Who’s Behind the Financial Meltdown?

Published — June 4, 2009 Updated — May 19, 2014 at 12:19 pm ET

Leaders of the nation’s No. 1 subprime lender charged by the SEC

Introduction

Angelo Mozilo, founder and former CEO of Countrywide Financial — the No. 1 subprime lender in America, according to a Center for Public Integrity report — was charged today with securities fraud and insider trading by the Securities and Exchange Commission. Former Countrywide chief operating officer and president David Sambol and former chief financial officer Eric Sieracki are also facing fraud charges.

The SEC alleges that Mozilo, Sambol, and Sieracki misled investors by suggesting that the company was primarily making prime loans and had “avoided the excesses of its competitors,” according to an SEC press release. But, according to the Center for Public Integrity’s recent investigation, Who’s Behind the Financial Meltdown?, Countrywide made at least $97.2 billion in subprime loans between 2005 and 2007, earning the now-closed company the top spot on the Center’s Top 25 Subprime Lenders list.

The SEC’s complaint also includes insider trading charges against Mozilo, who, according to the complaint, earned close to $140 million in selling stock in Countrywide between late 2006 and early 2007.

In internal company emails released by the SEC, Mozilo refers to the company’s loans as “toxic” and “dangerous.” In one March 2006 message to Sambol and others, Mozilo wrote that 100 percent loan-to-value subprime loans were “the most dangerous product in existence.” In another message from September 2006 to Sambol, Mozilo, referring to a portfolio of so-called “pay-option” adjustable rate mortgages, Mozilo wrote, “We have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet.”

“The bottom line,” he continued, “is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales.” And in a third email from April 2006 about Countrywide’s 80/20 loans, Mozilo wrote “In all my years in the business I have never seen a more toxic prduct [sic].”

In just the year 2005, Countrywide made more than $25 billion in subprime loans, which ballooned to about $44 billion in 2006 — the year Mozilo sent the emails provided by the SEC. That year, according to the Center’s Meltdown investigation, Mozilo was earning $2,866,667. By 2007, as the housing bubble burst, Countrywide’s subprime lending had shrunk back to about $27 billion.

Mozilo resigned from Countrywide in June 2008. Bank of America bought Countrywide for $4 billion in July 2008. While Countrywide did not receive any federal bailout money, Bank of America has been given government protection against losses on $118 billion in assets and has received $45 billion in federal assistance.

The SEC isn’t the first government body to take aim at Countrywide. In 2008, the company agreed to provide more than $8.6 billion of home loan and foreclosure relief after being sued by 11 states for predatory lending practices. That settlement was reached after Bank of America acquired the lender, but was related to Countrywide loans.

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