Attorney General alleges borrowers forced to use LandSafe appraisals
By SAM GARCIA
12/21/2001

A lawsuit has been filed against subsidiaries of Countrywide Credit Industries, Inc. by the Minnesota Attorney General's Office and the Minnesota Department of Commerce. According to an announcement issued jointly by the two state offices, the suit alleges that Countrywide illegally forced borrowers to order appraisals only through its subsidiary in order to financially benefit at misinformed consumers' expense.

Countrywide says it is currently investigating the specific issues raised by the lawsuit and would provide a response after completing the investigation. The company added that it makes every effort to "comply with applicable state and federal laws and regulations."

Minnesota law allows most homeowners to cancel mortgage insurance after two years if the homeowner can prove an 80% loan-to-value (LTV) or less. The state says the law allows homeowners to use a "reasonably acceptable" licensed appraiser to verify that the current value of their home actually brings their LTV to 80 percent or less.

In its lawsuit, the state said that Countrywide forced borrowers to order appraisals through its LandSafe subsidiary when canceling mortgage insurance. The state alleges that Countrywide profits from this arrangement because LandSafe keeps a portion of each appraisal fee paid by the homeowner.

The Department of Housing and Urban Development (HUD) has recently cracked-down on fee upcharging -- resulting in settlements with mortgage-related companies. However, arrangements like the one Countrywide has with its LandSafe subsidiary are not under fire by HUD.

The state said Countrywide was required by law to issue annual notices to its borrowers about their right to cancel mortgage insurance "in 12-point type size on its own piece of paper with simple, clear wording." However, the state alleges in its lawsuit that instead, Countrywide issued its own version of the notice in smaller type at the bottom of a page containing IRS disclosures.

"Countrywide has turned the mortgage insurance cancellation process into just another way to make money from its borrowers," said Deputy Attorney General Lori Swanson.

Countrywide -- which had $17.1 billion in November production -- recently received the highest overall customer satisfaction ranking in a new study by J.D. Power and Associates. Countrywide has the number two spot on Gomez, Inc.'s most recent Scorecard of online lender quality.

Named as defendants in the lawsuit, which seeks an injunction, civil penalties and restitution, are Countrywide Home Loans, Inc. and Countrywide Home Loans Servicing L.P.

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