Illinois Attorney General Lisa Madigan filed a lawsuit Wednesday against Countrywide Financial Corp., alleging that it engaged in deceptive and unfair lending practices - creating, originating, servicing and marketing what proved to be many unaffordable mortgages for the state's homeowners. The 81-page lawsuit, filed in Cook County Circuit Court in Chicago, comes after a nine-month investigation.
"Countrywide's unfair lending practices have harmed tens of thousands of borrowers who've been placed in unaffordable loans and, as a result, our communities are now being destabilized by a skyrocketing number of home foreclosures," Madigan said in a statement.
The complaint alleges Countrywide sold risky and costly loans to borrowers who could not afford them, relaxing underwriting guidelines to qualify borrowers with insufficient income and assets - and inflating borrowers' income on loan applications. It names as defendants Countrywide's subprime lending unit, Full Spectrum Lending; the company's servicing arm, Countrywide Home Loans Servicing LP; and Angelo Mozilo, the co-founder and former Countrywide CEO.
The complaint further alleges that some loans, for example, featured low payments that lasted for only an initial period. Countrywide routinely qualified borrowers for such loans based on the initial low payment amount, even though the company knew that the borrowers would not be able to repay the loan after it reset to a higher rate, according to the complaint.
There were 9,670 foreclosure filings reported in Illinois in May 2008, up nearly 42% from May 2007, and the delinquency rates on Countrywide loans in Illinois from 2005 through the first half of 2007 are even higher than Countrywide's national rates, according to Madigan.
The lawsuit alleges that Countrywide's deceptive sales techniques were largely the result of a compensation structure encouraging employees to place borrowers in risky loans by tying their compensation to the volume of loans sold.
The lawsuit asks the court to rescind or reform all Countrywide loans originated with the use of unfair and deceptive practices and provide financial relief to borrowers who lost their homes to foreclosure, refinanced, sold or have loans currently serviced by Countrywide.