June 25 (Bloomberg) -- Countrywide Financial Corp., the mortgage lender that lost $2.5 billion amid rising defaults and foreclosures, misled borrowers into taking risky loans they couldn't afford, California Attorney General Jerry Brown said.
Countrywide, Chief Executive Officer Angelo Mozilo and a unit specializing in loans to consumers with poor credit used deceptive marketing tactics to entice thousands of borrowers into adjustable-rate loans without disclosing that their payments would balloon in later months, Brown claimed in a complaint filed today in Los Angeles state court, according to his spokesman, Gareth Lacy.
The lawsuit, the first by a state, comes the same day as Countrywide's shareholders are voting today on a $3 billion takeover offer proposed by Bank of America Corp. in January. Countrywide, based in Calabasas, California, and Mozilo also face a suit by Illinois over similar allegations.
The suit ``isn't the one thing that is going to change the deal,'' said Stuart Plesser, an analyst at Standard & Poor's Corp. who advises selling Bank of America shares. ``It seems that whatever they throw at BofA, they are going ahead with this deal.''
Countrywide's conduct violated California's unfair business practices law, according to the complaint.
`Blind Eye'
``Defendants turned a blind eye to the ongoing deceptive practices engaged in by Countrywide's loan officers,'' according to the complaint. ``Defendants cared only about selling increasing numbers of loans at any cost in order to maximize Countrywide's profits on the secondary market.''
Brown seeks restitution for borrowers, civil penalties of as much as $2,500 per violation and a court order halting the practices.
Rick Simon, a spokesman for Countrywide, didn't immediately return a call seeking comment. Scott Silvestri, a Bank of America spokesman, declined to comment.
Countrywide gained 14 cents to $4.80 at 10:54 a.m. in New York Stock Exchange composite trading. Before today, the stock had slumped 87 percent in the past year. Bank of America gained $1.09, or 4.1 percent, to $21.71.
Bank of America CEO Kenneth Lewis said June 11 that he was committed to purchasing Countrywide and believes it benefits shareholders. The Charlotte, North Carolina-based bank said in an April 30 regulatory filing it may not guarantee $38.1 billion of Countrywide's debt, fueling speculation that bondholders face a higher risk of default.
The case is People of the State of California v Countrywide Financial Corp., Los Angeles Superior Court.
To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net; Ari Levy in San Francisco at alevy5@bloomberg.net
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