Bank of America (BAC) will be inheriting more than a toxic loan portfolio when it finally acquires Countrywide Financial (CFC): It will also likely have to reach an expensive and potentially embarrassing settlement with the Illinois Attorney General. Following Eliot Spitzer’s playbook, AG Lisa Madigan is going after CFC and CEO Angelo Mozilo for “unfair and deceptive” practices used by the company to sucker poorer clients into buying mortgages they couldn’t afford. WSJ:
In a draft of the complaint, Illinois alleges that the company engaged in “unfair and deceptive practices” in the sale of mortgage loans. The 78-page document says the company loosened its underwriting standards, structured loans with “risky features” and engaged in “marketing and sales techniques” that incentivized employees and mortgage brokers to push loans whether or not homeowners had the ability to repay them.
The complaint says the company’s actions were driven by its desire to boost market share and to satisfy Wall Street’s appetite for mortgage securities. “Investor demand and secondary market valuation…became the primary concern when determining what kinds of loans to market and sell and at what price, rather than the consumers’ ability to repay the loans,” said the complaint.