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Connecticut Sues Countrywide Over Deceptive Loans

Attorney General alleges lender gouged customers for "excessive" fees

August 7, 2008

Blumenthal's lawsuit seeks restitution for consumers as well as fines and forfeitures to the state for alleged violations of Connecticut consumer protection and banking laws. The action also asks the court to rescind, reform or modify all mortgages that broke state laws.

Blumenthal has filed the action in Superior Court in Hartford in coordination with Department of Consumer Protection (DCP) Commissioner Jerry Farrell, Jr. and Department of Banking (DOB) Commissioner Howard F. Pitkin.

Blumenthal said, "Countrywide conned customers into loans that were clearly unaffordable and unsustainable, turning the American Dream of homeownership into a nightmare. When consumers defaulted, the company bullied them into workouts doomed to fail. Countrywide crammed unconscionable legal fees into renegotiated loans, digging consumers deeper into debt. The company broke promises that homeowners could refinance, condemning them to hopelessly unaffordable loans.

"Countrywide stacked the deck and the deal against its customers: Our goal is to un-stack the deck -- and undo the deals -- restoring fairness and fiscal sense to mortgages. I will fight for restitution -- money back to homeowners used and abused by Countrywide -- as well as fines and forfeitures to the state. Our lawsuit seeks to invalidate loans that violate state law, allowing consumers to shed illegal, unreasonable fees and conditions that leave them at the precipice of foreclosure. We must vigorously fight predatory lending practices that trap consumers on a debt treadmill," Blumenthal said.

Blumenthal alleges Countrywide violated state consumer protection and banking laws by:

• Encouraging consumers to take out loans the company knew or should have known they could not afford;

• Improperly inflating consumers' incomes to qualify them for loans they otherwise could not have received;

• Providing loans with different and more expensive terms than consumers were promised;

• Pressuring consumers into mortgages with temporary interest only payment options when the company knew or should have known they could not afford the higher payments that would come due later;

• Providing variable rate loans to consumers with the assurance they could refinance before interest rates reset, only to later refuse to do so;

• Sending at least one consumer rejected for a home equity loan at one Countrywide office to another company branch where the loan request was approved;

• Demanding Connecticut consumers facing foreclosure pay excessive and inaccurate legal fees in order to reinstate their loans;

• Promising to help homeowners "in financial difficulty to establish suitable payment plans," but instead demanding loan modifications and repayment plans that were unsustainable, unaffordable or unsuitable.

Blumenthal's lawsuit seeks civil penalties of up to $100,000 per violation of state banking laws and up to $5,000 per violation of state consumer protection laws, disgorgement of all ill-gotten gains and an order compelling the company to cease its illegal practices.

The Connecticut lawsuit against Countrywide follows a similar suit filed in California by Attorney General Edmund Brown, who documented the mortgage giant's dubious lending practices and deceptive marketing tactics.

Although federal regulators approved the sale of Countrywide to Bank of America, the FBI is reportedly examining the mortgage lender for accounting fraud, insider trading and the "securitization" of mortgage-backed securities.

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