Countrywide Settles State Consumer Fraud Cases for $8.4 Billion

Countrywide Settles State Consumer Fraud Cases for $8.4 Billion

Oct. 6 (Bloomberg) -- Countrywide Financial Corp., the home mortgage lender, will offer interest rate and loan principal reductions plus other distressed borrower relief valued at $8.4 billion to settle consumer fraud complaints from 11 states.

The accord, which includes relocation assistance for homeowners whose homes have been or are about to be foreclosed, will affect about 400,000 customers and resolves lawsuits filed against it by attorneys general in Illinois, California and Florida and complaints from eight other states, according to attorneys general Lisa Madigan of Illinois and Edmund G. ``Jerry'' Brown of California.

Madigan and Brown sued the Calabasas, California-based company on June 25, the same day Bank of America shareholders approved a bid to acquire it. At that point, the lender had lost $2.5 billion this year due to rising defaults and foreclosures.

Madigan's goal was ``to help homeowners now,'' the chief of her consumer protection division, Deborah Hagan, said in a telephone interview yesterday.

The package will likely become the largest predatory lending settlement in history, Brown said in a press statement yesterday.

The cases, initially filed in state courts in Chicago and Los Angeles, accused the lender of using deceptive practices, including the use of low introductory or ``teaser'' rates, to entice borrowers to take loans for which payments eventually grew to amounts homeowners couldn't afford.

The states' suits sought unspecified restitution for homeowners. California also asked for civil fines of as much as $2,500 for each violation of state laws banning unfair business practices and misleading advertising.

Customer Eligibility

On June 30, Florida Attorney General Bill McCollum sued the company as well. Yesterday's accord settles those actions and grievances lodged by Texas, Arizona, Washington, Iowa, Ohio, Connecticut, Michigan and North Carolina, Bank of America spokesman Dan Frahm said in a telephone interview.

``We will be determining, with the states, those customers who are eligible,'' Frahm said of the loan restructuring portion of the accord. ``We will reach out to those customers who are eligible.''

In addition to the restructuring of some loans, borrowers who defaulted upon their mortgages before the sixth payment will be refunded their closing costs, while others will be given relocation money `` to help them move out of their property and get their feet on the ground,'' he said.

Charlotte, North Carolina-based Bank of America will take no new charges in connection with the accord. The settlement amount was ``within the range of losses'' contemplated by the bank when it acquired the lender, Frahm said.

`Riskiest Loans'

``We tried to focus on the riskiest loans with the highest delinquency rates,'' Illinois' Hagan said. Some borrowers, who took out adjustable rate mortgages that are about to reset at higher levels the borrowers cannot afford, will have their loans restructured so that they get the benefit of their introductory rates for up to five more years, she said.

``With this settlement, homeowners will receive direct relief from the catastrophic damage caused by Countrywide,'' Brown said in the statement. ``Countrywide's lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn't understand and ultimately couldn't afford.''

The cases are People of the State of Illinois v. Countrywide Financial Corp., 08cv4210, U.S. District Court, Northern District of Illinois, Eastern Division (Chicago), and People of the State of California v. Countrywide Financial Corp., 08cv4861, U.S. District Court, Central District of California (Los Angeles).

BLOOMBERG