Countrywide Home Loans has pretty much been the poster child for the mortgage meltdown of the last 18 months or so. I can certainly understand why since many of my bankruptcy filings have included Countrywide. In many cases they held not just a first but also a second and even third mortgage on the homes.
Various attorneys general have filed lawsuits against the lender claiming fraudulent and criminal behavior. Today suits were filed by both Illinois and California. Ironically the suits came the same day that shareholders approved the merger between Countrywide and Bank of America.
On one level I can understand the reasoning behind these lawsuits. During the booming housing market it was possible for pretty much anyone to get a loan. If you walked in and told the lender you made $150,000 a year they just took your word for it and didn’t bother getting proof. In addition, many of the loans started out with teaser rates that made payments amazingly low before the rates spiked after a few years.
As long as the housing market continued to go up this system worked fine, the homeowner could simply refinance once the rates got too high, but since the market has collapsed this is no longer possible and people are crying foul.
To a certain degree this is a proper thing to do, given the behavior outlined above and discussed in the lawsuits. But at the same time I have a problem with excusing the homeowners as pure and innocent victims.
For one thing, many of the current foreclosures are not on homes people are living in but rather properties purchased for investment purposes. Obviously this is still a burden on people as they are losing their investment, but it is not quite the same as losing their home.
Also, in many of these cases the buyers lied about their income on the paperwork. I know there have been cases where it was the mortgage company employees who faked the paperwork and in those cases the company should be liable and the employees should go to jail. But there are also many cases where the buyer knew just what they were doing in terms of faking the paperwork.
The same holds true for many of these awful sub prime interest loans. I am not in any way excusing the fraud that people engaged in but at the same time the homeowner cannot be considered totally innocent. I have seen clients come in and show me the loan papers that allowed them to buy a 500,000 house with payments of 1,000 per month for 30 yrs.
Now I am pretty sure that even a 4th grader could do the math to figure out that 360 payments of 1,000 per month is not going to pay a 500,000 mortgage.
So while I absolutely agree that Countrywide needs to be investigated and people need to be punished, I also think we need to remember that people are to blame on all sides.