Reports: FBI probes Countrywide, other lenders

Investigations focus on securitization, servicing of home loans

Countrywide Financial Corp. is reportedly one of more than a dozen companies under investigation by the FBI as it looks into the packaging of subprime loans as securities sold to Wall Street investors.

According to reports in the Wall Street Journal and New York Times over the weekend, the investigation was initially focused on determining whether Countrywide misrepresented its financial condition and the quality of its loans in regulatory filings with the Securities and Exchange Commission. The Journal today reported that the FBI is also looking at Countrywide’s underwriting practices on stated-income loans.

Countrywide officials have said they were not aware that the company is the subject of any such investigation but have denied wrongdoing in lawsuits involving similar issues.

FBI officials briefed reporters in January about an investigation involving 14 financial services companies, mortgage lenders and investment banks. Although the FBI did not identify the companies under investigation, Goldman Sachs, Bear Stearns and Morgan Stanley have all disclosed to investors that they are responding to subpoenas from regulators about the origination, securitization and servicing of mortgage loans (see Inman News story).

Countrywide, which faces a number of lawsuits related to its lending practices and declining stock value, was also subpoenaed last week by Illinois Attorney General Lisa Madigan.

Madigan said she made a formal request for information from Countrywide and Wells Fargo Financial Illinois Inc. as part of a probe into alleged steering of African Americans and Latinos into high-cost loans.

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The subpoenas were prompted by a report in the Chicago Reader that claimed Countrywide and Wells Fargo had the highest disparity in high-cost loans between whites and minorities among lenders studied. The report was based on the Reader’s analysis of data collected by federal regulators under the authority of the Home Mortgage Disclosure Act (HMDA).

Wells Fargo Financial, which specializes in refinance loans and debt consolidation, issued a statement noting that HMDA data does not include risk factors that might explain racial disparities in high-cost lending.

The Federal Reserve Board’s own analysis of the data found that nationwide, African Americans were placed in high-cost loans 54 percent of the time in 2006 and Hispanics 46.6 percent of the time, compared with 18 percent of the time for whites (see Inman News story)

Some of those differences are explained by factors such as property location, income and loan amounts, Fed analysts said in their report. But more data is needed — including credit scores, loan-to-value and debt-to-income ratios — to determine if lenders are targeting minorities, Fed analysts said.


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