More Countrywide Woes

You may recall that BofA/Countrywide announced recently and reported here on October 13th, that a settlement had been reached with the California Attorney General and those of 15 other states. They agreed to set aside some $8.4 billion and intended to modify some loans.

The agreement came as a result of lawsuits that had been filed alleging that Countrywide and its employees had been engaging in improper sales tactics, had misrepresented loan terms, and had otherwise steered people into loans they could not understand and could not afford. The program to contact the 400,000 homeowners was to begin on Monday.

Not so fast! 

Greenwich Financial Services Fund had bought some of the Countrywide loans and wasn’t happy. They brought suit against Countrywide asserting that the deal reached in the legal settlement was due to actions taken by Countrywide and that Countrywide, not the ultimate owners of the loans, should bear whatever losses would occur as loans were renegotiated.

Of course, modifying the loans would likely result in some forgiveness of debt and one would presume that the first $8.4 billion would be absorbed in the funds set aside. But there would seem also to be the likelihood that the ultimate owners of the loans, the ones who bought pools of mortgages originated by Countrywide, would also be asked or forced to participate in the loss. That is what the suit alleges.

They further state that Countrywide should buy back some $80 billion of loans, some of which are bad, and thus make the investors whole. 

Personally, I think that finger-pointing is not helpful at this stage of the game. While Countrywide may have been guilty as charged, these loans were bought by investors who knew the risks they were taking or, as investment professionals, should have known. Indeed, it has been widely reported that those same types of investors were clamoring for more loans even as they saw deteriorating performance in loans previously purchased. To that extent they bear some of the responsibility for this crisis and should share losses as well. That is just my opinion so we will have to see what the courts think.

In another Countrywide story reported on December 3rd, a U.S. District Court judge has denied motions by defendants to dismiss and thus has allowed to proceed the securities fraud lawsuit against Countrywide and former CEO Angelo Mozillo. 

As I said before, "Stay tuned."