The Housing Chronicles Blog: Countrywide: the bad seed?

Tuesday, January 8, 2008

Countrywide: the bad seed?

I actually have a mortgage with Countrywide (30-year fixed rate at 5.625%), and my experience with them has been flawless, so I'm a happy customer.

In other words, no re-created documents.

Apparently that's not been the case for a certain Countrywide borrower in bankruptcy, as reported in today's New York Times and noted on the L.A Land blog:

The Countrywide Financial Corporation fabricated documents related to the bankruptcy case of a Pennsylvania homeowner, court records show, raising new questions about the business practices of the giant mortgage lender at the center of the subprime mess.

The documents — three letters from Countrywide addressed to the homeowner — claimed that the borrower owed the company $4,700 because of discrepancies in escrow deductions. Countrywide’s local counsel described the letters to the court as “recreated,” raising concern from the federal bankruptcy judge overseeing the case, Thomas P. Agresti.

“These letters are a smoking gun that something is not right in Denmark,” Judge Agresti said in a Dec. 20 hearing in Pittsburgh.

The emergence of the fabricated documents comes as Countrywide confronts a rising tide of complaints from borrowers who claim that the company pushed them into risky loans. The matter in Pittsburgh is one of 300 bankruptcy cases in which Countrywide’s practices have come under scrutiny in western Pennsylvania.


This is certainly an important story because the #1 defense for most mortgage lenders of late has been to blame the buyer: the buyer didn't read the documents, the buyer knew what they were getting into, the buyer was a speculator and don't want to face investment losses.

While the re-creation (i.e., fabrication) of documents by Countrywide doesn't mean other lenders conduct business in the same way, it does point a glaring light at a market leader at a time when all mortgage lenders are under suspicion. In other words, this has to be one of the worst PR gaffes I can remember since WorldCom went into hiding before its demise.

At the same time, Countrywide also had to deny rumors of an impending bankruptcy (although given their recent PR misses, who's going to believe them?) as well as face further bond downgrades; its stock is down 39% for 2008 (and we're only 8 days into the new year).

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