Countrywide Financial Corp, the mortgage lender acquired by Bank of America Corp., has agreed to a $624 million settlement of a lawsuit accusing it of misleading investors about its lending practices. Countrywide will pay $600 million and its former auditor KPMG LLP will pay $24 million to settle the class-action litigation. The settlement benefits investors who bought the lender’s securities between March 12, 2004 and March 7, 2008.
The case was led by several pension funds, including the New York State Common Retirement Fund (that state’s $129.4 billion public pension fund) and five New York City pension funds. “This is a very good settlement that helps repair the damage Countrywide has done,” New York State Comptroller Thomas DiNapoli, who oversees the Common Retirement Fund, said in a statement.
Once the largest U.S. mortgage lender, Countrywide, and its long-time chief executive, Angelo Mozilo, became synonymous with risky lending practices that helped fuel the U.S. housing boom and subsequent bust. Countrywide nearly collapsed as credit markets tightened, before Bank of America agreed to buy it in January 2008. The $2.5 billion takeover was completed in July of that year. Interestingly, Countrywide once made one in six U.S. home loans. But greed on its part and a lack of regulation led the company down a path that ultimately caused major problems.
The pension funds alleged that Countrywide, Mozilo and other officials misled them about the company’s lending risks, including a large reliance on risky subprime and “option” adjustable-rate mortgages, to fuel rapid growth. This contrasted with public assurances that Countrywide would survive the nation’s housing downturn. I agree with New York City Comptroller John Liu, who advises the five city pension funds in the case, who stated: “This behavior is unacceptable in corporate America.”
Mozilo and two other former Countrywide executives are Defendants in a pending U.S. Securities and Exchange Commission civil fraud lawsuit. The SEC claimed Mozilo misled investors about Countrywide loans and violated insider trading rules in generating a $139 million profit by exercising stock options in 2006 and 2007. It said the exercises came after he admitted in an email to colleagues that Countrywide was “flying blind” as to the quality of the loans.
Bank of America was smart to drop the Countrywide name a year ago. According to the pension funds, the settlement which requires approval by a judge in Los Angeles would be the 13th largest securities class-action settlement since federal laws on private securities litigation were overhauled in 1995.
Source: Associated Press
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