Countrywide, the nation's largest mortgage originator and loan servicer, is being investigated by Lisa Madigan, the Illinois state attorney general as part of the state's expanding inquiry into dubious lending practices that have trapped borrowers in high-cost mortgages they can no longer afford.
As reported in Gretchen Morgenson in the business section of the New York times today (12/13/07) in her article, "Countrywide Subpoenaed by Illinois":
The inquiry follows an investigation by Ms. Madigan's office into One Source Mortgage, a Chicago mortgage broker that recently closed its doors. Ms. Madigan sued One Source on November 27, contending that the company misled borrowers by promising low rates on mortgages without advising them that their payments would jump sharply after the loans were made. Countrywide was One Source's primary lender, according to the lawsuit.
Gretchen Morgenson is a great chronicler of our times. I've been reading her for months about the unfolding, systematic criminality of various business sectors which operated with impunity under the watchful eye of the Bush administration. When I say "watchful eye", I mean that the Bush administration made damn sure that no regulatory entity imposed any restrictions on the predatory tactics of the business community, either by hiring lackeys or by shredding legal protections.
She is the one who made me aware of Angelo Mozilo, the CEO of Countrywide, who prides himself on being the son of a Bronx butcher. He followed in his father's footsteps only he butchers the lives, dreams and hopes of the middle class (and working class, and upper class and any other class except the richest who can shield themselves from their own kind). These guys devised a perfect way to separate people from their assets, including their retirement funds. Send out brokers who offer complicated mortgages to people who want to buy houses. Things like adjustable rate mortgages with pay option clauses, where you have the option to pay as little as you want toward your principal and interest. The brokers don't make it clear (or just lie) that the difference between what you pay and what you owe is added to your principal.
They also said that the low rates they offered were for a year, when in most (if not all) cases the low rates were only for the initial month, then leapt to 7.5 or 8% the following month. Even people who questioned them repeatedly were lied to or misled.
Donald Wagner, a professor of Middle East studies and comparative religion at North Park University on Chicago's North Side, is a One Source client who has talked to the attorney general about his troubles with a Countrywide pay option loan. In March 2005, he refinanced his fixed-rate mortgage to help pay for his daughter's college education. He said the One Source broker did not tell him his low teaser rate--less than 2 percent--would jump after just one month.
"I kept asking them and checking on that," Mr. Wagner said. "Then it jumped to more than 7 per cent and now it's up to 8 per cent plus and it's going to jump again. I am actually paying out over 60 per cent of my monthly income and it's only so long that I can do that."
Because Mr. Wagner cannot afford to pay both the interest and principal, the amount of his Countrywide loan has risen to $307,000 from $292,000 two and a half years ago. He has had to borrow against his 401(k) and university pension to meet his payments, he said. Making matters worse, when he tried to sell his house last summer to get out from under the mortgage, he learned that the loan carried a prepayment penalty of $12,000.
Mr. Wagner has asked Countrywide to drop the prepayment penalty, but it has declined to do so.
Lisa Madigan is taking the initiative abandoned by Congress and almost every other entity empowered to act to try to help her state's homeowners:
A recent analysis by the Chicago Reporter, an investigative newsmagazine, found that the Chicago area ranks first among United States metropolitan areas in the number of subprime loans issued to homeowners from 2004 to 2006.
She has been instrumental in helping nationwide:
The Illinois attorney general has been aggressive in moving against mortgage lending abuses. State officials were part of the executive committee that negotiated the settlement reached in January 2006 between Ameriquest, a big mortgage lender, and 49 state attorneys general.
Under that deal, the Company, without admitting or denying the accusaitons of loan improprieties, agreed to pay $295 million to consumers in 49 states and more than $30 million to coer costs of the investigation.