The Wall Street Journal-20080131-Credit Crunch- Subpoena Deepens Countrywide-s Woes

Return to: The_Wall_Street_Journal-20080131

Credit Crunch: Subpoena Deepens Countrywide's Woes

Full Text (470  words)

Countrywide Financial Corp. confirmed yesterday that it received a subpoena from the Florida attorney general seeking information on its business practices.

The subpoena adds to the problems for the Calabasas, Calif., lender, which has drawn the ire of bankruptcy judges, borrowers and consumer groups for months.

Florida Attorney General Bill McCollum is seeking information on how Countrywide handles borrower payments as well as materials related to sales practices and standards for making loans. Mr. McCollum is also investigating whether Countrywide has charged excessive fees to borrowers in the foreclosure process. In an interview, he noted that even bankruptcy judges have flagged these fees and expressed concern that Countrywide "may be sticking people at the end of the process."

Florida joins several other states, including California and Illinois, that have begun investigating Countrywide to determine whether the company's lending practices contributed to or were responsible for the rising wave of problem mortgages in the state. According to the Mortgage Bankers Association, 6.47% of all mortgage loans in Florida were past due in the third quarter, one of the highest rates of any state in the country.

Mr. McCollum established a mortgage-fraud task force in the fall to deal with problems involving subprime mortgages. The attorney general said his office has received more than 150 complaints about Countrywide practices and said Countrywide shows up in a "disproportionate" number of situations in which borrowers in Florida are struggling to stay in their homes. Countrywide is the nation's largest mortgage lender in terms of loan volume.

Mr. McCollum says he is also concerned that Countrywide may have put borrowers "into mortgages that in the first place they couldn't afford or loans with rates that were not what they were advertising or that were misleading." The office has civil authority to investigate such practices under the Florida Deceptive and Unfair Trade Practices Act.

In a statement, Countrywide said it has received the subpoena from the Florida Attorney General and will cooperate fully. The company says it doesn't comment on pending investigations.

Mr. McCollum says his office is also looking at the actions of other mortgage companies but hasn't sent other subpoenas. The office has 21 open investigations into allegations related to so-called foreclosure- rescue scams.

Federal bankruptcy judges in Florida and other parts of the country have in recent months called into question Countrywide's business practices.

The Illinois attorney general issued a subpoena to Countrywide in September. An official of the attorney general's office said it had received "very voluminous" documents from Countrywide and was reviewing them. The office is looking for possible violations of the state's consumer-fraud and deceptive-practices laws and has focused on subprime and option adjustable-rate mortgages, or ARMs loans. Countrywide said it is cooperating with the Illinois attorney general's office.

---

James R. Hagerty and Amir Efrati contributed to this article.