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FBI Investigating Countrywide for Securities Fraud

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Washington, DCA criminal investigation has been opened against Countrywide Financial by the FBI and the Justice Department for possible securities fraud. The FBI and the Justice Department is investigating whether or not the nation's largest mortgage lender falsified its financial condition and the stability of its loans in security filings.

The investigators are looking to see if the officials at Countrywide had the knowledge that their mortgage securities would see more defaults than what they predicted in documents that were made available to the public.

Money Lending FraudThe first report on the early stages of this investigation appeared in Saturday's Wall Street Journal. The officials involved in the case spoke anonymously because they are not allowed to discuss the ongoing criminal case. It is not clear at this time whether or not anyone will be charged with any crime.

However, many critics are accusing the Countrywide CEO, Angelo Mozilo, of greed and predatory lending. This criticism began right before thousands of Countrywide customers went into foreclosure and they found out about his lavish salary. He was called before a congressional committee on Friday regarding employee compensation and what kind of role Countrywide plays in the mortgage crisis.

Countrywide is just one of many investigations. The FBI is in the middle of investigations that involve 14 companies and their business practices taking place within a mortgage industry that is very troubled. The F.B.I. is looking for offenses such as insider trading, accounting fraud, and various other violations that are connected to loans being granted to borrowers with subprime or weak credit.

The inquiries into each one of the companies being investigated began in the spring of 2007 and all of the companies have some kind of connection to the financial industry. These involve loan brokers, mortgage lenders, and Wall Street banks that took packaged home loans and converted them into securities. At this time, it has not been said whether or not any charges will be filed.

The FBI is working in cooperation with the Securities and Exchange Commission, which is conducting around 36 investigations into practices where subprime loans were granted, how they were converted into securities, and how these securities were valued.

There are also several other mortgage industry investigations that are ongoing by a number of state prosecutors.

For several years, the FBI has been issuing warnings that mortgage fraud is becoming more prevalent, therefore it is becoming a growing problem. In 2006, the FBI documented a total of 35,600 reports of possible mortgage fraud. In 2003, there were just 7,000 suspected cases. That is 28,000 more suspected cases in a three year period.

So far, the cases that the FBI has opened have been focused on fraudulent practices within a regional or local area. This includes loan officers, housing professionals, brokers, and mortgage fraud rings. State officials have been very involved with bringing about mortgage cases. At this time, Andrew M. Cuomo, the attorney general for New York, is investigating the possibility that banks on Wall Street withheld information regarding loans that they packaged. The same type of investigation has been going on in Ohio, Illinois, Connecticut, and Massachusetts.

As for Countrywide, it is undergoing the process of being sold to Bank of America in a $4 billion transaction. Its fourth quarter in 2007 reported $422 million in losses. In august 2007, Countrywide could no longer borrow or sell against the home loans it had granted and had to draw down its credit line of $11.5 billion from a number of other banks. Since the summer of 2007, approximately 11,000 employees have been laid off.

At this time, Countrywide says they are not aware of the FBI investigation

By Ginger Gillenwater


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