Countrywide under FBI investigation

Washington: Countrywide Financial, the largest US mortgage lender, is under investigation by the Federal Bureau of Investigation for possible securities fraud, according to a person familiar with the probe.

Investigators are focusing on whether Countrywide officials misrepresented the company's financial position and the quality of its mortgage loans in securities filings, the person, who declined to be identified because he wasn't authorised to speak about the probe, said Friday. He described the inquiry, reported earlier 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," David Lykken, president of Mortgage Banking Solutions, an Austin, Texas consulting firm, said Friday. "A lot of people were caught up in the atmosphere when the housing market was booming."

FBI spokesman Richard Kolko declined to comment Friday. Jumana Bauwens, a spokeswoman for Cala-basas, California-based Countrywide, said the company is unaware of any FBI probe. Bank of America, which is in the process of buying Countrywide, declined to comment, spokes-man Scott Silvestri said.

Growing scrutiny

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 & Co. were subpoenaed last week 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 analyses its data to ensure that borrowers are treated fairly. Wells Fargo said race isn't a factor in lending.

Countrywide declined 2.5 per cent to $5.07 a share on March 7, 20 per cent lower than its closing price on January 11, when Bank of America offered to buy the company for about $4 billion in stock.

Mozilo testimony

Angelo Mozilo, Countrywide's chief executive, testified March 7 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.

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