Countrywide Financial Corporation . Updated: Oct.

24, 2012

Founded in New York four decades ago by Angelo R. Mozilo, a butchers son from the Bronx, and David Loeb, a founder of a mortgage banking firm in New York who died in 2003, Countrywide Financial Corporation became a $500 billion home loan machine with 62,000 employees, 900 offices and assets of $200 billion. As the mortgage market boomed beginning in 2000, no company pursued growth in home loans more aggressively than Countrywide.

Countrywides fall was as spectacular as its rise. After nearly collapsing into bankruptcy as its financing dried up, the company was acquired by Bank of America in 2008. When Bank of America took over the company in July 2008, Mr. Mozilo left. The value of the acquisition, because shares of both companies had dropped, was only $2.8 billion.

From here, recovery might have been expected. In fact, the shoes started to drop — and kept on dropping — from the mess that Countrywide made during the boom.

In June 2009, the Securities and Exchange Commission filed civil fraud and insider trading charges against Mr. Mozilo and his top lieutenants: David Sambol, the companys former president, and Eric Sieracki, the former chief financial officer. In October, Mr. Mozilo agreed to repay $45 million in illgotten profits and $22.5 million in civil penalties as part of a settlement with the SEC in which he admits no wrongdoing.

In June 2010, Countrywide Home Loans and its mortgage servicing unit, which are now part of Bank of America, agreed to pay $108 million to settle federal charges that the company overcharged customers who were struggling to hang onto their homes.

In December 2011, the Justice Department announced that Bank of America had agreed to pay $335 million to settle allegations that Countrywide discriminated against black and Hispanic borrowers during the housing boom. This was the largest residential fair-lending settlement in history.

In October 2012, the federal government sued the Bank of America, accusing the giant bank of carrying out a mortgage scheme that defrauded the government during the depths of the financial crisis. In a civil complaint that seeks to collect $1 billion in damages from the bank, the Justice Department took aim at a home loan program known as the hustle, a venture that Bank of America inherited with its purchase of Countrywide.

Prosecutors say the effort, created in 2007 but kept alive through 2009 by Bank of America, was intended to churn out mortgages at a rapid pace without proper checks on wrongdoing. The bank then sold the defective loans to Fannie Mae and Freddie Mac, the government-controlled housing giants, which were stuck with heavy losses and a glut of foreclosed properties.

Background

Countrywides woes began to multiply in February 2008, when the United States Trustee filed a lawsuit against it, citing a pattern of questionable practices in a bankruptcy case and asking the Federal Bankruptcy Court in Atlanta to sanction the company. Illinois also sued Countrywide in June, contending the company had defrauded borrowers by selling them costly and defective loans that quickly went into foreclosure. Other states quickly followed suit.

In October, just days after the federal government adopted a giant financial rescue package without any relief for distressed homeowners, the company announced an $8.4 billion loan relief plan for an estimated 400,000 borrowers nationwide. The program, as part of the settlement with officials from Illinois and 10 other states, was the most comprehensive mandatory loan workout program since the mortgage crisis began.

But in June 2009, the S.E.C. charged Mr. Mozilo, Mr. Sambol and Mr. Sieracki with securities fraud for failing to disclose Countrywides lax lending standards in Countrywides 2006 annual report.

The remnants of Countrywide and its mortgage servicing unit agreed in June 2010 to pay $108 million to settle federal charges that the company overcharged customers. The payment resolved the largest mortgage-servicing case in the history of the Federal Trade Commission, with one of its largest overall judgments. The money will be used to reimburse homeowners who were charged excessive fees by Countrywide before its July 2008 acquisition by Bank of America.

And in August, it agreed to pay $600 million to settle shareholder lawsuits over its mortgage losses.

The filings close one chapter of the mortgage crisis, but they did not end the story that has emerged from the unraveling of the housing market. Charges filed in June asserted that Countrywide and its subsidiaries made false claims in filings in federal bankruptcy court. Federal officials said those assertions could be followed up by the Federal Fraud Enforcement Task Force, an interagency group that includes the Justice Department, which, unlike the trade commission, can pursue a criminal case.

The S.E.C. lawsuit contends that from 2005 through 2007, Mr. Mozilo, Mr. Sambol and Mr. Sieracki held Countrywide out as a maker of high-quality mortgage loans that was qualitatively different from competitors who engaged primarily in riskier lending. But in order to feed the companys continued growth, the agency says, the three men began to progressively loosen the companys lending standards, writing and selling more loans that were exceptions to the companys written guidelines without disclosing the changes to investors.

The S.E.C. said that the three executives misled investors by failing to disclose the lax guidelines and the growing portion of subprime loans that it was creating.

The lawsuit was to go to trial on Oct. 19 in federal district court in Los Angeles, but on Oct. 15, word came that Mr. Mozilo had agreed to repay $45 million in ill-gotten profits and $22.5 million in civil penalties as part of a settlement with the S.E.C.

Mr. Sambol will repay $5 million in ill-gotten profits and $520,000 in civil penalties, and Mr. Sieracki will pay $130,000 in civil penalties. Under the agreement, the three men did not admit wrongdoing.