loan or granting an exception for unmet underwriting criteria to their supervisors, as well as to dissatisfied loan officers and branch managers who earned commissions based on loan volumes.

-- ‘Countrywide’s high-pressure sales environment and compensation system encouraged serial refinancing of Countrywide loans. The retail compensation systems created incentives for loan officers to churn the loans of borrowers to whom they had previously sold loans, without regard to a borrower’s ability to repay, and with the consequence of draining equity from borrowers’ homes.’

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