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The lawsuit, filed in Superior C o u r t i n H a r t f o r d , seeks restitution for c o n s u m -- ers, as well as fines for alleged violations of Connecticut consumer protection and banking laws. Blumenthal filed the lawsuit in cooperation with Department of Consumer Protection Commissioner Jerry Farrell Jr. and Department of Banking Commissioner Howard F. Pitkin.
Countrywide officials issued a statement Wednesday, saying they cannot comment on pending litigation, but will respond to Blumenthal "in due course."
Among the ways the company broke state laws, the lawsuit claims, Countrywide: encouraged people to take out loans the company knew, or should have known, they could not afford; improperly inflated consumers' income to qualify them for loans they otherwise could not have received; and provided loans with different and more expensive terms than borrowers were promised.
Among other accusations, the lawsuit also claims Countrywide provided adjustable-rate mortgages to consumers with the assurance they could refinance before interest rates reset, but later refused to refinance.
"Countrywide stacked the deck and the deal against its customers," Blumenthal said in a written statement. "Our goal is to un-stack the deck and undo the deals, restoring fairness and fiscal sense to mortgages."
Blumenthal said he is seeking restitution for homeowners "used and abused by Countrywide" as well as fines and forfeitures to the state. The lawsuit seeks penalties of up to $100,000 per violation of state banking laws and up to $5,000 per violation of state consumer protection laws, along with the return of "ill-gotten gains." It also aims to invalidate loans that violate state laws.
California-based Countrywide, battered by defaults on subprime loans, has taken a financial beating and lost billions of dollars as the nation's mortgage crisis continues to unfold. Three other states -- California, Illinois and Florida -- have filed lawsuits similar to Connecticut's.
Countrywide shareholders recently approved a takeover by North Carolina-based Bank of America Corp. According to the statement issued by Countrywide Wednesday, Bank of America stopped originating subprime mortgages in 2001 and the combined company will not re-enter that business.
Countrywide officials also said the company is in the process of modifying or "working out" at least $40 billion in troubled mortgages within the next two years in an attempt to keep an estimated 265,000 customers in their homes.
Pitkin said the lawsuit sends a message to companies that unscrupulous lending practices will not be tolerated.
To see more of New Haven Register, or to subscribe to the newspaper, go to http://www.nhregister.com. Copyright (c) 2008, New Haven Register, Conn. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
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