Rachel Dollar of the Mortgage Fraud Blog has posted the Complaint filed by Connecticut Attorney General Richard Blumenthal. You can view the document here.
Many thanks to Ms. Dollar for her diligence in following these developments in subprime litigation.
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.
The Washington Post published this article today about the Seventh Circuit Court of Appeals’ impending decision on whether homeowners can bring class action lawsuits against lenders to cancel predatory, misleading, or defective loans. The case was brought by a Wisconsin couple against Chevy Chase bank.
Given the rise in the incidence of predatory or manipulative lending practices over the past few years (as brought to light in cases such as People v. Countrywide, filed in Los Angeles County), this case could have a significant impact on Wall Street and the major banks. While the ruling will not change borrowers’ eligibility for relief, it will determine whether borrowers can band together to bring class action lawsuits. As it has up to now proven prohibitively expensive for most individuals to initiate and pursue these cases, the ruling could open the doors to relief for hundreds of thousands of homeowners. Chevy Chase bank alone has estimated that 7,000 of its borrowers have received loans from the bank similar to that of the Wisconsin plaintiffs.
From a story published in the Louisville Courier-Journal:
“The Securities and Exchange Commission (SEC) has requested documents from National City Corp. relating to the sale of its former subprime mortgage unit and other matters as part of an informal probe, the regional bank revealed Friday in a regulatory filing…
National City spokeswoman Kelly Wagner Amen would not comment on the nature of the probe or whether it would financially affect the company. But she did say it would not impact customer accounts, and that the SEC has not said that National City has acted improperly or illegally. National City said it intends to cooperate with the SEC…
Merrill Lynch & Co. agreed to acquire First Franklin for $1.3 billion at the height of the real estate boom in late 2006. But the collapse of the subprime mortgage market and the deterioration of the credit market led Merrill to announce in March that it would stop funding loans at the unit and pursue a sale of the business.”
We are likely to see a lot more of this back-and-forth between banks and the SEC or other regulators as banks attempt to cabin their losses from the subprime crisis and regulators try to ensure accountability.
