Former Countrywide employees reportedly told state investigators that the company's pay structure encouraged them to write as many loans as they could. Some of those loans took as little as 30 minutes to underwrite.
Countrywide was once the nation's top mortgage lender but as the nation's housing crisis has grown the company's fortunes have fallen.
Foreclosures are at record levels. The Mortgage Bankers Association recently reported that more than a million homes across the U.S. are in foreclosure.
Madigan's lawsuit claims Countrywide's business practices have contributed to the high number of foreclosures in Illinois.
The attorney general is filing her lawsuit on the same day that shareholders are scheduled to vote on a deal for Bank of America to takeover Countrywide. It also comes less than a week after federal prosecutors announced a nationwide crackdown on mortgage fraud -- 67 people in the Chicago area were charged.
A spokesperson for Countrywide, which is based in California, told the Associated Press that the company is declining to comment on the pending litigation.