Florida Home Buyers and Investors Blog

Countrywide is ground zero of the financial meltdown, and this will be just the beginning of the inditements to come.  Greed became the norm, as the money rolled in.  Emails from Mozilo are telling of the pending doom.  By that time it was too late to stop the train.   If public companies fail and taxpayers have to bare the burden of cleaning up the mess, I expect the govermment to limit benefits, salaries, and perks.  

Below is an excerpt from a rather lenghthy article. 

WASHINGTON – June 5, 2009 – Angelo Mozilo, the man who rode the housing boom to build Countrywide Financial Corp. into a California colossus of high-risk mortgage lending, has been charged with civil fraud and illegal insider trading by federal regulators who accuse him of deceiving shareholders and profiting on confidential information.

The Securities and Exchange Commission (SEC) also filed civil fraud charges against two other former executives of Countrywide, saying they and Mozilo “deliberately” misled investors about the risky lending practices the company undertook in its aggressive drive for a share of the booming mortgage market.

The SEC’s civil lawsuit, filed Thursday in federal court in Los Angeles, named Mozilo, Countrywide’s former chief operating officer David Sambol, 49, and ex-chief financial officer Eric Sieracki, 52.

Calabasas, Calif.-based Countrywide was a major player in the market for high-risk subprime mortgages, the disintegration of which touched off the financial crisis that has gripped the U.S. and global economies. Countrywide became the biggest U.S. mortgage lender overall before it spiraled into disaster when the mortgage meltdown hit. It was bought by Charlotte, N.C.-based Bank of America Corp. in July 2008.

Mozilo, 70, is the most high-profile individual to face formal charges from the federal government in the aftermath of the crisis. He has denied any wrongdoing and his attorney on Thursday called the SEC’s allegations “baseless.”

A trail of e-mail messages sent by Mozilo in 2006, before the subprime mortgage market collapsed in 2007, underlined the SEC’s allegations.

“In all my years in the business I have never seen a more toxic product,” Mozilo told Sambol in an e-mail on April 17, 2006. He was referring to the so-called 80/20 subprime loans that let borrowers borrow 100 percent of a home’s value by borrowing 80 percent in the primary mortgage and then 20 percent in a secondary loan. “There has to be major changes in this program,” Mozilo wrote.

Following a meeting with Sambol to discuss the company’s holdings of so-called pay-option ARM loans, the Countrywide chief wrote on Sept. 26, 2006: “The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales.”

Pay-option ARM loans allowed borrowers to choose from multiple payment options, including paying less than the interest due. Option adjustable-rate mortgages were among the worst-performing loans for repayment during the downturn in the real estate market.