Countrywide's pockets of fraud, whistleblowing, and retribution

Not everyone at the Calabasas-based mortgage lender was a crook. But neither was the corruption isolated, as we're finding out in a series of lawsuits accusing Countrywide - and its parent, Bank of America - of encouraging or condoning fraud. That included falsifying income documentation and other tactics that helped steer borrowers into bad mortgages. The Center for Public Integrity finds numerous instances where employees would raise concerns about questionable activity, only to be ignored or in some cases demoted or let go. Did CEO Angelo Mozilo know what was going on? Well, the Justice Department dropped its investigation into Mozilo, and no incriminating evidence against him has been unearthed. Underlings apparently kept a lot of nasty stuff away from the big boss, so I suppose it's possible he was unaware of specific situations. But Mozilo had to be aware of the culture - he helped nurture it. And the Countrywide culture, especially towards the end of the real estate boom, centered on volume at all costs. So it's not difficult to imagine how things could have gotten so out of hand. Here's a small sample of the center's excellent reporting:

In the summer of 2007, a team of corporate investigators sifted through mounds of paper pulled from shred bins at Countrywide Financial Corp. mortgage shops in and around Boston. By intercepting the documents before they were sliced by the shredder, the investigators were able to uncover what they believed was evidence that branch employees had used scissors, tape and Wite-Out to create fake bank statements, inflated property appraisals and other phony paperwork. Inside the heaps of paper, for example, they found mock-ups that indicated to investigators that workers had, as a matter of routine, literally cut and pasted the address for one home onto an appraisal for a completely different piece of property. Eileen Foster, the company's new fraud investigations chief, had seen a lot of slippery behavior in her two-plus decades in the banking business. But she'd never seen anything like this.


In the end, dozens of employees were let go and six branches were shut down. But Foster worried some of the worst actors had escaped unscathed. She suspected, she says, that something wasn't right with Countrywide's culture -- and that it was going to be rough going for her as she and her team dug into the methods used by Countrywide's sales machine. By early 2008, she claims, she'd concluded that many in Countrywide's chain of command were working to cover up massive fraud within the company -- outing and then firing whistleblowers who tried to report forgery and other misconduct. People who spoke up, she says, were "taken out." By the fall of 2008, she was out of a job too. Countrywide's new owner, Bank of America Corp., told her it was firing her for "unprofessional conduct."

Foster began a three-year battle to clear her name and establish that she and other employees had been punished for doing the right thing. Last week, the U.S. Department of Labor ruled that Bank of America had illegally fired her as payback for exposing fraud and retaliation against whistleblowers. It ordered the bank to reinstate her and pay her some $930,000. Bank of America denies Foster's allegations and stands behind its decision to fire her. Foster sees the ruling as a vindication of her decision to keep fighting. "I don't let people bully me, intimidate me and coerce me," Foster told iWatch News during a series of interviews. "And it's just not right that people don't know what happened here and how it happened."

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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