Add another pin to the map – Countrywide has been sued yet again. Earlier this week, West Virginia Attorney Darrell McGraw covered all the bases, filing suit against Countrywide Financial Corp., Countrywide Home Loans Inc., Countrywide Home Loans Servicing LP, Full Spectrum Lending Inc. and Angelo R. Mozilo – individually and as CEO of Countrywide Financial Corp.
McGraw joins his state attorney general counterparts in Illinois, California, Florida and Connecticut in filing suit against the firm. In addition, the state of Washington has fined Countrywide and sought to revoke its license, while the city of San Diego has brought the lawsuit action to the local level by suing as well.
Without even taking into consideration the Securities and Exchange Commission probe, the Federal Trade Commission investigation and other legal troubles swirling, as the list of Countrywide's lawsuits alone grows, we have to wonder: Is this a symbolic and highly visible case of the all-American Greedy Big Evil Corporation? Or, is it a case of the equally all-American Stupid Lawsuit-Obsessed Citizens?
‘Probably a bit of both’ is the easy answer, but it is also likely the most accurate one. Even the most dedicated mortgage industry loyalist would have trouble claiming that Countrywide – like so many other operations, to be sure – maintained entirely scrupulous and consumer-friendly business practices during the era of subprime fever.
Or, as Gretchen Morgenson of the New York Times put it in an August 2007 article that examined the inner workings of the company during its glory days, Countrywide ‘encouraged its sales force to court customers over the telephone with a seductive pitch that seldom varied.’ A Big Evil Corporation masquerading as a knight in shining armor? Not unrealistic.
‘Countrywide's entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom, no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided,’ the article continues.
The Times piece, titled, ‘Inside The Countrywide Lending Spree,’ goes on to detail those unfavorably structured loans that were handed out even if borrowers qualified for better ones, deceptively low interest rates that spiked a few years later, excessive prepayment penalties, fees galore and other highly irresponsible tricks of the trade.
Many of those mortgages pitched to borrowers probably sounded too good to be true, which leads us to the other side of the equation. How much did a lack of financial literacy or an unwillingness to bother looking into the details before signing on the dotted line come into play? It's an often-asked question that merits revisiting.
When I was about 10 years old, I joined one of those music-tape-of-the-month ‘clubs’ – the kind with the tear-off mail-in enrollment forms that were once ubiquitous in the back pages of magazines.
Like some mortgages, these tape clubs and their associated contracts came with too-good-to-be-true headlines, sneaky fine print, suspiciously simple enrollment and an initially comforting exit door that became exponentially more difficult to open once you were inside.
One club promised 15 tapes for one cent and even provided a convenient gimmicky circle on its order form to which you were invited to attach your symbolic penny. Kind of like no down payment on your new house.
As a faithful reader of Zillions – the sadly now-defunct children's version of Consumer Reports – I understood the basics of deceptive advertising tactics. So I steered clear of the 15-tapes-for-one-cent club, as the fine print ultimately revealed that members would need to buy about 10 more cassettes at full price.
Instead, I opted for the 12-tapes-for-the-price-of-one club. Sure, they might start sending you tapes you didn't ask for and then bill you for them. But hey, you were free to cancel membership at any time after buying your one tape. Kind of like being free to refinance out of that adjustable-rate mortgage at any time before it resets.
You can predict how this story ended. The tapes and charges kept coming, increasingly frequently. The club purposefully provided no contact information (in a pre-Google era, that's a serious and extremely money-draining problem) and ignored my repeated requests to cancel membership after I'd finally tracked them down. Kind of like the mortgage that changes hands and the servicer that becomes unreachable.
In the end, I wound up with a pile of unwanted cassettes that soon held no value once CDs began to dominate. Kind of like the home that rapidly depreciates and leaves its owner underwater.
The good news is that I learned my lesson after the tape club experience. The bad news is that it seems too many folks – even if they did sign up for a tape club – never did learn that childhood lesson, and scrutinizing contracts isn't quite considered cool yet. Maybe we all need to read Zillions again – now more than ever.
– Jessica Lillian, Commercial Mortgage Insight
