Countrywide said it had received subpoenas for documents from California and Illinois but declined to elaborate, citing company policy. It said it was cooperating in the two probes.
The investigation in Illinois, which was 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 couldn't afford. 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, said Veronica Spicer, an assistant Illinois attorney general in the consumer protection division.
Spicer said her office sent a subpoena for documents to Countrywide in mid-September.
Mark Belongia, a lawyer for One Source, said 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.
In Sacramento, Brown has said he was particularly interested in loans with 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.
Many in the mortgage industry say the rebate can be used to offset borrowers' closing costs, making the loan more attractive to borrowers trying to hold down costs. Critics say the yield spread premium more often is simply pocketed by the brokers to make more money on loans.
"That's a big temptation, it seems to me," Brown said in a recent interview.
In previous investigations of alleged mortgage abuses, officials from various states formed task forces that negotiated settlements including refunds to borrowers and changes in lending practices. In the largest such case, Household International agreed to a $484-million settlement with 50 states in 2002. Early last year, Ameriquest Mortgage agreed to pay $325 million in a similar settlement with 49 states and the District of Columbia.
There was no indication that any such task force had formed to investigate Countrywide or other lenders as a result of the latest mortgage meltdown. Many of the easy-money lenders that fed the housing boom this decade have gone out of business.
Battered by delinquencies and unable to sell riskier loans such as pay-option mortgages, Countrywide reported its first loss in 25 years for the third quarter, a $1.2-billion deficit. It has said it would lay off as many as 12,000 employees -- about a fifth of its peak workforce of 61,000 -- and has been trying to reshape itself as a maker of traditional loans, funded through its Countrywide Bank, that can be sold to the government-sponsored loan buyers Freddie Mac and Fannie Mae.
In Washington, Countrywide is being investigated by the Securities and Exchange Commission in connection with stock sales by Chief Executive Angelo Mozilo.
Countrywide shares fell 45 cents to $10.08, their fourth decline in five sessions.