"Countrywide Broke the Law"
In above mentioned complaint against Goldman Sachs, allegations of suspect practices from mortgage lenders, including Countrywide, now owned by Bank of America, were revealed. According to a former Countrywide employee:
"approximately 90% of all reduced documentation loans [also known as "liars' loans] sold out of a Chicago office had inflated incomes, and one of Countrywide's [mortgage brokerage arms] routinely doubled the amount of the potential borrower's income...so that borrowers could qualify for loans they could not afford."
When Countrywide's employees received documents verifying income that showed the borrower couldn't afford the mortgage and didn't qualify for a loan, they simply ignored it and "the loan was re-submitted as a stated income loan with an inflated income figure so as to facilitate the approval of the loan." In other words, the former Countrywide employee said that brokers, not borrowers, engaged in massive fraud to push loans through the system and earn commissions.
Illinois Attorney General Lisa Madigan told First Business Morning News: "Countrywide broke the law, homeowners did not."
Pump and Dump
The same banks that supplied money -- and in some cases now own -- suspect mortgage lenders also packaged up and sold those loans to investors. These banks also own or owned "servicers" that are supposed to act as stewards for investors. But if servicers cannot recover foreclosure costs combined with the costs of maintaining and reselling the house, they often abandon the property. After pumping up appraisals and falsifying borrowers' income on applications, banks are walking away. Once again, American taxpayers will foot the bill:
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