Countrywide Financial, the largest US mortgage lender, is under investigation by the Federal Bureau of Investigation (FBI) for possible securities fraud, it emerged yesterday.
Investigators are focusing on whether Countrywide officials misrepresented the company's financial position and the quality of its mortgage loans in securities filings, a person familiar with the investigation said.
He described the inquiry, first reported 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 of the companies.
"There's a whole lot of excitement and hullabaloo, but proving criminal conduct is likely to be difficult," said David Lykken, president of Mortgage Banking Solutions, a consulting firm in Austin, Texas.
"A lot of people were caught up in the atmosphere when the housing market was booming."
FBI spokesman Richard Kolko declined to comment yesterday. Jumana Bauwens, a spokeswoman for Countrywide, said the company is unaware of any FBI inquiry. Bank of America, which is in the process of buying Countrywide, declined to comment.
Lenders are facing increased scrutiny from regulators as record foreclosures displace homeowners and depress property values. US 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 and San Francisco-based Wells Fargo were subpoenaed last week as part of an Illinois inquiry into whether ethnic minority borrowers were steered into higher-cost loans. Countrywide pledged to co-operate in any inquiry and said it analyses its data to ensure that borrowers are treated fairly. Wells Fargo said race isn't a factor in lending.
Angelo Mozilo, Countrywide's chief executive, testified last week before a Congressional committee, which questioned why chief executives received hundreds of millions of dollars in compensation while shareholders took the brunt of millions in writedowns from subprime mortgages.
The mortgage lender's board "adopted a compensation policy that aligns the interests of top executives with shareholders by making compensation largely performance-based," Mr Mozilo told the panel.
- (Bloomberg)
