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Today, the SEC released a statement regarding its move to file fraud charges against Angelo Mozilo, the former CEO of Countrywide.  He’s been accused of “deliberately misleading investors about significant credit risks that were taken in an effort to maintain the company’s market share”.  He’s also been charged with insider trading.

This is the first high level executive to face the consequences of and possibly be forced to take financial responsibility for his role in the current mortgage crisis.  He doesn’t stand alone in these charges, though.  Standing next to him will be the former COO and former Countrywide president, David Sambol and former CFO Eric Sieracki.  Their charges are similar to Mozilo’s.  In part, they’re accused of providing false assurances that Countrywide primarily held prime mortgages and weren’t as much at risk as other lenders that specialized in subprime mortgages.  This is surprising since any mortgage loan officer in this country can attest to Countrywide’s B-C side that specialized in…you guessed it: subprime mortgages.

Mozilo’s lawyer, David Siegel, told The Wall Street Journal that there was no fair basis for any of these charges and reiterated his client’s insistence that all sales were both legal and ethical.  Despite an email that was discovered, written by Mozilo to Sambo and other high level officers, he still claims his actions were ethical:

                … The 100% loan-to-value subprime product is “the most dangerous product in existence and there can be nothing more toxic and therefore requires that no deviation from guidelines be permitted irrespective of the
circumstances.”

Of course, we know those guidelines he speaks of were widely ignored and 100% LTV loans continued, even when potential homeowners had FICO scores in the 400-600 range.  What this boils down to is people were buying homes, with absolutely no money up front aside from the costs of the appraisals and possibly closing costs (which in total, probably amounted to less than $5,000 - if that much).  They could have been considered poor credit risks (any FICO score below 550 is considered poor by most lenders) and still could have purchased a house that they might not could have afforded.

For now, the SEC seems to be content with its big fish.  Whether or not further charges for other head honchos will surface remains to be seen.

Just when it appears the mortgage industry has calmed to some degree and has found its way off every breaking news email and newspaper front page, news comes as of April 2009 Bank of America has officially dropped Countrywide Home Loan’s name from its mortgage operations.  So why did it have to go so wrong for the company that was once the golden child of home ownership in this country?

In its heyday, Countrywide Home Loans held the majority of both prime and subprime mortgages in this country.  With its “A-B” side and subprime divisions, it seemingly had a solution for every American family, regardless of his credit history.  As a result, and not surprisingly, the profits poured in from both divisions, further cementing Countrywide Home Loan’s position at the top of mortgage lending institutions.

With its trailblazing business practices and fearless leaders at the helm, Countrywide Home Loans was the premiere lender with both financial institutions, including banks and mortgage brokers, as well as customers within its retail divisions.  Perhaps it was this sense of invincibility that proved too much for the powers that be.  When the dominos began falling, Countrywide Home Loans wasn’t immune; its leaders began to fall, one by one, including its founder, Angelo Mozilo.

Countrywide Home Loans went from a successful American conglomerate to a sad and limping shadow of what it once was and many insist it was due to bad decisions, embezzlement, accusations of stock sell-offs with insider trading and a myriad of other illegal activities that can never bode well for any company, big or small.

Customers quickly began losing faith in their one-time saviors that allowed them buy their homes, even if these homes came with unrealistic financing obligations.  Many former account executives and underwriters say they knew adjustable rate mortgages, or ARMs, were being pushed on uneducated customers who had no idea what this meant after the initial two or three years of a consistent interest rate.  They say they did everything they could with what few choices they had, but worked with mortgage brokers and loan officers to provide as much information as possible to new homeowners, especially in their explanations of what would happen once the adjustable rate took effect.  For desperate Americans who wanted their own pieces of pie, it was a sacrifice worth making as they had intentions of refinancing into fixed rates once their ARMs kicked in.  Sadly for too many, this simply didn’t happen.

So was it truly about the bottom line?  That’s yet to be seen.  In the meantime, Countrywide Home Loans has forever lost is impenetrable armor as well as its stellar reputation with millions of happy and loyal customers - both with perfect credit scores and those who struggle to maintain at least an acceptable rating.  As Countrywide Home Loans quickly fades into the background, it becomes difficult to reconcile what remains with the glorious days when homeownership was far easier to attain.

As those who’ve witnessed this bit of history shake their heads in disbelief and find themselves wondering the ‘how’s’ and ‘why’s’, one thing’s certain: any benefit of the doubt that was extended will never be allowed again; at least not in our lifetimes and certainly not for Countrywide Home Loans, should it find a way to resurrect itself.

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