California Attorney General Edmund Brown Jr. has filed suit against Countrywide Financial Corp., its Chief Executive Officer Angelo Mozilo and President David Sambol, accusing them of deceiving homeowners by teasing risky ARM loans at low-interest rates and disguising the fact that borrowers were at risk of drowning under the weight of their mortgages once their teaser rates reset.
Brown’s office alleges that Countrywide leaders pressured the sales force and buyers to go along with risky loans that were more likely to generate profit for Countrywide on the secondary market.
In a press statement Wednesday, Brown’s office said, “In the past, lenders like Countrywide sold home loans to customers and held the loans in their own portfolio, an incentive to maintain strong underwriting standards. Countrywide, however, sold its loans to third-parties in the form of securities or whole loans, often earning more profit for riskier loans. The business model generated windfall profits for Countrywide.”

Brown’s office goes on to say Countrywide relied heavily on low-doc loans, stated incomes with no verification and loan officers who were given a prepared sales pitch to use when calling borrowers. As an example, Brown’s office cites the following pitch from a Countrywide sales script: “Which would you rather have a long-term fixed payment, or a short-term one that may allow you to realize several hundred dollars a month in savingsx”
Brown’s office believes when the secondary market grew its “appetite” for these mortgage loans, Countrywide continued to expand its lending reach and did so without maintaining the integrity of its lending standards.
“Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market,” said Brown. “The company sold ever-increasing numbers of complex and risky home loans, as quickly as possible. Countrywide was, in essence, a mass-production loan factory, producing ever-increasing streams of debt without regard for borrowers. Today’s lawsuit seeks relief for Californians who were ripped off by Countrywide’s deceptive scheme.”
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