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Countrywide sued for unfair lending; buyout approved
NEW YORK/CALABASAS, California |
NEW YORK/CALABASAS, California (Reuters) - Countrywide Financial Corp CFC.N, widely blamed for helping foment the U.S. housing crisis through free-wheeling lending, was sued for alleged deceptive mortgage practices by officials in its home state of California and in Illinois on Wednesday.
Marking the end of an era, shareholders the same day approved the company's takeover by Bank of America Corp (BAC.N) at a closed-door meeting conducted by founder and Chief Executive Angelo Mozilo at its Calabasas, California compound.
The merger is set to close by July 1.
Countrywide became the company most closely associated with the U.S. housing boom -- in which mortgages with low teaser rates were seemingly handed out to anyone who asked -- as well as the real estate market's collapse when shaky borrowers lost their homes to foreclosure when mortgage rates rose.
Mozilo has also come under fierce criticism for his role in the bust. One of corporate America's top-paid executives, he has been under fire from consumer activists, lawmakers and regulators for the company's lending practices and the way it treats borrowers struggling to keep up with mortgage payments.
Mozilo got a standing ovation on Wednesday from the meeting's 300 attendees, many of them employees, said Scott Adams, coordinator for a pension program of the American Federation of State, County and Municipal Employees.
As a handful of journalists waited outside guarded gates at the company's suburban compound, the 69-year-old CEO tearfully recalled that he had received a loan from Bank of America to help co-found Countrywide, and reminisced about the millions of mortgages the company had written over the years, Adams said.
Despite the meeting's reflective tone, "there was a lot of security in there," Adams said, and shareholders were not given a chance to comment on the deal ahead of the vote.
Mozilo ended polling on the $2.7 billion deal in less than 20 minutes, making no mention of the mounting lawsuits against Countrywide, Adams said.
The largest U.S. mortgage lender is accused in the lawsuits of unfair trade practices that encouraged homeowners to take out risky loans, regardless of whether they could repay them.
California and Illinois officials said the company relaxed mortgage standards in an effort to rope in more customers. Countrywide "exploited the American dream of homeownership" and then sold its mortgages for huge profits to third-party investors, California Attorney General Jerry Brown said.
The company "was, in essence, a mass-production loan factory, producing ever-increasing streams of debt without regard for borrowers," Brown said. "Today's lawsuit seeks relief for Californians who were ripped off by Countrywide's deceptive scheme."
The California case, which also names company President David Sambol as a defendant, was filed in Los Angeles Superior Court.
The Illinois suit was brought in Cook County Circuit Court, and seeks to rescind or reform Countrywide mortgages originated under alleged unfair and deceptive practices as well as restitution for foreclosed homeowners.
Illinois Attorney General Lisa Madigan also asked the court to put a 90-day stay on Countrywide loans in foreclosure in her state to allow her office time to review them. Madigan said Countrywide was a major contributor to foreclosures in Illinois, with the foreclosure rate on Countrywide loans more than double that of other lenders between 2006 and 2007 in Cook County, which includes Chicago.
"Much of this came from Countrywide's greed and their desire to dominate the marketplace," she told a news conference.
In a statement, Countrywide said it was fully cooperating with the California and Illinois attorneys general, and was working with customers who are having trouble making mortgage payments.
Also on Wednesday, Washington state Gov. Christine Gregoire planned to hold a news conference to address "allegations of repeated discriminatory lending practices" by Countrywide, her office said in a press advisory. The state will fine the lender and ask that its license be withdrawn, the announcement said.
Countrywide faces lawsuits on many fronts over its falling stock price and allegations it inflated earnings and overstated its ability to weather the housing slump.
It also has been accused of abusing bankruptcy or foreclosure processes. At least three lawsuits were filed by offices of the U.S. Trustee, part of the Department of Justice.
Mozilo also faces a U.S. Securities and Exchange Commission probe into his sales of Countrywide stock before the share price dropped sharply when the U.S. housing bubble burst.
(Additional reporting by Karen Pierog in Chicago, editing by Phil Berlowitz)
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