California Attorney General Kamala Harris announced Friday that the $6.5 million settlement from two former Countrywide Financial Corp. executives will be used to establish a fund to help foreclosed homeowners.
The settlement comes from a litigation that began more than two years ago against Angelo Mozilo and David Sambol. According to the lawsuit, Countrywide lured buyers with low teaser rates, sometimes as low as 1 percent, and failed to inform them of the downsides of adjustable-rate loans, which included rapidly rising rates after the teaser rates expired, big prepayment penalties, and negative amortization that caused a borrower’s total loan costs to rise even when additional payments were being made.
The lawsuit alleged that Mozilo and Sambol knew of these practices and did nothing to stop them.
The suit also alleged that Countrywide loosed its mortgage standards and verification procedures in order to make more loans in an attempt to increase its share of the nationwide mortgage market.
“Our prior settlement with Countrywide provided restitution for foreclosed homeowners and set in motion loan modification programs that have helped tens of thousands of consumers,” Attorney General Harris said.
She continued, “We will use the current settlement to help Californians affected by the mortgage crisis by providing grants to agencies that help homeowners facing foreclosure with relocation assistance and providing money to state and local agencies to prosecute mortgage fraud.”
According to the attorney general’s office, during the 18 months ending last September, 282,000 California homes went into foreclosure, and in the last three months of 2010, notices of default were filed on another 70,000 homes in the state. The California Foreclosure Crisis Relief Fund will combat the effects of California’s high rates of foreclosure and mortgage delinquency.
Bank of America acquired Countrywide’s loan portfolio and assumed responsibility to make restitution to mortgage holders who qualify under the terms of the Attorney General’s 2008 settlement.