By Jeanne Roberts

To add to the subprime debacle - which has caused the worldwide meltdown of financial markets - Countrywide, the largest mortgage lender in the U.S., is now the object of a criminal inquiry. The Justice Department and the FBI recently charged the company with fudging both its financial stability and the quality of the mortgages it wrote between 2001-2005. Both agencies are reviewing Countrywide's Securities and Exchange Commission (SEC) filings, with an eye to separating truth from lies. Falsifying SEC filings is a serious no-no in the financial world, and could earn Countrywide officers prison terms. 




The subprime mess and subsequent financial meltdown can be tied to "creative" lending on homes as it was conducted during the housing bubble of 2001-2006. During this time, ARMs, or adjustable-rate mortgages, and other types of non-fixed-rate mortgages were given to home buyers with questionable credit histories. In fact, many borrowers were encouraged to falsify their credit histories, not only by realtors but by mortgage brokers and other lenders, all of whom profited enormously from a booming housing market that has now left 25 percent of homeowners facing foreclosure. Banks will lose, too, at the rate of $328 billion. The entire industry is facing a 23-year high for foreclosures. Recession is likely when the full toll of subprime lending becomes apparent. Another Depression is not unthinkable.



In October of 2007, Countrywide - whose stock is down 64 percent from its high of $45.26 (mostly due to loan defaults) said it was going to renegotiate $16 billion in company mortgages, giving cash-strapped borrowers the opportunity to switch to fixed-rate mortgages through the FHA, Fannie Mae or Freddie Mac. The problem with this solution was that most sub-prime borrowers, who didn't have the cash for fixed-rate mortgage payments in the first place, also didn't have the cash to cover Countrywide's exorbitant loan rewriting fees.



At that time, the company also promised restructuring, mostly through the elimination of 12,000 jobs. This, during a period when Countrywide CEO Angelo Mozilo was getting nearly $2 million in salary and $20 million in stock awards, all contingent on performance. Late in 2007, Mozilo - clearly sniffing the winds of change - sold $121 million in stock. 



Some argue Mozilo is not the real culprit, but Mozilo appointed Henry Cisneros to Countrywide's board, and CEOs are in charge of their boards. Cisneros joined Countrywide in 2001, making $70,000 a year. By 2006, he was making roughly $400,000, and had sold $5.6 million of stock between 2004-2007. Cisneros resigned in October of 2007, just days before Countrywide reported a $1.2 billion quarterly loss. Shareholders are suing Cisneros, and other current and former officers, for misstating Countrywide's actual financial condition - which artificially inflated Countrywide's stock price. The former stock price of $45 is now $7 - the price Bank of America (BofA) will pay to acquire Countrywide. The argument about guilt is moot; the evidence is clear. Both men are thieves who profited from their shenanigans on the backs of working Americans.

For example, when Cisneros joined the company, 12 percent of loans were ARMs. By 2004, 52 percent of loans fell in the ARM category. Late in 2007, CEO Mozila said the company had enough cash to survive the subprime debacle. What Mozila failed to mention at the time was that this cash - $11 billion worth - had been borrowed; a debt BofA will now inherit.



The investigation, first reported by the Wall Street Journal, quotes Countrywide spokesperson Susan Martin as saying the company is not aware of the investigation. Bank of America has also refused comment on the acquisition, which will give BofA 25 percent of the U.S. mortgage industry, 17 percent of its peripherals (loan processing and the like), and provide a $500 million tax write-off through 2013.

Countrywide has been surrounded by fraud since 2005 - its own, and that of others who reportedly cheated it (though it's likely that Countrywide executives had a hand in these as well). In Delaware, thousands of borrowers are suing Countrywide for "excessive and unreasonable" fees and expenses on delinquent or foreclosed loans - fees which the borrowers charge were designed to rescue the company from its self-made chaos. In 2007, Countrywide offered to help Katrina victims by postponing mortgage payments, then sent them a lump-sum bill not only for the payments but for interest and penalties as well, driving many who might otherwise made good on their loans into foreclosure. In 2006, Countrywide settled with former New York Attorney General Eliot Spitzer to compensate black and Latino borrowers who were tricked into taking out high priced loans. At that time, Countrywide promised to improve its fair-lending monitoring activities. Spitzer, the former governor of New York, is no peach himself, having recently admitted involvement in a prostitution ring that lead to his resignation. But at least Spitzer has the cohones to admit the truth; Countrywide apparently feels no such compunction. In fact, it's likely Countrywide officials no longer recognize the truth when they see it, having spent their careers perfecting the lie.



The corruption runs wide and deep, the result of too much hunger for money guided by two few ethics. Countrywide will fall, but not before it takes America down with it. In China, Mozila might be condemned to death. Here, he will be given three months in a minimum-security prison with private bath, and then a cabinet position with the Bush administration. If I had the money, I'd move to Mexico. At least there, corruption is blatant and easily recognized.