Countrywide Financial Faces New Securities Lawsuit

As the nation's largest purveyor of subprime mortgages, there were plenty of people gunning for Countrywide Financial when  that house of cards collapsed.

The lender, now owned by Bank of America, has faced a number of lawsuits stemming from its lending policies. Now, the State of Oregon is suing Countrywide to recover losses to the state pension and workers' compensation funds caused by what the state calls "false statements" that improperly inflated the prices of Countrywide's stock and bonds.

Opting out

Oregon Treasurer Ted Wheeler and Attorney General John Kroger announced the securities lawsuit against Countrywide Financial Corp. after a class action lawsuit previously reached a settlement with Countrywide that may have netted the state less than $500,000 on $14 million in losses. So Treasurer Wheeler and Attorney General Kroger decided it was in the state's best interest to opt out and file their own lawsuit.

"It is time to foreclose on Countrywide's effort to pay so little for costing Oregonians so much," said Wheeler, who sits on the Oregon Investment Council and has a fiduciary duty to protect public assets and maximize the returns for beneficiaries of trust funds including the Oregon Public Employees Retirement Fund.

"Oregon will not accept pennies on the dollar when Wall Street defrauds Oregonians," Kroger said.

"It is important that we protect the interests of SAIF's policyholders and injured workers," said Brenda Rocklin, SAIF Corporation president and CEO.

Boom times

Countrywide was among the nation's largest mortgage lenders, specializing in subprime loans, made to borrowers who had less than perfect credit. In 2005, Countrywide originated over $490 billion in mortgage loans.

The Office of State Treasurer and the Oregon Investment Council bought and sold shares in Countrywide stock and bonds between 2004 and March 2008 on behalf of Oregon Public Employees Retirement Fund (OPERF) and the Industrial Accident Fund (IAF), the SAIF workers' compensation investment fund.

Throughout that time period, Countrywide held itself out to the investing public primarily as a maker of prime quality mortgage loans that were different from the riskier loans and lending practices used by market competitors. 

The suit maintains that Countrywide and its executives hid from the investing public that, in order to increase its market share and sustain revenue growth, the company actually was engaged in an unprecedented expansion of its underwriting guidelines that allowed it to write a higher volume of riskier loans, which in turn created an ever-increasing credit risk to the company and its investors. 

At the same time, Countrywide is alleged to have made numerous untrue statements about its financial results and omitted crucial information necessary for investors to make good investment decisions.

As a result of those false statements, OPERF lost approximately $13 million and SAIF lost $1million, Kroger said.