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"These shocking new details provide further evidence of Countrywide's dangerous lending practices, which included ignoring borrowers' low credit scores and rewarding employees for selling risky loans," Brown said. "In one case the company approved an adjustable rate mortgage to an 85-year-old disabled veteran with such a low credit score and high debt that he defaulted in less than six months."
On June 20 Attorney General Brown sued Countrywide for engaging in deceptive advertising and unfair competition by pushing homeowners into risky loans for the sole purpose of reselling the mortgages on the secondary market.
On July 17 Brown filed an amended lawsuit in Los Angeles Superior Court which reveals 20 new details about the company's scheme to deceive consumers into taking out dangerous mortgages. The information had been previously withheld from the complaint.
Some of the new information includes the fact that Countrywide’s wholesale lending officers received higher commissions for selling Pay Option Adjustable Rate Mortgages – loans that entice consumers with a very low initial "teaser" rate – and loans with weak underwriting standards. Countrywide also paid higher commissions for putting borrowers into loans with higher rates and fees than they qualified for based upon credit scores and other factors.
Countrywide ignored factors that it identified as having negative impacts on underwriting including: high debt ratios, low credit scores, and minimal down payments. Company employees regularly overrode warnings from Countrywide's computerized underwriting system, known as CLUES, which issued loan analysis reports rating consumer credit, purported ability to repay, and whether a proposed loan complied with underwriting guidelines.
The following examples describe new details about how Countrywide granted exceptions to sound business practices. These examples represent a small percentage of the large number of California residents who are facing foreclosure due to Countrywide’s dangerous practices:
A Countrywide loan officer convinced a borrower to take a Pay Option ARM with a 1-month teaser rate and a three-year prepayment penalty plus a full-draw piggyback home equity line of credit based on the loan officer’s representation that the value of the borrower’s home would continue to rise and he would have no problem refinancing. The borrower’s debt-to-income ratio was 47 percent and credit score was 663. The loan officer offered the loan even though the company’s CLUES report and an underwriter review indicated strong doubts about the borrower’s ability to repay. The loan closed in January 2006, and a Notice of Default issued in June 2007.
The CLUES report issued for a loan applicant in February 2005 stated that the consumer had too much debt for the loan program and identified other elements of risk including a low credit score. The CLUES report raised doubts about the borrower’s ability to repay the loan but Countrywide approved a 3/27 adjustable rate mortgage with a three-year prepayment penalty, to an 85-year old disabled veteran with a credit score of 509 score and an debt-to-income ratio of nearly 60 percent. The loan closed in February 2005, and a Notice of Default issued in July 2005.
The CLUES report for a proposed loan identified multiple risks that created doubts about the borrower’s ability to make the payments, including the fact that a borrower had an open collection account. In January 2006, however, Countrywide granted exceptions for these risks and approved a reduced documentation Pay Option Adjustable Rate Mortgage loan for $352,000 with a 3-month teaser rate and a 3-year prepayment penalty, as well as a Piggyback home equity line of credit for $22,000. The loan closed in January 2006, and a Notice of Default issued in October 2006.
Many borrowers who obtained Pay Option and Hybrid ARMs did not understand that their initial monthly payment would at some point "explode," that their initial interest rate would increase and become adjustable, or that the principal amount of their loans could actually increase. Countrywide received numerous complaints regarding these practices from borrowers, including over 3,000 complaints per year handled by the Office of the President between January 2005 and August 2007.
Countrywide gave branch managers commissions or bonuses based on the net profits and loan volume generated by each branching, thereby creating intense pressure to sell as many loans as possible, as quickly as possible, at the highest prices possible. Branch managers were rewarded for meeting production goals set by corporate management, increasing the number of loans sold per loan officer, and reducing the time periods between the loan application stage and funding--or penalized for failing to do so.
The amended lawsuit also contains updated data about Countrywide's staggering foreclosure rates. As of April this year, 21.11 percent of the mortgages owned by Countrywide Home Loans were in some stage of delinquency or foreclosure, including 47.97 percent of originated non-prime loans, and 21.23 percent of Pay Option ARMs.
In January and March, Countrywide recorded 3,175 notices of default in Alameda, Fresno, Riverside and San Diego counties alone, representing an aggregate total of delinquent principal and interest of more than $917 million.
The state's amended complaint is attached. For more information about California’s lawsuit against Countrywide please visit: http://ag.ca.gov/newsalerts/release.php?id=1582&.
