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Taking aim at Countrywide

Illinois Atty. Gen. Lisa Madigan won the race by a nose Wednesday, suing mortgage lender Countrywide Financial Corp. for fraud hours before her California counterpart did the same.

More states are likely to jump on the bandwagon as public officials attempt to assign blame and make hay from the mortgage industry implosion that has led to record foreclosures and rocked the U.S. economy.

"I don't wish to defend Countrywide, but there's a lot of piling on," said Bert Ely, a banking consultant in Virginia. "We have 50 aspiring attorneys general who are running to be governor."

There's no question that Countrywide made billions in high-cost loans to risky borrowers that have ended up in foreclosure. But the economic calamity known as subprime lending has become a political drama as regulators, public officials and prosecutors sift through the rubble to determine how much of it was an unavoidable disaster, how much a lack of personal responsibility and how much involved underhanded and even criminal conduct.

Countrywide, the nation's largest home lender, became a target for consumer groups and politicians, but it has plenty of bedfellows.

Since March, federal authorities have indicted some 400 people on mortgage fraud, including 67 in Chicago. Last week, a pair of Bear Stearns hedge fund managers were hauled off to jail after being charged with misleading investors about the riskiness of the subprime mortgage-backed securities in their funds.

Madigan said her office filed a civil suit rather than a criminal one because "our main goal is to help people stay in their homes." The suit seeks a 90-day stay on Countrywide foreclosures and restitution to those whose homes were lost to foreclosure. Civil lawsuits, which have a lower standard of proof, often result in negotiated financial settlements rather than going to trial.

The Illinois and California suits arrived on the day that Countrywide shareholders were meeting to approve the company's acquisition by Bank of America.

Less than an hour into the meeting, the company announced that 69 percent of outstanding shares were voted in favor of the deal, which is expected to close July 1.

The outcome was widely expected, even though the deal was second-guessed throughout and plagued by questions about whether Charlotte-based Bank of America would pull out or try to renegotiate the original $4 billion price tag. In the end, the value of the deal fell to about $2.8 billion as Bank of America's stock declined.

Like other subprime lenders, California-based Countrywide specialized in loans that required little or no documentation from borrowers and creative financing that often stuck homeowners with double-digit interest rates after a few years.

"Borrowers were in loans they couldn't afford, didn't understand and couldn't get out of," Madigan said during a news conference Wednesday. "Much of this comes from Countrywide's greed and desire to dominate the market. The aim of today's lawsuit is to hold Countrywide accountable for its conduct."

"Public policy has done everything it can to help people make bad bets on housing," Ely said. "We've been encouraging people to take risks they shouldn't have taken. There is plenty of blame to go around."

Source : http://www.chicagotribune.com/