The FBI has started a criminal investigation into Calabasas-based Countrywide, the nation’s largest mortgage lender, reported the Wall Street Journal on Saturday. By Sunday, other news outlets had independently confirmed an inquiry into whether Countrywide had misrepresented its financial condition. The FBI would not comment but the New York Times reported the agency was reviewing the practices of the mortgage industry, a broader investigation that included 14 companies. Countrywide is amid federal and state investigations of, among other things, its lending practices, as well as several investors’ lawsuits. On Friday March 7, Countrywide CEO Angelo Mozilo testified before Congress amid a federal panel’s investigation into the compensation of corporate heads. Three financial executives testified before the House Committee on Oversight and Investigations. Drawing much scrutiny from the House committee was compensation of Mozilo, who earned $410 million since becoming chief executive in 1999, including several stock sales made under an adjusted, automatic plan while the company was buying back shares. The New York Times reported Federal securities regulators have been scrutinizing those trades, and in a report released March 6, Congressional investigators found that the use of a flawed peer group and bonus targets added to his pay. He also was given a $37.5 million severance package, which he denied in January, after Congress requested that he testify. Also testifying with Mozilo were Charles O. Prince III, the former chief executive of Citigroup, and E. Stanley O’Neal, the former chief executive of Merrill Lynch. Earlier last week, units of Countrywide were subpoenaed by the Illinois attorney general in a probe into whether the companies violated federal law by corralling non-white borrowers into more expensive loans than those offered white borrowers, Reuters reported. Other investigations had been looking at possible accounting fraud or insider trading connected to loans made to borrowers with subprime credit. The U.S. Securities and Exchange Commission is conducting about three dozen civil investigations into how subprime loans were made and how securities were valued, the New York Times said. A federal judge in Houston found March 5 that Countrywide did not show “bad faith” in the handling of a Texas homeowner’s mortgage and will not be sanctioned merely for unprofessional and unethical conduct, Bloomberg News Service reported. Countrywide and two law firms it used showed “a disregard for the professional and ethical obligations of the legal profession and judicial system,” the federal judge wrote. To meet the threshold for sanctions, Judge Jeff Bohm wrote, he would have had to find “clear and convincing evidence of conduct that is in bad faith, vexatious, wanton or undertaken for oppressive reasons.” In a complaint filed March 1, The United States Trustee filed a second lawsuit with the Federal Bankruptcy Court in Miami, accusing the company of abusing the bankruptcy process. A similar but separate lawsuit was filed earlier in Atlanta, Reuters reported. Countrywide is in the process of being acquired by Bank of America for about $4 billion, a price on top of the $2 million bail-out offered last August in exchange for about one-sixth of the lender. Under the merger agreement, Countrywide shareholders would receive 0.1822 of a Bank of America share for each of their shares. The Calabasas firm reported a loss of about $422 million in the fourth quarter of 2007.
