There always seems to be a spoiler: On June 25 – the same day that shareholders holding more than 69 percent of Countrywide Financial’s outstanding stock approved the acquisition by Bank of America – California, Illinois and Washington all took aim at the bruised mortgage lender. BofA expected to close the deal on July 1.
California Attorney General Edmund G. Brown, Jr. filed a lawsuit in California state court alleging that Countrywide engaged in “deceptive advertising and unfair competition by pushing homeowners into mass-produced, risky loans for the sole purpose reselling the mortgages on the secondary market,” according to the news release announcing the legal action. The suit names the company, Countrywide CEO Angelo Mozilo, and Countrywide president David Sambol as defendants.
Similar allegations frame a lawsuit filed by Illinois Attorney General Lisa Madigan in Cook County Circuit Court. “Countrywide created risky and costly loan products and marketed them to borrowers who could not afford them,” Madigan says in a press release. Sambol was left off the Illinois complaint.
And Washington Governor Chris Gregoire announced on June 25 that the state plans to fine Countrywide Home Loans $1 million for alleged discriminatory lending. The state also will seek $5 million “in back assessments the company failed to pay,” a press release notes. In what could prove to be a more ominous move, Washington is taking steps to revoke Countrywide’s license to do business in the state.
Even though Mozilo will step down once the BofA deal is closed, and Sambol won’t be around much longer either, BofA does inherit Countrywide’s legal baggage. The buyer did not comment on last week’s news on the legal front or how much money it’s set aside to resolve the pile of lawsuits it faces. But the company gave a preview of how it plans to achieve the “substantial cost savings” promised in earlier statements: “Based on current estimates, Bank of America anticipates about 7,500 positions will be eliminated as part of combining the two companies,” according to a June 26 press release. The shake out will “take place over the next two years.” The job cuts may not stop there, since the bank will “continue to monitor market conditions and make adjustments as appropriate,” the release continues.