August 6, 2008

State Sues Countrywide For Allegedly Deceptive Loans And Loan Renegotiations, Unjustified Legal Fees

This news release was issued by the Attorney General's Office

Attorney General Richard Blumenthal today announced his office has sued mortgage giant Countrywide Financial Corp. and related companies for allegedly pushing consumers into deceptive, unaffordable loans and workouts, and charging homeowners in default unjustified and excessive legal fees.

Blumenthal's lawsuit seeks restitution for consumers as well as fines and forfeitures to the state for alleged violations of Connecticut consumer protection and banking laws. The action also asks the court to rescind, reform or modify all mortgages that broke state laws.

Blumenthal has filed the action in Superior Court in Hartford in coordination with Department of Consumer Protection (DCP) Commissioner Jerry Farrell, Jr. and Department of Banking (DOB) Commissioner Howard F. Pitkin.

Blumenthal said, "Countrywide conned customers into loans that were clearly unaffordable and unsustainable, turning the American Dream of homeownership into a nightmare. When consumers defaulted, the company bullied them into workouts doomed to fail. Countrywide crammed unconscionable legal fees into renegotiated loans, digging consumers deeper into debt. The company broke promises that homeowners could refinance, condemning them to hopelessly unaffordable loans.

"Countrywide was at their side -- as an insolvency enabler. Countrywide inflated homeowner incomes to qualify them for loans they couldn't pay back and misled consumers about loan terms.

"Countrywide stacked the deck and the deal against its customers: Our goal is to un-stack the deck -- and undo the deals -- restoring fairness and fiscal sense to mortgages. I will fight for restitution -- money back to homeowners used and abused by Countrywide -- as well as fines and forfeitures to the state. Our lawsuit seeks to invalidate loans that violate state law, allowing consumers to shed illegal, unreasonable fees and conditions that leave them at the precipice of foreclosure. We must vigorously fight predatory lending practices that trap consumers on a debt treadmill," Blumenthal said.

Farrell said, "For any consumer, the mortgage financing of their home is an extremely important matter and the financing process needs to be clear and transparent. Today's suit against Countrywide sends the message that deception by mortgage lenders will not be tolerated and that our consumer protection and banking laws will be enforced to protect consumers."

Pitkin said, "The Department of Banking has worked closely with the Attorney General's Office in this matter and I am pleased with today's action taken on behalf of Connecticut borrowers. This action should serve as notice to mortgage lenders and brokers that unscrupulous lending practices will not be tolerated. "

Blumenthal alleges Countrywide violated state consumer protection and banking laws by:

  • Encouraging consumers to take out loans the company knew or should have known they could not afford;
  • Improperly inflating consumers' incomes to qualify them for loans they otherwise could not have received;
  • Providing loans with different and more expensive terms than consumers were promised;
  • Pressuring consumers into mortgages with temporary interest only payment options when the company knew or should have known they could not afford the higher payments that would come due later;
  • Providing variable rate loans to consumers with the assurance they could refinance before interest rates reset, only to later refuse to do so;
  • Sending at least one consumer rejected for a home equity loan at one Countrywide office to another company branch where the loan request was approved;
  • Demanding Connecticut consumers facing foreclosure pay excessive and inaccurate legal fees in order to reinstate their loans;
  • Promising to help homeowners "in financial difficulty to establish suitable payment plans," but instead demanding loan modifications and repayment plans that were unsustainable, unaffordable or unsuitable.
Blumenthal's lawsuit seeks civil penalties of up to $100,000 per violation of state banking laws and up to $5,000 per violation of state consumer protection laws, disgorgement of all ill-gotten gains and an order compelling the company to cease its illegal practices.