US No.1 mortgage lender under investigation

Updated: 2007-12-15 10:21

LOS ANGELES -- The US No. 1 mortgage lender, Countrywide Financial Corp., was under investigation by California Attorney General Jerry Brown and the attorney general's office in Illinois, a news report released on Friday.

Countrywide has acknowledged receiving subpoenas for documents from California and Illinois but declined to elaborate, citing company policy, the Los Angeles Times reported.

The company said it was cooperating in the two probes.

A spokesman for Brown told the newspaper he couldn't comment. The attorney general has said he was taking a broad look into the lending practices of mortgage bankers and mortgage brokers and what roles they might have played in the mortgage meltdown crisis.

The investigation in Illinois, first reported in the New York Times, grew out of a probe into broker One Source Mortgage, which the state has charged with luring borrowers into loans they could not afford, according to the report.

Countrywide was the chief provider of these loans -- known as pay-option mortgages -- which allow a borrower to pay less than the full interest that comes due each month, sending the loan balance up.

A former employee of One Source told investigators that the only Countrywide loan the broker tried to sell was the pay-option type because the rebates were so huge, Veronica Spicer, an assistant Illinois attorney general in the consumer protection division, said in comments reported by the newspaper.

Spicer said her office sent a subpoena for documents to Countrywide in mid-September.

Mark Belongia, a lawyer for One Source, told The Times the broker would be vindicated because the nature of the loans was disclosed carefully to borrowers. "We originated a legal product in a legal manner," he said.

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