CalPERS and Other Large Players Settle Suit Against Countrywide and Bank of America

Angelo Mozilo

Remember Countrywide Financial? If you suffered through the prospect or reality of a foreclosed home, the words are chilling ones. Since the collapse of the corrupt housing market in 2008, Countrywide (now called Countrywide Mortgage) and its current owner, Bank of America, have tried to get out from key lawsuits against them.

They appear to have succeeded recently against a well-funded, determined adversary. The LA Times reported today that CalPERS, the Golden State's powerful pension arm, along with other large institutional investors, quietly settled their litigation against Countrywide and BofA. The confidential nature of the settlement means the public has no idea how much the defendants ponied up to satisfy CalPERS and the other litigants. BofA's 4th quarter SEC filing might offer a hint; then again, maybe not.

What is clear is that Countrywide's former chief executive and the face of the foreclosure scandal, Angelo Mozilo, walks free to this day. Meanwhile, those who are financially chained or ruined by the foreclosure disaster do not.

Meanwhile, The New York Times published an interesting look at the interplay of a federal bank regulator and IndyMac, one of the financial firms that formed the housing debacle's Ground Zero. The excellent story was co-authored by Gretchen Morgenson. She is of the few mainstream reporters willing to take on complex financial topics and the combined muscle of Major League Finance and the Feds.

Bank of America's "Home-Loss" Issue

The Financial Times noted today that Bank of America (BOA) and the SEC have issues over "home loss" provisions. Now, we're not talking about the thousands of homes BOA has tried to railroad into hasty, occasionally illegal, foreclosure. The federally bailed-out bank has been cited for its very generous housing subsidies for its senior management. In essence, "home loss" in this context means that BOA execs, when they move from one locale to another for the bank, don't lose money on their house sale or most activities related to the transaction.

Looking under the deal's hood reveals interesting details. In the case cited in the FT story, one BOA exec received $2.6 million "to cover relocation costs, including a mortgage subsidy, closing fees, and tax liabilities, according to the bank's 2009 proxy. In the event (the executive's) old home, which was bought by an independent relocation company, was resold for a loss, BofA, according to the proxy, will bear those costs." Nice work if you can get it, don't you think?

Unstated in the story was whether the mortgage came from Countrywide, which merged with BOA during the 2008 financial fever.

What's even more outrageous than the subsidies' scale is BOA's rationale defending them. Apparently BOA compared the housing payoff to giving employees a computer or a smart phone. Such items are not included in proxies for shareholder approval, so why should a multi-million dollar housing package? Doesn't everyone get a laptop, phone, and six-bedroom colonial?

At no point did BOA spokespeople acknowledge that taxpayer money was involved. One never, ever got a sense that senior bank management felt responsible for transforming a solvent enterprise into an insolvent institution. Foreclosures, in which BOA remains immersed, were something that happened to other people, and to other people's money. BOA execs were different: they ensured their peace of mind with a mortgage subsidy.

Yes, it's nice to have a roof over one's head. It's even better to have equity shareholders, the federal government, or someone else, pay for that roof. Much better.

Judge Approves Countrywide/Bank of America Mortgage Settlement

A U.S. District judge in Los Angeles announced terms of a settlement of a class-action lawsuit involving Countrywide Financial Corporation. The LA Times reported the story over this past weekend.

The terms require Bank of America, Countrywide's current owner, to pay $600 million to former Countrywide shareholders remaining in the case. KPMG, which provided the accounting fig leaf for Countrywide's bamboozling, has to pony up $24 million.

A number of plaintiffs won't settle, feeling they would be getting pennies on the dollar. The Oregon attorney general's office, for example, noted its clients would receive a grand total of $500,000 in the settlement; they were owed $14 million.

On the face of it, Bank of America (BOA) must love this settlement. The institution walks away from Countrywide's massive fraud with a manageable, one-time balance sheet hit. Keep in mind BOA received TARP funds, and no indictments of bank personnel for illegal activity have ever been issued. Countrywide's former boss Angelo Mozillo remains unindicted, and with plenty of money he collected as a direct result of his firm's fleecing of home buyers and mortgage investors.

The transfer of wealth from low-income home owners to institutional investors and high net-worth individuals has frayed our nation's social fabric. Our country's societal structure now resembles a barbell, with wealth extremes held together by a slender middle class rod. Do you think that's a desirable state of affairs? All opinions welcome, within reason.

Countrywide's Former CEO Beats the Rap

Federal prosecutors are reportedly terminating their criminal investigation into Countrywide's former CEO Angelo Mozilo. (He's the tanned, smiling figure in the photo.) The Feds apparently believe they don't have a case strong enough to convict a key figure in the financial pillaging of the savings of millions of Americans. There is some thought the various civil proceedings Mozilo faces may provide statements or other evidence to re-open a federal probe into Mozilo's activities at Countrywide.

To date, Mozilo has had to personally pay a $22 million fine levied by the SEC; the other $40-plus million was paid by the bailed-out Bank of America, which had acquired Countrywide. Mozilo thus remains unindicted for any criminal activity, and at liberty to enjoy the millions he retained from the Countrywide fraud. How much? From 2005-2007, Mozilo made nearly $300 million in Countrywide stock he sold.

Intriguingly, congressman Darrell Issa intends to have Mozilo testify before the House committee the conservative Republican chairs. (Issa, by the way, is the wealthiest member of the House of Representatives.) Issa's goal in his probe of Countrywide is to dig up dirt on Countrywide's VIP list of sweetheart mortgages. Among those known to have received them are two high-profile Democrats: former U.S. senator Chris Dodd and current U.S. senator Kent Conrad. Expect other Democrats, such as fund raisers and other party insiders, to be named during Mozila's testimony. One big prize Issa may be targeting might be Jim Johnson, who doubled as Fannie Mae chief and a prominent Democratic Party fund raiser and power broker. Johnson was originally the lead dog for Obama's VP selection process; that evaporated when allegations that Johnson received a sweetheart deal from Countrywide became public. Another prize might be Franklin Raines, Freddie Mac's CEO who also allegedly received a Countrywide mortgage with a "noncompeting" interest rate.

Issa and many Republicans would like nothing more than to expose corruption at Fannie and Freddie. That development would give them the hammer to shut Fannie and Freddie down once and for all.