Countrywide Financial Corp. shareholders on Wednesday approved the mortgage lender's sale to Bank of America Corp., clearing the way for the Charlotte bank to complete the takeover on Tuesday.
Signaling the end of the one-time mortgage giant, holders of more than 69 percent of Countrywide's stock backed the transaction, initially valued at $4 billion.
Also Wednesday, the California attorney general's office filed a lawsuit accusing the lender of using misleading advertising and other unfair business practices to trick borrowers into taking on risky home loans they didn't fully understand.
The lawsuit stems from information gathered under subpoena after the state launched a probe last year into the troubled Calabasas, Calif.-based company's business.
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It also came on the same day Illinois' attorney general filed a lawsuit alleging Countrywide engaged in “unfair and deceptive” practices to get homeowners to apply for risky mortgages far beyond their means.
The purchase vaults Bank of America to No. 1 in mortgages, but leaves it facing rising loan losses and mounting legal risks from a company that played a central role in the nation's subprime mess.
In the complaint filed in Superior Court, California Attorney General Jerry Brown asserts that Countrywide violated the state's unfair business practices and false advertising laws with just about every action it took to market and originate some of the most popular – and potentially risky – types of home loans in recent years.
“Defendants viewed borrowers as nothing more than the means for producing more loans, originating loans with little or no regard to borrowers' long-term ability to afford them and to sustain homeownership,” the state claims in the suit, which also names as defendants Countrywide Chairman and chief executive Angelo Mozilo and David Sambol, the lender's president and chief operating officer.
Countrywide did not immediately return a call seeking comment. A Bank of America spokesman declined to comment.
The state claims the company misled customers about the workings of home-equity loans and some types of adjustable-rate mortgages, including pay-option loans, “hybrid” interest-only loans and low-documentation loans.
These loan types, which many other lenders offered during the housing boom, featured low initial payments and the potential for sharp increases after a few years. They now account for a large portion of the mortgages that have become delinquent or gone into default in the past year.
The lawsuit alleges Countrywide obscured the potential risks in the loans, misled consumers about payment terms, prepayment penalties and other obligations, and told borrowers they would be able to refinance before the interest rate on their loans adjusted.
“Defendants knew, or by the exercise of reasonable care should have known, that these statements were untrue or misleading at the time they were made,” the lawsuit states.
As the nation's largest mortgage lender and servicer, Countrywide has been under scrutiny by federal and state authorities. It also faces numerous other lawsuits related to its lending practices. The Associated Press and Staff Writer Rick Rothacker contributed.