Fallout from the subprime-mortgage mess has spread from corporate balance sheets and civil actions by regulators into the criminal arena.
Countrywide Financial Corp., the nation’s number-one mortgage lender, is being investigated by the attorneys general of Illinois and California for its past lending practices, according to several published reports.
Illinois Attorney General Lisa Madigan has subpoenaed documents from Countrywide relating to its loan-origination activities, The New York Times reported. She may expand the probe to look at how homeowners were approved for mortgages with payments they were unable to afford, according to the Associated Press.
“We’re looking at why people who appear to us to not be able to afford the loans they’re in are in these loans and how Countrywide contributed to that,” Deborah Hagan, chief of the attorney general’s consumer protection division, told the wire service.
The Illinois investigation grew out of a probe into broker One Source Mortgage, which the state claims got borrowers into loans called pay-option mortgages, according to The Los Angeles Times. The paper said Countrywide was the chief provider of these loans, which allow borrowers to pay less than the full interest that comes due each month, which then increases the loan balance. The loans were marketed to people who otherwise couldn’t afford mortgages.
Some borrowers have said they were not told that low teaser rates would be in effect for only one month, while others complained about prepayment penalties if they sold their homes and that Countrywide refused to waive, The New York Times wrote.
The Securities and Exchange Commission already was looking into stock trades by CEO Angelo Mozilo before Countrywide’s stock tanked earlier this year.