Illiinois - Countrywide: Potentially Devastating

I'm a huge fan of Tanta, but I think she's either being far too dismissive of Illinois attorney general Lisa Madigan's lawsuit against Countrywide, or else she's being faux-naive. This case is a very big deal for Angelo Mozilo, for Countrywide (CFC), for Bank of America (BAC), and for pretty much any housing lender in the US still standing.

Is Madigan throwing everything and the kitchen sink into her 76-page complaint? I'm sure that she is. And I'm sure that some of those complaints cover behavior which was neither unusual nor illegal. But as the Wall Street banks who went up against Eliot Spitzer learned to their cost, in this kind of case it's the government, not the defendant, which holds all the cards.

What is Countrywide to do? It can't settle: The minute it did, functionally-identical suits would be launched by California, Florida, and all manner of other states, and would bankrupt Countrywide in no time. But what alternative does it have? A jury trial? You try finding 12 jury members not just itching to mete out some justice to the subprime lenders who have caused such devastation nationally. Never mind copycat lawsuits, the Illinois case alone could consign Countrywide to bankruptcy.

And of course if Countrywide settles or loses this case, any other subprime lender is likely to face something similar. There aren't many standalone subprime lenders left, but there's no shortage of banks which extended subprime loans over the past few years.

If I were Ken Lewis, I'd be desperately trying to work out whether it was possible to let Countrywide fail financially while still managing to retain its underwriting and origination network. Officially, the takeover is due to close on Tuesday. But in the wake of this case being filed, I'm not holding my breath.

Comments

[Sandy1529:]

It's the Executives of these mortgage companies who should be hanging!! They knew, or should have known, that the subprime mortgages were going to fail. I voted all of my stock against the BAC takeover - low of good that did!

2008 Jun 25 01:08 PM

[Lilguy:]

I first bet the BAC purchase of CFC wouldn't go through within days of the inking of the signature last autumn.

I'm sticking to my position even if the clock is ticking....

2008 Jun 25 02:14 PM

[matthutch:]

this really scares me. i don't like government officials using their leverage to go after politically convenient targets. among the charges is that they relaxed underwriting standards. all this means is that they offered a lower rate than they would have otherwise or allowed them to borrow more than they would have otherwise. would i complain if countrywide lowered their standards for me so i could get a cheaper loan? would any of us complain if our credit card providers lowered their underwriting standards for our benefit? what about auto loan providers?

2008 Jun 25 02:26 PM

[poncawolf:]

Are we really going hardcore - like the hardcore right? - We must first - understand - Compromise.

And the simple fact - bush-Cheney and there push into the justice dept - to make it happen - put blame where blame lays.

Our dear Dobson - didn't understand Children - new born felt pain - until around 1992 - until - a new report showed - that new born can be traumatized with pain for life.

Yet he does not fight for the living children - and backs corpo interest - when it comes to protecting - the living of this world.

Yet - I believe or dr dobson - is really traumatized himself - Maybe - it would be good therapy - He went to IRAQ "after all he supported it" and help the Children of IRAQ get over there trauma.

With his great understanding – It should not take him long to cure the children – in the war torn Nations.

And God sent him forth to heal the world.

2008 Jun 25 04:46 PM

[Plantinseeds:]

LOL Warrior....what space ship did you just get off of.

:)

2008 Jun 26 12:48 AM

[Briggsy:]

His cadence is very Shatner-esque.

2008 Jun 26 12:57 AM

[ikonoklastik:]

Good article except you overlook the defendants' choice: judge or jury tria. Obviously a judge is the smarter choice here.

2008 Jun 26 01:17 AM

[Richard Weed:]

First off, Warrior, save it. Secondly, Lisa Madigan is a publicity whore who has no real basis for her lawsuit. Countrywide isn't the devil here. Countrywide was turning down customers who ended up with NovaStar, New Century and Ameriquest. Oh wait... they're all out of business now. I guess Countrywide is the only lender who offered subprime left out there to take target practice on. I love seeing Countrywide referred to as a "subprime lender". Countrywide's subprime lending was less than 10% of its total originations annually. They are by no means a "subprime lender" like the others mentioned above. They are a scapegoat for all the other true causes of our country's financial woes (consumer greed, poor regulation, incompetent securities and credit rating agencies).

I pray that a judge throws the frivilous state lawsuits out the window. Unfortunately, some chump judge will want the publicity for punishing this "evil entity" and will help vilify them. What a joke....

2008 Jun 26 11:41 PM

[helplessobs...:]

Ken lewis and BofA are stupid.

2008 Jun 28 05:26 PM