Weekend reports that Countrywide Financial Corp., the largest U.S. mortgage lender, is under investigation by the FBI for possible securities fraud marked the third time in a week that the firm was the focus of government scrutiny.
On Friday, Angelo Mozilo, Countrywide’s chief executive, testified before the House Oversight and Government Reform Committee, which questioned why CEOs received hundreds of millions of dollars in compensation while shareholders took the brunt of millions in writedowns from subprime mortgages.
Countrywide’s board “adopted a compensation policy that aligns the interests of top executives with shareholders by making compensation largely performance-based,” Mozilo told the panel.
Countrywide and San Francisco-based Wells Fargo & Co. also were subpoenaed Thursday as part of an Illinois probe into whether minority borrowers were steered into higher-cost loans. Countrywide pledged to cooperate in any probe and said it analyzes its data to ensure that borrowers are treated fairly. Wells Fargo said race isn’t a factor in lending.
“Countrywide is the focus of politicians and others who often are looking for people they can paint as villains,” said Gary Townsend of Chevy Chase, Maryland-based Hill-Townsend Capital, which invests in financial-industry stocks. “Congress could be the motivator if the FBI is taking this action.”
FBI investigators are focusing on whether Countrywide officials misrepresented the company’s financial position and the quality of its mortgage loans in securities filings, according to a person familiar with the probe. The person declined to be identified because he was not authorized to speak. He described the inquiry, first reported Saturday by The Wall Street Journal, as preliminary.
Countrywide is among at least 14 companies that the FBI is checking for possible accounting violations related to the subprime lending crisis, including mortgage lenders, housing developers and Wall Street firms that package loans as securities. The FBI announced the review in January without identifying any companies.
“There’s a whole lot of excitement and hullabaloo, but proving criminal conduct is likely to be difficult,” David Lykken, president of Mortgage Banking Solutions, an Austin, Texas, consulting firm, said Saturday. “A lot of people were caught up in the atmosphere when the housing market was booming.”
FBI spokesman Richard Kolko declined to comment Saturday, and Jumana Bauwens, a spokeswoman for Calabasas, Calif.-based Countrywide, said the company is unaware of any FBI probe. Bank of America Corp., which is in the process of buying Countrywide, declined to comment, spokesman Scott Silvestri said.
Lenders are facing increased scrutiny from regulators as record foreclosures displace homeowners and depress property values. U.S. mortgage foreclosures rose to an all-time high at the end of 2007 as borrowers with adjustable-rate loans walked away from properties before their payments increased, the Mortgage Bankers Association said last week.
Countrywide declined 2.5 percent to $5.07 a share on Friday, 20 percent lower than its closing price on Jan. 11, when Bank of America, the nation’s second-biggest bank by assets, offered to buy the company for about $4 billion in stock. The stock has declined 86 percent in the past year in New York Stock Exchange trading.
The share of all home loans with payments more than 30 days late, both prime and fixed-rate loans, rose to a seasonally adjusted 5.82 percent, the highest since 1985, the Mortgage Bankers Association said in its report.
Forty-two percent of new foreclosures in the fourth quarter were people with adjustable-rate subprime mortgages, given to borrowers with limited or tainted credit records, according to the report. Those types of loans accounted for about 7 percent of all mortgages.