Homeowners with Countrywide loans eligible for Loan Modificationis

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ON June 25, 2008, California Attorney General Edmund G. Brown Jr. sued Countrywide Financial, its Chief Executive Officer Angelo Mozilo, and President David Sambol, for engaging in deceptive advertising and unfair competition by pushing homeowners into mass-produced risky loans for the sole purpose of reselling the mortgages on the secondary market. The lawsuit was filed in order to "seek relief for Californians who were ripped off by Countrywide’s deceptive scheme," according to the Attorney General.Countrywide was found to have used deceptive tactics to push homeowners into complicated, risky and expensive loans so that the company could later in time sell as many loans as possible to third-party investors. The company loans were promised very low initial or "teaser" interest rates or payments. However, average homeowners later find out that these loans are very complex and difficult to understand. Countrywide employees, ranging from loan officers and underwriters to branch managers were pressured to sign up as many lenders as they could, and in the process misrepresented or obfuscated the fact that certain types of loans for the borrowers would naturally lead to dramatic increases in monthly payments. Employees who did not meet quotas were terminated.

The company’s deceptive marketing practices included but were not limited to the following:

1) Marketing complex loan products by emphasizing a very low "teaser" rate while misrepresenting the steep monthly payments, increased interest rates and risk of negative amortization;

2) Dramatically easing underwriting standards to qualify more people for loans;

3) Using low or no-documentation loans which allowed no verification of stated income;

4) Hiding total monthly payment obligations by selling homeowners a second mortgage in the form of a home equity line of credit;

5) Making borrowers sign a large stack of documents without providing time to read the paperwork; and

6) Misrepresenting or hiding the fact that loans had prepayment penalties.

As a result of Countrywide’s deceptive sales practices, a large number of loans ended in default and foreclosure. Borrowers who filed complaints to Countrywide claiming that they didn’t understand their loan term were only ignored by loan officers.

In October of 2008, Countrywide Home Loans, Countrywide Financial Corporation, and Full Spectrum Lending entered into a settlement with the Attorney General’s office. The settlement is expected to provide up to $3.5 billion of home loan and foreclosure relief to California borrowers $8.68 billion of home loan and foreclosure relief nationally. In summary, the settlement will enable eligible subprime and pay-option mortgage borrowers to avoid foreclosure by obtaining a modified and affordable loan.

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