NYC Expands Countrywide Suit

New York City Comptroller William Thompson is suing Countrywide Financial, accusing the company of misleading its investors by “falsely representing that Countrywide has strict and selective underwriting and loan origination policies”. It was announced on Friday that the suit is being expanded, with additional company officers, directors, underwriters and accounting firms. Now that names like Grant Thornton and Citigroup are involved, this is getting serious, and even uglier than before.

It’s funny how every time anyone mentions Countrywide in an online article, there’s a burst of attention and a flurry of comments ranging from “I’m a former employee, they deserve whatever comes their way” to “I work at Countrywide, we’re all ethical agents”. I’m more inclined to believe the former, until that is proved untrue. And some of the latest news on Countrywide’s Mozilo: it seems he’s so fed up with the press commenting on his stock sales and retirement benefits, that he’s decided to forfeit $37.5 million in severance pay, but still keep the rest of the money he’s about to receive upon leaving Countrywide. Does this mean that he doesn’t think he deserves the money?

Mozilo After Countrywide

Now that it has been officially announced that Bank of America is acquiring Countrywide, the spotlight is on Mr. Angelo Mozilo again. Mozilo, Countrywide’s founder and CEO, is famous for his massive sales of company stock. He’s earned hundreds of millions of dollars since he became CEO in 1999 and is expected to get another hundred million in severance after the closing of the BofA deal sometime in Q3. Some sources value his severance package in tens of millions of dollars, which, while substantially smaller than the number above, definitely ensures Mr. Mozilo a happy retirement. One source said he was planning to retire in 2009, but with this new development he might be leaving the workforce a little earlier. I don’t think that makes much difference to him. Mozilo’s generous compensation, which includes use of the corporate jet, county-club membership and other perks, has often been criticized in the media. Executives at mortgage lenders like Countrywide are believed to have caused the current mortgage crisis by allowing predatory lending, fraud, and other unfair business practices. Well the man founded the company after all…

Borrowers Desperate For Help

Thousands of homeowners facing foreclosure are turning to the Bush Administration’s foreclosure relief plan for help. HOPE NOW Alliance, a coalition of lenders and nonprofits which plays a central role in the plan, has noticed a significant increase in calls since the campaign was officially announced in the media. In each of the past two quarters, the number of calls has doubled and these days staffers have to deal with up to 3,000 calls a day, up from 100 calls per day in June 2006. The demand is so high that the foundation has tripled its staff, but hiring more counselors is hard, because HOPE NOW cannot offer competitive remuneration. Despite all the blasting the plan received in the media, desperate borrowers are calling by the thousands, and why shouldn’t they: if they get some mortgage relief – perfect, if not – they have nothing to lose by asking for help.

Fannie Mae said that it will reimburse mortgage servicing companies which refer delinquent borrowers to the HOPE counseling hotline, adding to demand for the service. The HOPE NOW toll-free number is 1-888-995-HOPE. It is available 24 hours a day and provides counseling in multiple languages. Now we’ll all sit and watch how all this unwinds, because it’s the best most of us can do – apart from, probably, writing angry comments about irresponsible borrowers/lenders and about using taxpayers’ money to bail out speculators. Oh, in fact Paulson repeatedly denied the possibility of the latter. However, he did say something about the economy and the housing market, but he wasn’t really optimistic: “there is no single or simple solution that will undo the excesses of the last few years”. Sad but true.

“Days on the market” stats removed from Southern California listings

The Southern California Multiple Listing Service has announced a decision to remove the number of days a home stays on the market from listings. Real Estate agents will still have access to the data, but it will not be publicly available. Good for agents, not so good for buyers who might be able to get a better deal if they know the seller is desperate to offload a property. Brokers get a percentage of the home price as fees, so they will have an incentive to make buyers pay more.

On the other hand, this decision may help end “re-listing” schemes, where brokers remove a home from the market for a while and then list it again, thus distorting the stats. Re-listing practices are not prohibited by law, but they certainly do not benefit buyers. However, this doesn’t sound like a very good justification to me – after all, everyone is aware of the “slump” in the housing market, I don’t really believe re-listing is that much of a problem. Attracting any buyers at all is hard enough, let alone getting a higher price. Hiding the “days on the market” number will help mask the slowdown in home sales and generally benefits realtors, but it will not help improve the market. Hm…

Fair Isaac to put a stop on “credit score borrowing”

A credit score scheme that emerged recently allowed consumers to boost their credit scores in as little as several weeks by being added – for a pay – as an authorized user on someone else’s credit card with a long history of perfect payments. Parents often add their children as authorized users on their credit cards, in order to help them establish credit and improve their scores. Adding strangers as authorized users, however, is considered a scheme, even though no regulation currently defines who can be added and the maximum number of authorized users on a credit card.

Businesses that offer the service actually help borrowers manipulate the credit scoring system and get better terms on any loans they apply for. Some borrowers wouldn’t be able to get loans if they didn’t get a “credit boost”, which is why banks are increasingly concerned about the practice. Fair Isaac, the company which created the FICO scoring system is working to modify the score. As of September, the cardholder’s credit will not be transferred to authorized users, which will essentially stop the scheme, but will also harm law-abiding borrowers who wish to help their children establish good credit.

Appraisers forced to distort numbers

With the spring/summer home buying season on the verge of beginning, problems associated with Real Estate fraud and data falsification become more pressing.

A recent survey pointed out that 90% of appraisers have been pressured to raise property valuations. The survey was conducted by October Research and involved 1, 200 appraisers from all the 50 states, District of Columbia and Puerto Rico. An identical survey was carried out in 2003, when only 55% of appraisers admitted they’d been pressured to adjust the results of their valuation.

With home prices sliding, everyone in the industry is trying to work out a better deal, and an appraiser may lose the assignment if he/she refuses to cooperate. Mortgage brokers and agents are listed as the top sources of pressure, but sellers, lenders and even buyers have also been reported to attempt to influence the final results.

If an appraiser’s estimate is considered unsatisfactory, customers may refuse to work with him/her and some appraisers fear they might lose their positions. Loan brokers are constantly calling appraisers asking if a certain property’s worth can be evaluated at the sales contract price; and if a lower number is arrived at, the appraiser may not get paid for the work.

Most appraisers refuse to knowingly submit inflated valuations, but the real solution is probably a legislative measure that would make forcing appraisers to inflate or otherwise adjust estimations illegal.