Countrywide Financial, the mortgage lender that lost $2.5 billion amid rising defaults and foreclosures, was sued by California and Illinois for allegedly luring borrowers into risky loans they couldn’t afford.
Countrywide and chief executive Angelo Mozilo were named in suits, filed Wednesday, claiming the biggest U.S. home lender used deceptive practices such as low “teaser” rates to entice thousands of borrowers into adjustable- rate loans without adequately informing them that payments would balloon in later months.
The two lawsuits were filed the same day Countrywide’s shareholders approved Bank of America’s $3 billion takeover offer, clearing the way for the lender’s bailout.
Washington Gov. Christine Gregoire is also seeking to fine Calabasas, Calif.-based Countrywide and revoke its license for allegedly discriminating against minority borrowers.
“It’s going to be increasingly expensive for BofA because they are taking on all of these lawsuits,” said David Olson, president of Wholesale Access Mortgage Research, in Columbia, Md. Countrywide was “too aggressive, and they should be punished.”
Countrywide may face legal costs of $1 billion to $2 billion, CreditSights Inc. analyst David Hendler said in a report Wednesday.
Rick Simon, a spokesman for Countrywide, didn’t return a call seeking comment.
