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Countrywide’s Legal Woes Continue

According to the Wall Street Journal, the federal investigation of Countrywide and what brought on the company’s collapse appears to be heating up.

According to a WSJ article released Monday, federal criminal investigators tasked with examining what led to the collapse of Countrywide have been calling witnesses before a grand jury as part of their criminal investigation.

This suggests that the investigation of the one-time mortgage giant, which has been continuing for about two years, could be moving closer to a resolution.

While the grand jury began hearing witnesses on the Countrywide case late last year, no one knows what potential crimes are being investigated or who the grand jury is talking to.

While calling witnesses before a grand jury doesn’t mean that charges will be filed, it does appear to signify a pick-up in the tempo of a probe that did not appear to be moving very quickly.

In the meantime, Countrywide continues to fight legal battles on other fronts, including a suit brought by the SEC as well as the Consolidated Class Action Civil Suit currently pending in California. The Strom Law Firm serves as proposed class counsel in Consolidated Class Action.

The Class Action

The lawsuit, which is filed on behalf of countless borrowers who were allegedly systematically steered into subprime loans regardless of the type of loan they qualified for, claims that Countrywide, and its network of authorized, contracted brokers, have defrauded countless borrowers across the nation through an undisclosed, systematic scheme designed to steer borrowers into subprime loans. The elaborate scheme seeks to maximize profits for the benefit of the Company, to the detriment of the homeowner.

In order to carry out the scheme, Countrywide and its network, failed to disclose the financial consequences tied to each loan, including:

• the monthly payment, which frequently increased to an amount that the homeowner could not pay, and
• negative amortization, which results in the loan amount actually increasing rather than decreasing over time.

The scheme was carried out regardless of whether:

• the borrower would have qualified for a “prime loan” or
• the borrower was unable to meet the financial terms of the subprime mortgage.

The resulting effect of systematically steering borrowers into inappropriate subprime loans with excess charges and inadequately disclosed risks, includes drastic and unexpected increases in required monthly payments that have caused a flood of foreclosures and financial woes among the Class.

Countrywide and its network of authorized, contracted brokers, also pushed dangerous products such as “pay option ARM” loans, wherein borrowers could afford only to make what Countrywide called the “minimum payment,” which was actually less than the interest owed on the loans, thus increasing their outstanding principal every month and triggering an automatic resetting of the payments, resulting in the minimum monthly payments increasing dramatically after only a short amount of time to a level that guaranteed the flood of foreclosures that we are seeing today. By many estimates, as early as 2006, up to 80% of all option ARM borrowers are only making only the minimum payment each month.

The lawsuit, which has not yet been certified as a Class Action, seeks an injunction prohibiting Countrywide from continuing to engage in its predatory lending practices and requests that Countrywide seeks monetary damages including disgorgement of profits received as well as restitution to borrowers harmed.

The SEC Suit

The lawsuit brought by the SEC asserts that the three men, including former CEO Angelo Mozilo, defrauded investors by falsely claiming that Countrywide underwrote low-risk mortgages at a time when the company was getting into increasingly risky parts of the lending business, including so-called “subprime” mortgages made to less creditworthy borrowers.

The SEC additionally accuses Mozilo of insider trading of Countrywide stock. A trial in the case is scheduled for October. All three defendants vehemently deny any wrongdoing and say they plan to fight the SEC charges.

We will keep you updated as these matters progress.

Strom Law Firm is a personal injury and criminal defense law firm centrally located in Columbia, South Carolina. Our firm proudly handles personal injury, criminal defense, defective products, class actions, pharmaceutical liability, toxic torts, medical malpractice, nursing home neglect, workers compensation, social security, veteran’s benefits, qui tam, predatory lending, tax investigations, business litigation, and wills and estates. Our lawyers proudly edit the Columbia, South Carolina Injury Board as well as the Strom Law Blog as a pro bono effort to provide the public valuable information. Our lawyers are licensed in: South Carolina, New York, and Georgia.



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