California attorney general sues Countrywide Financial

Countrywide Financial Corp. and its chief executive, Angelo Mozilo, were sued today by California Atty. Gen. Jerry Brown, who accused them of forcing thousands of homeowners into foreclosure by deceptively marketing risky adjustable-rate mortgages to borrowers who didn’t understand that their monthly payments would one day “explode.”

The lawsuit, which also names Countrywide President David Sambol as a defendant, was filed just before Countrywide shareholders voted to approve the takeover of the nation’s largest home-loan company by Bank of America Corp. for stock currently valued at $2.8 billion.

The attorney general’s complaint, filed in Los Angeles County Superior Court, alleges that beginning in 2004, Countrywide and its top executives loosened or ignored lending standards and deceived borrowers about the risks of sub-prime mortgages and other adjustable-rate loans by emphasizing low initial rates.

The goal, the suit says, was to double the lender’s share of the national mortgage market to 30% by mass-producing loans that could be sold off and transformed into complex bonds.

“Defendants viewed borrowers as nothing more than the means for producing more loans, originating loans with little or no regard to borrowers’ long-term ability to afford them and to sustain homeownership,” a draft of Brown’s complaint says.

The suit asks the court to order an end to what it calls Countrywide’s misleading and unfair practices, and demands restitution for the alleged victims. The complaint doesn’t specify what procedures might be used to accomplish the restitution.

The attorney general of Illinois today filed a similar lawsuit against Countrywide in state court in Chicago.

Countrywide spokesman Rick Simon said the company would have no immediate comment on the suits.

At a special shareholder meeting today at Countrywide’s headquarters in Calabasas, Mozilo, looking tired and grim, announced that holders of at least 69% of the company’s shares outstanding had voted in favor of the takeover by Bank of America. The Charlotte, N.C.-based bank has said it expects to complete the acquisition by next week.

Neither Mozilo – who is chairman of Countrywide as well as its CEO – nor Sambol are to stay on after the takeover. Bank of America initially had said it would retain Sambol to run all of its mortgage operations, including Countrywide, but later reversed itself.

During the meeting, Mozilo said he saw no future role for stand-alone mortgage lenders such as Countrywide.

“This is clearly the end of an era,” he said.

He added that Countrywide employees should be proud that the lender helped 20 million families buy homes.

“Countrywide had a positive effect,” he said. “Despite what has been written in the press, we are leaders in helping families avoid foreclosure.”

Mozilo allowed no other comments at the meeting, disappointing critics of the CEO and his pay packages who saw the meeting as an opportunity to take one last crack at him.

The California suit also lists as defendants the lender’s principal subsidiary, Countrywide Home Loans Inc., and a former sub-prime lending unit, Full Spectrum Lending Inc.

Brown’s sister, Kathleen Brown, head of West Coast municipal finance at Goldman Sachs & Co. and a former California state treasurer, served on Countrywide’s board from March 2005 through March 2007, when the alleged bad practices were occurring. Neither she nor other nonexecutive directors of Countrywide were named as defendants.

 scott.reckard@latimes.com