August 25, 2008 / 8:54 PM / 9 years ago

Indiana sues Countrywide over mortgage practices

NEW YORK (Reuters) - The state of Indiana sued Countrywide Financial Corp, accusing the mortgage lender now owned by Bank of America Corp (BAC.N) of deceptive and misleading practices that left borrowers with potentially risky and costly home loans.

The lawsuit against Countrywide and its Countrywide Home Loans Inc unit was filed Monday in Steuben County Circuit Court, according to Jenny Scheuer, a spokeswoman for Indiana Attorney General Steve Carter.

Indiana is at least the sixth state to sue Countrywide over its business practices, joining California, Connecticut, Florida, Illinois and West Virginia. The state of Washington has threatened to revoke Countrywide’s lending license.

Shirley Norton, a Bank of America spokeswoman, said the Charlotte, North Carolina-based bank had not reviewed the complaint, but would respond in due course.

She said Bank of America is committed to responsible lending practices.

According to the 13-page complaint, Countrywide misled borrowers about loan terms, including prepayment penalties on adjustable-rate mortgages that let borrowers pay less than the principal due. Indiana also accused Countrywide of inflating borrower incomes so that it could offer more loans.

In one case cited by the state, a broker completed a loan application showing an Indianapolis couple’s income as $14,000 a month, when in fact it was $3,000. The state said the broker also didn’t tell the borrowers that the initial 1.75 percent interest rate would adjust upward on the first payment date.

    The broker’s employer received fees of $7,262 from the borrowers and $12,602 from Countrywide as a result of the loan, according to the complaint.

    “A pattern of misleading and questionable practices has emerged,” Carter said in a statement. “These unfair lending practices may have harmed thousands of people.”

    The state is seeking restitution for borrowers, the voiding of prepayment penalties and portions of loans stemming from deceptive practices, and civil fines of up to $15,500 per violation.

    Countrywide was the largest U.S. mortgage lender before Bank of America bought it on July 1 for $2.5 billion.

    Editing by Jeffrey Benkoe

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