Feds Give Up Mortgage Fraud Case Against Countrywide’s Mozilo

Prosecutors with the U.S. Justice Department are reportedly giving up their quest to take action against the co-founder of Countrywide Financial Corp. for his alleged role in doling out risky subprime mortgages that played a major role the national financial crisis. wallstreetbusinessman

Bloomberg reports federal prosecutors informed Mozilo via letter that it did not plan to take any further action against him, effectively ending more than 10 years scrutiny of the man whose lending practices were questionable at best. This lack of reckoning is also indicative of the government’s largely ineffective efforts to obtain accountability for those responsible for collapse of the U.S. housing market, which sparked the Great Recession.

Now 77, Mozilo has spent the last several years living in a 13,000-square-foot home, writing a memoir and investing in real estate. He has insisted neither he nor his firm’s lending practices had anything to do with why the market collapsed. 

Countrywide was purchased by Bank of America Corp. in 2008, after originating nearly $410 billion worth of loans the year before, when the housing market was at its peak. Many of those loans went to borrowers who weren’t properly vetted and were in fact considerably risky, based on their income and the cost of the homes they were purchasing.

When the housing market cratered in 2008, financial institutions saddled with non-performing mortgage loans had their own meltdown. The U.S. Justice Department launched investigations into industry practices across the country, with the U.S. Attorney’s Office in L.A. responsible for delving into the role played by Countrywide. That included stock sales by Mozilo in the weeks and months prior to the recession. At no point was a criminal case against him filed.

Public interest groups, lawmakers and foreclosure defense lawyers have all been vocal about the fact that pretty much every executive connected to this crisis skated without consequence.

In the 10 years prior to the housing bubble bursting, Mozilo personally raked in $500 million. He later paid just $67.5 million to the Securities and Exchange Commission in connection with the investigation. He never had to concede wrongdoing and Bank of America even picked up a good part of the tab.

Later, the U.S. Justice Department wrangled a $17 billion settlement with Bank of America over the lending practices of both Countrywide and Merrill Lynch & Co, another of its subsidiaries.

Then in 2014, federal prosecutors started working on trying to build a civil lawsuit against Mozilo. With other Wall Street banks, prosecutors leaned on anti-fraud laws, as well as the Financial Institutions Reform, Recovery and Enforcement Act, to press for settlements, ultimately garnering some $37 billion. The FIRREA gave prosecutors a longer statute of limitations and also a lesser threshold of proof. They sought to use this same strategy to hold Mozilo accountable.

Mozillo’s firm stands accused of churning out thousands of loans that were high-risk and then bundling them and selling them to the unsuspecting buyers at Fannie Mae and Freddie Mac, which are backed by the federal government. The company’s chief operating officer, Rebecca Mairone, was the only bank executive in the course of the entire financial crisis to be found liable for misrepresentation of the quality of mortgages. However, a federal appeals court recently ruled prosecutors hadn’t met their proof burden and tossed both Mairone’s $1 million fine as well as Bank of America’s $1.3 billion judgment.

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Additional Resources:

Countrywide’s Mozilo Off Hook as U.S. Said to Abandon Suit, June 17, 2016, By Keri Geiger, Bloomberg

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$2.5 Million in Punitive Damages Awarded Over Mortgage Credit Report, June 17, 2016, Miami Foreclosure Lawyer Blog