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The public is welcomed to enjoy the fun, food, and entertainment, take a guided tour of the beautifully renovated Lodge at Blue Lakes and Lake County’s newest special events venue, as well as enter a raffle for an overnight stay in a deluxe Jacuzzi room.
Located at the site of the Lodge’s former restaurant, the Special Events Center now offers panoramic views of scenic Blue Lakes, plus the Magic Ballroom, the Ice Bar, and the Waterscape Deck with gazebo. The center is available for events of all types – from weddings and family reunions to meetings, retreats, even holiday parties.
The celebration will include appetizers and petit fours, beverages including wine and beer, entertainment provided by Scotty MacNeil on organ, as well as viewing of the historic wall paintings that grace the center’s walls.
Guided tours of The Lodge will showcase the renovations and the colorful history of the old Lodge, which originally opened to weary stagecoach travelers in 1870 as “Blue Lakes Lodge” and, over the
years, was subject to two fires, temporary closings, and even a move across the lake to its present location.
Today, owners Peter and Maryann Schmid have lovingly refurbished what is now known as “The Lodge at Blue Lakes” to welcome guests from all over California - from fishermen to vacationing families to wedding parties. The ribbon-cutting is sponsored by the Lakeport Regional Chamber of Commerce.
The Lodge at Blue Lakes is located at 5135 West Highway 20 in Upper Lake.
For more information or directions, contact The Lodge at Blue Lakes at 275-2181, www.thelodgeatbluelakes.com.
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Currently, oil and gas companies hold leases to drill on nearly 90 million acres of federal land. Of that, nearly 70 million acres – an area the size of Colorado – are not being touched, despite estimates that they contain 80 percent of oil and gas reserves on federal lands.
The “Use It or Lose It” bill (HR 6251), co-sponsored by Congressman Mike Thompson, gives oil companies an incentive to explore already available lands, rather than try to open new areas off the Outer Continental Shelf or in the Arctic National Wildlife Refuge (ANWR) to exploration.
Although the bill garnered a majority of support, it needed a two-thirds majority to pass. It will be voted on again after the July 4th congressional recess.
“When we sit atop only 2 percent of the world’s oil supply, but consume a quarter of the world’s supply, it’s clear we can’t drill our way out of the fuel crisis,” said Thompson. “However, we can encourage drilling on the land we’ve already leased to oil companies, much of which they aren’t currently using. There is no reason to expand drilling to new areas – areas that could suffer devastating environmental consequences – when oil companies aren’t using the land they have.”
Oil from already leased land can come on line much faster than any newly leased land. It’s estimated that oil from new areas such as the Outer Continental Shelf or ANWR could take up to 10 years to reach the market.
“Utilizing existing leases is only one part of a much-needed comprehensive energy policy,” said Thompson. “We also need to consider other short-term solutions like releasing a small portion of the Strategic Petroleum Reserve and cracking down on unregulated oil speculators who are artificially inflating the price of oil.”
“We also need to continue investing in long-term solutions, like renewable energy, fuel efficient vehicles, public transportation, incentives for homes and businesses that use solar, wind and biomass and research of other energy technologies,” Thompson said.
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“Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market,” Attorney General Brown said Wednesday. “The company sold ever-increasing numbers of complex and risky home loans, as quickly as possible. Countrywide was, in essence, a mass-production loan factory, producing ever-increasing streams of debt without regard for borrowers. Today’s lawsuit seeks relief for Californians who were ripped off by Countrywide’s deceptive scheme.”
Brown alleges that Countrywide Financial used deceptive tactics to push homeowners into complicated, risky, and expensive loans so that the company could sell as many loans as possible to third-party investors. According to the lawsuit, the company marketed complex and difficult to understand loans with very low initial or “teaser” interest rates or payments.
Countrywide employees, including loan officers, underwriters, and branch managers – who were under intense pressure to process a constantly increasing number of loans – misrepresented or obfuscated the fact that borrowers who obtained certain types of loans would experience dramatic increases in monthly payments.
In the past, lenders like Countrywide sold home loans to customers and held the loans in their own portfolio, an incentive to maintain strong underwriting standards. Countrywide, however, sold its loans to third-parties in the form of securities or whole loans, often earning more profit for riskier loans. The business model generated windfall profits for Countrywide.
The company pushed these loans by emphasizing a low “teaser” or initial rate, often as low as 1 percent for pay option ARMs. Countrywide obscured the negative effects – including rising rates, prepayment penalties and negative amortization – which would inevitably result from making minimum payments or trying to refinance. The company misrepresented or hid the fact that borrowers who obtained its home loans – including exploding adjustable rates and negatively amortizing loans – would experience dramatic increases in monthly payments.
