Countrywide Said to Be Subject of Federal Criminal Inquiry
WASHINGTON - The federal authorities have opened a criminal inquiry into Countrywide Financial for suspected securities fraud as part of the continuing fallout over the mortgage crisis, government officials with knowledge of the case said on Saturday.
The Justice Department and the Federal Bureau of Investigation are looking at whether officials at Countrywide, the nation's largest mortgage lender, misrepresented its financial condition and the soundness of its loans in security filings, the officials said.
The investigation - first reported on Saturday in The Wall Street Journal - is at an early stage, said the officials, who spoke on the condition of anonymity because they were not authorized to discuss ongoing criminal matters. It is unclear whether anyone will ultimately be charged with a crime.
Richard Kolko, a spokesman for the F.B.I., declined on Saturday to confirm whether the agency had started an investigation of Countrywide related to its securities filings.
A Countrywide spokeswoman, Susan Martin, said, "We are not aware of any such investigation."
The inquiry comes as the F.B.I. investigates 14 companies as part of a wide-ranging review of business practices in the troubled mortgage industry.
In that broader investigation, the F.B.I. is looking into possible accounting fraud, insider trading or other violations in connection with loans made to borrowers with weak, or subprime, credit.
The inquiry into the companies began last spring. It involves companies across the financial industry, including mortgage lenders, loan brokers and Wall Street banks that packaged home loans into securities. It is unclear when charges, if any, might be filed.
As part of that investigation, the F.B.I. is cooperating with the Securities and Exchange Commission, which is conducting about three dozen civil investigations into how subprime loans were made and packaged and how securities backed by those loans were valued.
Several state prosecutors are also investigating mortgage industry practices.
For years, the F.B.I. has been warning that mortgage fraud is a significant and growing problem. In the 2006 fiscal year, it documented 35,600 reports of suspected mortgage fraud, up from 22,000 the year before and 7,000 in 2003.
For the most part, the cases the F.B.I. has brought so far have focused on local or regional mortgage fraud rings that involve speculators, loan officers, brokers and other housing professionals.
State officials have been active in bringing mortgage cases. The New York attorney general, Andrew M. Cuomo, is investigating whether Wall Street banks withheld damaging information about the loans they were packaging. Prosecutors in Connecticut, Illinois, Massachusetts and Ohio have also been looking into the industry.
Countrywide, beleaguered by bad home loans, is in the process of selling itself to Bank of America for about $4 billion. It reported a loss of $422 million for the fourth quarter of 2007.
The company was forced in August to draw down its entire $11.5 billion credit line from a consortium of banks because it could no longer sell or borrow against home loans it had made. It has laid off about 11,000 employees since last summer.
David Johnston contributed reporting.
© 2008 The New York Times