Published: August 26, 2008 10:35 am      

State sues mortgage lender

AG Carter says borrowers were misled by Countrywide agents

Agents deceived home-loan borrowers on interest rates and prepayment penalties and sometimes fabricated income levels in order to receive approval on risky loans, a lawsuit filed by the state of Indiana alleges.

The suit was filed against mortgage lender Countrywide, a company that has made loans in every county in the state, according to Attorney General Steve Carter, the state official behind the lawsuit.

Bank of America — which took ownership of Countrywide in July — released a statement saying it could not comment on the litigation, but would respond to the lawsuit in due course. That was announced at a Carter press conference in Louisville on Monday afternoon.

The filing claims Countrywide provided financial incentives for employees and loan brokers to sell potentially risky loans. It alleges that their agents made misleading representations or omissions on some of the loans they were making.

The Attorney General’s office investigated a handful of complaints from consumers. Some of those investigations are still continuing, but the suit itself recounts the stories of three Hoosier couples — from Indianapolis, Fishers and Fremont — who say they were misled by company agents. The loans were made between 2006 and 2008.

In one case, a borrower’s income was stated as $14,000 per month on an application, when in actuality the person’s income was about $3,000 a month, Carter said. Borrowers were leaving the closings believing they had a fixed interest rate for the next five years, when in actuality their adjustable rates were recalculated just a few months later, he said.

For the past few years, there has been a lot of controversy surrounding subprime lending, Carter said.

“We’ve not been immune to the foreclosure problems that have taken place across the country,” he said. “A pattern of misleading and questionable practices has emerged from our investigation into home loans.”

In its statement, Bank of America said it has been involved in a detailed review of Countrywide’s operations.

“We are confident that our newly combined company will be recognized as a leader in responsible lending practices,” the statement says.

It also noted previous announcements regarding responsible lending practices, which include working out at least $40 billion in troubled mortgage loans in the next two years to keep an estimated 265,000 customers in their homes.

Bank of America stopped granting subprime mortgages in 2001 and the combined company will not re-enter this business, the statement says. Additionally, the combined company will not offer negative amortization products, such as adjustable-rate mortgages or “pick-a-payment” loans.

Carter said the damage brought on by these loans already has been done.

“These unfair lending practices may have harmed thousands of people and, in turn, negatively affected our communities and neighborhoods throughout the state,” he said.

The suit seeks restitution for the consumers, an amount that would be determined at trial. Additionally, the state is seeking civil penalties of up to $15,500 per violation.

Four other states — Illinois, Florida, California and Connecticut — have filed similar lawsuits.