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Countrywide sued by Connecticut over loans, fees

NEW YORK (Reuters) - Countrywide Financial Corp, widely blamed for fueling the U.S. housing boom and subsequent bust with loose lending practices, was sued by Connecticut for allegedly steering customers into mortgages they couldn’t afford and charging excessive legal fees.

A Countrywide branch location is seen in Burlington, Massachusetts May 5, 2008. REUTERS/Brian Snyder

Calling the lender’s practices “oppressive, unethical, immoral and unscrupulous,” Connecticut joined California, Florida and Illinois among U.S. states suing Countrywide, which last year made one in six U.S. mortgage loans.

Washington state has separately announced plans to fine Countrywide and possibly revoke its lending license.

Bank of America Corp paid $2.5 billion in July for Countrywide, which was the nation’s largest mortgage lender.

“Countrywide conned customers into loans that were clearly unaffordable and unsustainable, turning the American dream of homeownership into a nightmare,” said Richard Blumenthal, Connecticut’s attorney general, in a statement on Wednesday. He also called Countrywide “an insolvency enabler.”

Connecticut is demanding that Countrywide make restitution to affected borrowers, give up improper gains, and rescind, reform or modify all mortgages that broke state laws.

It is also seeking civil fines of up to $100,000 per violation of state banking laws, and up to $5,000 per violation of state consumer protection laws. The state filed its lawsuit in Hartford Superior Court.

Bank of America spokeswoman Shirley Norton declined to discuss the claims but said the second-largest U.S. bank by assets is cooperating with the state.

She also said Bank of America is reviewing Countrywide’s business, and is working to keep borrowers in their homes and be a leader in responsible lending.

In afternoon trading, Bank of America shares were up 33 cents at $33.91 on the New York Stock Exchange.


Blumenthal accused Countrywide of encouraging borrowers to take out home loans they couldn’t afford, inflating borrowers’ incomes to qualify them for such loans, refusing to refinance loans after promising to do so, and misleading consumers about loan terms, revealing some only at the closing table.

He also accused the lender of bullying borrowers into loan workouts that were “doomed to fail.”

According to the complaint, Countrywide “routinely and systematically” imposed excessive legal fees in thousands of cases referred to foreclosure lawyers, when it knew failure to pay raised the risk that borrowers could lose their homes.

Other states have accused Countrywide and its longtime chief executive, Angelo Mozilo, of unfair, deceptive or predatory lending, including the steering of customers into subprime and other home loans they couldn’t afford.

Mozilo is not a named defendant in Connecticut’s lawsuit.

At least three lawsuits have been filed by offices of the U.S. Trustee, part of the Department of Justice, accusing Countrywide of abusing bankruptcy or foreclosure processes.

Countrywide is also under investigation by the FBI, authorities have said. The FBI last month said it has 21 corporate targets in its investigation of potential corporate fraud in the mortgage industry.

In addition, Countrywide has been the target of many lawsuits by borrowers and former shareholders.

Bank of America, based in Charlotte, North Carolina, last month said it expects the Countrywide acquisition to add to profit in 2008, sooner than expected.

But analysts have said the bank might face $10 billion or more of future losses or write-downs tied to deteriorating credit, as well as hefty legal bills tied to Countrywide.

Editing by Brian Moss