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Countrywide Financial Corp., the country’s top mortgage lender, announced today it’s being investigated by California Attorney General Jerry Brown and the attorney general of Illinois, the LA Times reported this afternoon.
Though the company didn’t elaborate on the investigation, the Times included this context for Brown’s interest in the company:
In a recent interview with The Times, Brown, who is looking into the practices of mortgage bankers and mortgage brokers, said he was interested particularly in loans that involved yield spread premiums.
In these mortgages, people who could qualify for a lower interest rate are lent money at a higher rate, with a rebate — the yield spread premium — being paid by the lender as a commission to brokers.
The incentive for brokers to slide consumers into riskier loans to garner a higher commission has been targeted as a significant cause of the mortgage meltdown.
It is this type of incentive structure that was at the heart of a scheme that led a group of brokers in San Marcos to plead guilty last month in one of the region’s first post-boom mortgage fraud cases.