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Wednesday, June 25, 2008

Illinois Sues Countrywide

by Tanta on 6/25/2008 08:12:00 AM

As usual, I can't tell if this sounds a little absurd because the complaint is this weak or because all I have to go on is the Gretchen Morgenson Version of the complaint.

The Illinois complaint was derived from 111,000 pages of Countrywide documents and interviews with former employees. It paints a picture of a lending machine that was more concerned with volume of loans than quality.

For example, former employees told Illinois investigators that Countrywide’s pay structure encouraged them to make as many loans as they could; some reduced-documentation loans took as little as 30 minutes to underwrite, the complaint said.
Volume-based compensation structures? There have been volume-based compensation structures in this business since long before Tanta got into it. Does it create perverse incentives? Sure. Do we have to like it? No. Has it operated all these years in plain sight of regulators, investors, and the public? Yes. Is CFC's pay structure all that different from anyone else's? I profoundly doubt it.

And if anyone who has ever underwritten a loan in 30 minutes has to go to jail, the jails will be full indeed. I wonder if they'll let me take my new Kindle. Jesus H. Christ on a Process Re-engineering Consultant Binge, folks, anybody who didn't tell the analysts on the conference calls that they'd got their average underwriting time down to 30 minutes was Nobody back in 2000. Not to mention the AUS side of the business where underwriting had gotten down to 30 seconds.
The lawsuit cited Countrywide documents indicating that almost 60 percent of its borrowers in subprime adjustable rate mortgages requiring minimal payments in the early years, known as hybrid A.R.M.’s, would not have qualified at the full payment rate. Countrywide also acknowledged that almost 25 percent of the borrowers would not have qualified for any other mortgage product that it sold.
It is now grounds for a lawsuit that you have borrowers in your lowest credit quality product who do not qualify for any alternative product? Um. We used to think that if borrowers in your lowest credit quality product could have qualified for an alternative product, you might be guilty of predatory "steering." Now you're also guilty of predatory lending if indeed the borrowers at the bottom of the pile only qualify there? Every lender has borrowers in, say, its FHA product who could not not qualify for any other mortgage product it sells. Are we going to call that a problem? That'd get pretty interesting pretty fast.
Even more surprising, Ms. Madigan said, was her office’s discovery of e-mail messages automatically sent by Countrywide to its borrowers offering complimentary loan reviews one year after they obtained their mortgages from the company.

“Happy Anniversary!” the e-mail messages stated. “Many home values skyrocketed over the past year. That means that you may have thousands of dollars of home equity to borrow from at rates much lower than most credit cards.”

Ms. Madigan said, “I was just struck that on the first anniversary of these people’s loans they would get these e-mails luring them into a refinance, into another unaffordable product to generate more fees and originate more loans.”
Lisa Madigan cannot be such a Pangloss as to be bowled over by the idea that lenders solicit their current loan customers for refinances. She can't.

Nobody has to like any of these business practices. But they have been hiding in plain sight for a long, long time. This ginned-up outraged innocence--all directed at Countrywide, as if everyone else in the industry had never heard of any of this--is truly getting on my nerves.