Class Action Settlements: Countrywide Home Mortgage
Countrywide Home Mortgage was once the nation’s largest mortgage lender, having issued 17 percent of all mortgages in the U.S. in 2007. By May 2010, it had settled one of the country’s largest securities class action lawsuits agreeing to pay $624 million to investors who had purchased its securities between March 12, 2004 and March 7, 2008.
Countrywide financed mortgage loans by packaging them for sale to large investors as mortgage-backed securities. These non-conforming mortgages, so-called because they did not have to have to meet a bank’s criteria for funding due to insufficient credit on the part of the borrower, are only sold in the private, secondary market. These sub-prime mortgages ceased to be sold for the most part by August 3, 2007.
As the risk or perceived risk of Countrywide bonds rose, Standard and Poor’s and other credit rating agencies downgraded its status, and its cost of insuring its bonds rose 22 percent almost overnight.
A New York Times article on August 29, 2007 reported that Countrywide’s CEO, Angelo R. Mozila, had, from 2005 to 2007, sold most of his Countrywide Financial stock for a profit of $291.5 million. Shortly thereafter, a class action suit was filed on behalf of stockholders alleging securities violations.
On June 25, 2008, the Attorney General of Illinois, followed by Attorney General Jerry Brown of California, filed state court suits, accusing Countrywide of engaging in unfair business practices, false advertising and misleading borrowers about the structure of adjustable rate mortgages, interest-only loans, low-documentation and home-equity loans. It also accused the company of advising borrowers they could refinance their loans before the interest rate on their loans adjusted to a higher rate. Attorney General David Blumenthal of Connecticut also filed a similar suit in August 2008.
The state suits were settled in October 2008 after Bank of America acquired Countrywide in January 2008 for $4 billion. The terms included modifications of troubled predatory loans up to $8.4 billion. A number of states joined in the settlement. In August 2008, a data theft class action suit was filed against Countrywide after its senior financial adviser stole the identities of millions of its customers and attempted to sell them. It was quickly settled with Countrywide agreeing to provide two years of free credit monitoring and up to $50,000 for each incident of identity theft as well as reimbursement for incidental out-of-pocket costs.
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