CNN reports that Connecticut Attorney General Richard Blumenthal has filed suit in Hartford Superior Court today against Countrywide, becoming the fourth state (after California, Florida, and Illinois) to sue what was once the nation’s largest mortgage originator over its lending practices. The City of San Diego has also filed an action against the lender. These suits seek restitution to borrowers who lost their homes or paid excessive fees. The article quotes Blumenthal as saying Countrywide “bullied” defaulted homeowners into repayment plans known as “workouts” with excessive fees that they could not overcome. “Countrywide stacked the deck and the deal against its customers,” Blumenthal said. “Our goal is to unstack the deck and undo the deals, restoring fairness and fiscal sense to mortgages.”
Shares of BofA, which acquired Countrywide earlier this year, slid 7.2% upon the news (see here), as investors feared that legal settlements stemming from this and other actions could make the acquisition even costlier. In addition to these and other lawsuits, Countrywide faces a litany of other problems, including scrutiny by federal authorities, a federal grand jury fraud investigation that also involves New Century Financial Corp. and IndyMac Bancorp Inc., and a discriminatory and predatory lending action by Washington state seeking to revoke Countrywide’s license and impose a $1 million penalty for predatory lending practices.