Criminal inquiry
U.S. starts criminal investigation of Countrywide Financial
The U.S. government has opened a criminal inquiry into Countrywide Financial in connection with suspected securities fraud as part of the continuing repercussions from the mortgage crisis, according to government officials with knowledge of the case.
The Justice Department and the FBI are looking at whether officials at Countrywide, the largest U.S. mortgage lender, misrepresented its financial condition and the soundness of its loans in security filings, the officials said Saturday. The investigation is in an early stage, said the officials, who spoke on condition of anonymity because they were not authorized to discuss ongoing criminal matters. It was unclear whether anyone would ultimately be charged with a crime. Richard Kolko, a spokesman for the FBI, declined Saturday to confirm whether the agency had started an investigation of Countrywide related to its securities filings.
A Countrywide spokeswoman, Susan Martin, said, "We are not aware of any such investigation." The FBI is investigating 14 companies as part of a wide-ranging review of business practices in the troubled mortgage industry. In that broader investigation, the FBI is looking into possible accounting fraud, insider trading or other violations in connection with loans made to borrowers with weak, or subprime, credit.
The inquiry into the companies began last spring. It involves companies across the financial industry, including mortgage lenders, loan brokers and Wall Street banks that packaged home loans into securities. It is unclear when charges, if any, might be filed. As part of that investigation, the FBI is cooperating with the U.S. Securities and Exchange Commission, which is conducting about three dozen civil investigations into how subprime loans were made and packaged and how securities backed by those loans were valued. Several state prosecutors are also investigating mortgage industry practices.
For years, the FBI warned that mortgage fraud was a significant and growing problem. In the 2006 fiscal year, it documented 35,600 reports of suspected mortgage fraud, up from 22,000 the year before and 7,000 in 2003. For the most part, the cases the FBI has brought so far have focused on local or regional mortgage fraud rings that involve speculators, loan officers, brokers and other housing professionals. State officials have been active in bringing mortgage cases.
The New York State attorney general, Andrew Cuomo, is investigating whether Wall Street banks withheld damaging information about the loans they were packaging. Prosecutors in Connecticut, Illinois, Massachusetts and Ohio have also been looking into the industry. Countrywide, beleaguered by bad home loans, is selling itself to Bank of America for about $4 billion. It reported a loss of $422 million for the fourth quarter of 2007.
The company was forced in August to draw down its entire $11.5 billion credit line from a consortium of banks because it could no longer sell or borrow against home loans it had made. It has laid off about 11,000 employees since the summer.
(Published by International Herald Tribune March 10, 2008)