Suits and Severance at Countrywide

Posted by: Chris Palmeri on January 31, 2008

countrywideThe Fed initiates another whopping rate cut. Too late to save Countrywide, whose deal to be acquired by Bank of America still looks like a go. The nation’s largest mortgage lender released its year end numbers on Jan. 29. The company didn’t hold a conference call to discuss them. No need, they’re gone.

The big startling number: 33% of Countrywide’s subprime portfolio is delinquent. That compares with only 5% of their conventional mortgages. Imagine, one out every three of your loans going bad. Are people not paying because they think Countrywide will modify the loans and bail them out?

A lawsuit filed against Countrywide on Jan. 17 by Mark Zachary, a former regional manager for the company, sheds some light on how that 33% figure may have come to be. Zachary claims that when Countrywide’s risk management group determined a customer didn’t have the income necessary to qualify for a conventional loan, other managers at the company quickly steered the customer to the subprime group. There, Zachary alleges, the customers were offered loans where they didn’t have to prove they had the income required.

Zachary says “loans officers would then coach the applicant as to what income level was needed to qualify when it was sent to the subprime originators in Plano, Texas.” Countrywide earned more money selling subprime loans. Of course, the customers had to pay higher rates.

Zachary claims he complained about these practices to higher-ups, but only became a “pariah” at the company. Think it’s a coincidence Countywide CEO Angelo Mozillo agreed to give up his $37 million severance package and free trips on the company plane this week?

Reader Comments

Lou Marcus

February 4, 2008 6:35 PM

I fell pray to the same scenerio that Zachary describes, here in Florida. What if any recourse do I have now that I am upside down, deep in debt and have no way out?

Wes

February 7, 2008 12:07 AM

I thought BoA did due diligence on this deal? I'm inclined to believe they wouldn't have purchased this company had they known the true extend of Countrywide's problems.

Mr. Mozillo is not a saint, he pocketed millions of dollars while millions of people were put into home loans they cannot afford and likely will never be able to afford even at a 0% interest rate.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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