Illinois Attorney General Lisa Madigan’s office helped resolve a lawsuit that alleged Countrywide put people into loans, mostly subprime loans, that the would-be homeowners could not afford.
HERE’S WHY: Wall Street figured out it could lap up cash flow from securities backed by subprime mortgage loans. And subprime loans, though risky, produce higher returns than conventional loans. Countrywide wanted in on the action, so it increased its origination of subprime loans to $44 billion in 2005 from $9 billion in 2002, the lawsuit said.
HERE’S HOW: Countrywide used various tactics, such as requiring no paperwork to show a borrower’s income, falsely inflating the borrower’s income, not explaining that the interest rate on a loan would skyrocket after a certain period, and giving loans in which the borrower who paid only a minimum payment would get hit with a higher principal and interest payment than the loan originally required, according to attorneys who handled the case in Madigan’s office.
“This settlement holds the No. 1 mortgage lender in the country [Countrywide] accountable for deceptively putting borrowers into loans they didn’t understand, couldn’t afford and couldn’t get out of,” Madigan said.
Countrywide was the largest lender in Illinois from 2004 through 2006, selling 94,000 loans total. It also was the largest in the Chicago area, selling 21,000 loans in the seven-county metro area in 2006.