The new data provide a close look at 158,000 mortgages that had been slated for sale by Countrywide Homes Loans before last summer's credit crunch -- which was triggered by rising mortgage defaults -- turned investors away from mortgage-backed securities. Nearly 48% of non-prime loans and 21% of pay-option adjustable-rate mortgage in that portfolio were in some stage of delinquency or foreclosure as of April 30, according to the amended complaint, filed by California Attorney General Jerry Brown in state court in Los Angeles. Overall, more than 21% of all loans in that portfolio were in some stage of delinquency or foreclosure, it says.
These loans account for roughly 17% of mortgages held by Countrywide, says Dan Frahm, a spokesman for Bank of America Corp., which completed its acquisition of Countrywide earlier this month. Mr. Frahm added that 9.53% of all loans owned by Countrywide were 30 days or more past due as of the end of April.
In four California counties alone, the complaint notes that in January and March, Countrywide filed a total of 3,175 notices of default -- the first stage in the foreclosure process. The filings were made in Alameda, Fresno, Riverside and San Diego counties.
The amended complaint was filed as part of a civil lawsuit, brought by Mr. Brown in June, alleging that Countrywide used "misleading marketing practices" to steer borrowers into "risky and costly loans" without regard to their ability to pay. Attorneys general in Florida and Illinois have also filed actions against Countrywide, as has the Washington State Department of Financial Institution.
"It's important to recognize that in the two weeks since we've taken ownership of Countrywide, the Bank of America team has been involved in a detailed review of Countrywide's operations and portfolio," Mr. Frahm said. "As we work to combine our two companies, we are confident we will be recognized as a leader in responsible lending practices." He added that Bank of America "has and will continue to cooperate with the California attorney general."
Countrywide reported an $893 million loss in the first quarter and said that 4.6% of loans, including 11.6% of subprime mortgages and 9.4% of option ARMs held by the bank were at least 90 days past due. At that time, Countrywide said that nearly 36% of subprime loans and roughly 9.3% of all mortgages it serviced were in some stage of delinquency.
The California filing also provides fresh details about borrower complaints and sales and pay practices that may have triggered them. Countrywide's Office of the President handled more than 3,000 complaints from borrowers per year between about January 2005 and August 2007, according to the filing. Most borrowers said that they didn't understand the terms of their option ARM or other adjustable-rate loan, or that Countrywide loan officers didn't tell them their payments or rates would increase or promised them a fixed-rate mortgage.
The complaint also alleges that Countrywide's pay practices encouraged employees to put borrowers into costly and risky loans and to repeatedly refinance existing customers.
Countrywide's wholesale loan officers earned larger commissions for refinancing borrowers into pay-option ARMs and loans for which certain underwriting criteria were relaxed, the complaint says. Employees were rewarded for selling loans with higher rates and fees than what borrowers qualified for based on their credit scores and other factors, it adds.