Illinois files suit against Countrywide, but who is really to blame?

The State of Illinois has announced that it is suing Countrywide and its CEO for using unfair and deceptive practices in marketing and selling loans. (California's Attorney General, Jerry Brown, filed suit against the beleaguered company today as well.)

Specifically, Illinois's complaint is alleging that Countrywide used underwriting standards that were lax, used "risky features" in loans (do they mean ARMs?), and gave incentives to mortgage brokers who sold loans.

All of this was done to coerce people into buying homes they couldn't afford. If you've read any of my past pieces on the "mortgage crisis," you see that I don't accept this theory that zillions of homeowners were hoodwinked when applying for mortgages. I do accept that some people didn't know what they were signing up for, but that's their own fault. If you can't understand your mortgage, you shouldn't get one. Be a happy renter.

I don't accept the argument that it's the mortgage company's fault for offering attractive mortgages. At the end of the day, if a buyer couldn't afford a house, he shouldn't have bought it. And with very few exceptions, home buyers are well aware of what they can and cannot afford. It's simple math: Money in, money out.
Illinois is now saying that it's Countrywide's fault that there are "widespread" foreclosures that are impacting communities. Foreclosure rates are up, but as a percentage of total home ownership, the foreclosures aren't "widespread." About 1% of homeowners went through foreclosure last year. That's not a good thing, but it's not an epidemic either.

I can't help but think that so much of this is blown out of proportion. How is the mortgage crisis such a crisis when we're talking about 1% of homeowners? How are communities destroyed when 99% of homes are not in foreclosure? I think the real story here is not that Countrywide cheated homeowners, but that they may have misled investors in their stock. There's a big difference.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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