Connecticut is the latest state to file suit against Countrywide Financial Corp. over its lending practices. State Attorney General Richard Blumenthal alleges that Countrywide misled borrowers into taking on risky home loans they could not afford. California, Illinois, Florida and the city of San Diego have made similar claims in their own lawsuits against the company. As we have reported, Countrywide was the nation’s largest mortgage originator before its highly questionable lending practices led to the rash of bad loans. In fact, the mortgage lender has been blamed for helping to cause the nation’s mortgage meltdown. The Attorney General’s office and Connecticut’s departments of Banking and Consumer Protection are the plaintiffs in the lawsuit which was filed in state court. The company violated state consumer protection and banking laws and charged unjustified fees to homeowners who defaulted, according to allegations in the complaint. As he filed the suit, Attorney General Richard Blumenthal stated:

Countrywide conned homeowners into mortgages they simply could not afford. Hundreds, possibly thousands, of Connecticut homeowners are affected.

Like Connecticut, the other states suing Countrywide want the company to pay restitution to borrowers who lost their homes or paid excessive fees. When homeowners defaulted on their Countrywide loans, the company “bullied” them into repayment plans known as “workouts” with excessive fees that made it nearly impossible for consumers to repay the loans and get out of the debt. The Attorney General observed:

Countrywide stacked the deck and the deal against its customers. Our goal is to unstack the deck and undo the deals, restoring fairness and fiscal sense to mortgages.

Countrywide, which faces numerous other lawsuits by individuals related to its lending practices, has also been under scrutiny by federal authorities. A federal grand jury has been investigating Countrywide, New Century Financial Corp. and IndyMac Bancorp Inc. Prosecutors are looking into whether fraud and other crimes might have contributed to the mortgage crisis that led to the demise of all three California-based lenders. The governor of the state of Washington, Chris Gregoire, also has accused Countrywide of discriminatory and predatory lending practices that targeted minority borrowers, and of cheating Washington state out of $5 million in fees. That state’s Department of Financial Institutions is seeking to revoke Countrywide’s license and impose a $1 million penalty for predatory lending practices. The old saying that “when it rains – it pours” certainly applies to Countrywide and it appears that company’s problems are clearly self-imposed. The SEC has escalated its scrutiny of Countrywide Financial Corp. into a formal investigation, according to a regulatory filing by Bank of America Corp.

In addition, a federal bankruptcy judge has rejected a settlement involving Countrywide, saying he wasn’t convinced it was fair to nearly 300 borrowers allegedly hurt by the mortgage lender’s abusive practices. The settlement calls for Countrywide to pay $325,000 to the Chapter 13 bankruptcy trustee in Pittsburgh, Ronda Winnecour, to cover costs and settle litigation in 293 separate cases. In the order issued on August 14th, the judge said the settlement failed to address many issues. The court was “concerned that the essential substance of the settlement agreement leaves too much open to future contingencies.”

Source: Associated Press and Reuters