In an effort to rope in as many customers as possible, Countrywide greatly relaxed and liberally granted exceptions to its mortgage lending standards. Traditionally, lenders required borrowers to document income and assets but Countrywide offered reduced or no documentation loan programs to increase its loan sales. Angelo Mozilo and David Sambol actively pushed for easing underwriting standards and granting exceptions to documentation requirements.
In Countrywide’s 2006 annual report, the company touted the massive growth of its loan production from $62 billion in 2000 to $463 billion in 2006 – three times the increase of the U.S. residential loan production market, which tripled from $1.0 trillion in 2000 to $2.9 trillion in 2006. 26 percent of Countywide loans were for California properties. The company sold an ever-increasing number of loans in an effort to gain a 30 percent market share of loan originations and then sell its loans on the secondary market, as mortgage-backed securities or pools of whole loans. Countrywide’s securities trading volume increased from $647 billion in 2000 to $3.8 trillion in 2006.
Countrywide routinely sold loans based upon a borrower’s stated income and without verifying the information. Loan officers memorized scripts that marketed low payments by focusing on the potential customer’s dissatisfaction, saying, for example, “Which would you rather have, a long-term fixed payment, or a short-term one that may allow you to realize several hundred dollars a month in savings?” The loan officer did not state that the payment on this new loan would exceed the payment on the current loan.
Countrywide paid greater compensation to brokers for loans with a higher interest rates, as well as prepayment penalties, because it could sell those loans for higher prices on the secondary market. Countrywide also paid rebates to brokers who originated loans with prepayment penalties, adjustable rates and high margins.
Countrywide operated an extensive telemarketing operation in which it touted its expertise and claimed to find the best financial options for customers. Customer Service representatives at Countrywide call centers were required to complete calls within three minutes, often processing sixty-five to eight-five calls per day. Employees who did not meet quotas were terminated. The company’s deceptive marketing practices, designed to sell costly loans while hiding or misrepresenting the terms and dangers, included:
• Encouraging borrowers to refinance or obtain financing with complicated mortgage instruments like hybrid adjustable rate mortgages or payment option adjustable mortgages
• Marketing complex loan products by emphasizing a very low “teaser” rate while misrepresenting the steep monthly payments, increased interest rates and risk of negative amortization
• Dramatically easing underwriting standards to qualify more people for loans
• Using low or no-documentation loans which allowed no verification of stated income
• Hiding total monthly payment obligations by selling homeowners a second mortgage in the form of a home equity line of credit
• Making borrowers sign a large stack of documents without provider time to read the paperwork
• Misrepresenting or hiding the fact that loans had prepayment penalties
As the secondary market’s appetite for loans increased, Countrywide further relaxed its standards to finance borrowers with ever-decreasing credit scores. Countrywide employees routinely overrode the company’s computerized underwriting system, known as CLUES, which issued loan analysis reports recommending or discouraging loans based on factors such as a consumer’s credit rating. As the pressure to produce loans increased, Countrywide set up an entire department in Plano, Texas, at the direction of Mozilo and Sambol, where employees could submit requests for underwriting exceptions. In 2006, 15,000 to 20,000 loans a month were processed through this exception process.
Countrywide’s deceptive sales practices resulted in a large number of loans ending in default and foreclosure. According to Countrywide’s February 2008 records, a staggering 27 percent of its subprime mortgages were delinquent. Overall, approximately 20,000 Californians lost their homes to foreclosure in May 2008 and 72,000 California homes were in default, roughly 1 out of 183 homes.
Despite receiving numerous complaints from borrowers claiming that they did not understand their loan terms, Countrywide ignored loan officer’s deceptive practices and loose underwriting standards. Countrywide also pushed its borrowers to serially refinance, repeatedly urging borrowers to obtain home loans to pay off their current debt.
The lawsuit, filed Wednesday morning in Los Angeles Superior Court, redacts confidential information Countrywide provided during the attorney general’s investigation. The attorney general is seeking the company’s consent to file an amended complaint that removes the redactions.
During the course of its investigation into Countrywide, state investigators reviewed hundreds of thousands of documents and interviewed scores of witnesses including consumers and former employees.
Consumers who believe they have been victimized by Countrywide Consumers should file a complaint by contact the Attorney General’s Public Inquiry Unit in writing at Attorney General's Office California Department of Justice Attn: Public Inquiry Unit P.O. Box 944255, Sacramento, California or through an online complaint form: http://ag.ca.gov/contact/complaint_form.php?cmplt=CL.
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