As Countrywide Financial Corp. shareholders voted Wednesday to ratify the company's sale, ending an era for the mortgage industry, California sued the No. 1 home lender in a broad condemnation of its business practices.
Stumbling emotionally over his words at a special shareholder meeting, Angelo Mozilo, the company's founder, chairman and chief executive, said he saw no future role for stand-alone mortgage lenders such as Countrywide, which thrived during the housing boom and had suffered badly during the bust.
Bank of America Corp., which expects to close its acquisition of Countrywide next week, "will reap the benefits of what we have sown over the past decades," Mozilo told employees filling an auditorium at Countrywide's Calabasas headquarters.
Less than an hour earlier, California Atty. Gen. Jerry Brown had sent a harsh reminder that Charlotte, N.C.-based Bank of America, the nation's largest retail bank, also would reap massive legal headaches from the deal.
Brown accused Mozilo and his company of causing thousands of foreclosures by deceptively marketing risky loans to borrowers who didn't understand that their monthly payments would one day "explode."
The suit cited not only sub-prime loans to the riskiest borrowers, but also loans made to borrowers with good credit, including complex adjustable-rate mortgages known as option ARMs as well as home equity lines of credit.
Mozilo and his associates "crafted mortgage instruments that did great harm to individuals and the community, and they persisted in expanding these damaging mortgage instruments over a number of years," Brown said in an interview.
The lawsuit seeks restitution for borrowers who were deceived but doesn't spell out how that would be accomplished, and Brown warned that a quick resolution was unlikely. Countrywide and Bank of America, which is assuming Countrywide's legal liabilities, "have good lawyers," Brown said. "This is the beginning of a long road."
In addition to Countrywide and Mozilo, Brown's suit names Countrywide President David Sambol as a defendant. The state of Illinois filed a similar suit Wednesday against Countrywide and Mozilo, seeking to rescind loans allegedly made deceptively to borrowers in that state.
A Countrywide spokesman said none of the defendants in the suits would have an immediate comment.
