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Probe of Mortgage Lender Launched

[Mar 12, 2008.]


The federal government has begun a probe into the dealings of the nation's biggest mortgage lender.
The U.S. Justice Department and the Federal Bureau of Investigation are trying to determine whether Countrywide Financial engaged in securities fraud.

The issue is whether executives at Countrywide provided misleading information about the company's financial situation in security filings. The Wall Street Journal was the first newspaper to break the story.

In an e-mail to the Journal, Countrywide spokeswoman Jumana Bauwens stated, "We are not aware of an investigation being conducted by the FBI." The FBI is reportedly probing more than a dozen other companies as a result of the country's subprime mortgage crisis.

Countrywide is also being investigated by the Securities and Exchange Commission. It's also the target of a class-action lawsuit from pension funds as a result of allegations of securities fraud. Countrywide agreed at the beginning of the year to be taken over by Bank of America for $4 billion.

The company reportedly lost $422 million in the final quarter of 2007. That's more than double projections.
Federal investigators are also looking into allegations of conflicts of interest, accounting fraud, and insider trading at subprime lending institutions. Meanwhile, a number of state prosecutors are also investigating possible wrongdoing by the mortgage industry.

The nation is facing its worst housing crisis in 16 years. The troubles can be attributed to the collapse of the subprime market. Subprime loans are those home loans that are extended to home buyers with shaky credit histories. A number of those loans have resulted in foreclosures, producing a glut of houses in the current real estate market. Industry observers say it will take at least until the middle of 2008 for the housing market to turn around. Some less optimistic predictions say it won't be until 2010 when the housing market will recover.

Julie Ann Amos
March 12th 2008

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