Angelo's Ashes
Wednesday June 25, 8:00 am ET
Countrywide Financial is becoming more of an embarrassment for Bank of America just days before it completes a takeover of the mortgage lender.
At the same time, the Senate is pushing ahead with sweeping legislation on housing while facing questions about why some of its members received below-market-rate mortgages from Countrywide.
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As first reported by Daniel Golden on Portfolio.com, the primary author of the Senate bill, Christopher Dodd, Democrat of Connecticut, as well as Senator Kent Conrad, Democrat of North Dakota, refinanced properties through Countrywide's V.I.P. program in 2003 and 2004.
The Senate vote on the bill may come as soon as today.
Also today, Countrywide shareholders will vote on the all-stock acquisition, initially valued at $4 billion, but now significantly less than $3 billion, thanks to a decline in shares of Bank of America. The deal could close as soon as July 1.
Hanging over both events is the growing questions and investigations into how Countrywide does business. Today, the attorney general of Illinois plans to sue Countrywide and its chief executive, Angelo Mozilo, contending that the company engaged in deceptive trade practices in lending.
The complaint, reports Gretchen Morgenson of the New York Times, accuses Countrywide of "relaxing underwriting standards, structuring loans with risky features, and misleading consumers with hidden fees and fake marketing claims, like its heavily advertised 'no closing costs loan.'"
"People were put into loans they did not understand, could not afford, and could not get out of," the Illinois attorney general, Lisa Madigan, told the Times, "This mounting disaster has had an impact on individual homeowners statewide and is having an impact on the global economy. It is all from the greed of people like Angelo Mozilo."
The attorney general is seeking that any mortgages that used deceptive practices be rescinded or modified in some way.
Tanta on the Calculated Risk blog is very skeptical of the attorney general's claims, noting that Countrywide's allegedly deceitful practices were common in the business. Tanta says:
"Nobody has to like any of these business practices. But they have been hiding in plain sight for a long, long time. This ginned-up outraged innocence—all directed at Countrywide, as if everyone else in the industry had never heard of any of this—is truly getting on my nerves."
Still, the Illinois investigation is just one of a number into the company's practices and into stock sales by Mozilo. The potential liability for Bank of America—in terms of both public image and legal costs—appears to be huge.
Congress is also grappling with the fallout over Countrywide as it tries to push through an overhaul to ease the nation's worst housing slump since the Depression.
The core of the Senate bill is a plan that would allow thousands of troubled borrowers to refinance to more affordable fixed-rate loans through the Federal Housing Administration.
Seeking to address the questions being raised by the disclosure of the Countrywide V.I.P. loans, an amendment to that bill would require lawmakers to disclose the lender and terms of the mortgages on their residences in an annual financial statement, reports Lori Montgomery of the Washington Post.
Politico.com, which has asked all 100 senators to disclose where they got their mortgages and whether there were any special terms, says that only 15 members have failed to respond.
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