Countrywide Sweetheart Loans Scheme Confirmed by Investigation

Countrywide Sweetheart Loans Scheme Confirmed by Investigation
(TheNicheReport) -- The scandalous past of the defunct Countrywide Financial, which at one point was the largest residential mortgage originator in the United States, just got a bit more sordid. On early Thursday, July 5th, a Congressional report revealed that Countrywide engaged in the highly questionable practice of issuing deeply discounted and loosely underwritten mortgages to certain members of Congress. This unethical mortgages are often referred to as sweetheart loans, and they are usually granted in exchange for political influence.

Read full Report from The Committee on Oversight and Government Reform (pdf)

It goes into great detail especially about who received special favors and discounts. Be sure to read the section on Chris Dodd.

The investigation into Countrywide was conducted by the House Oversight and Government Reform Committee over three years. According to financial media reports, the practice of issuing sweetheart loans was sometimes known as the "Friends of Angelo VIP program", an allusion to the former Countrywide CEO Angelo Mozilo. Details of the investigation expose a pattern of advantageous treatment of mortgage applications signed by certain high-profile borrowers who have not been named, although the investigative report indicates that they were public officials and members of Congress.

The Reaction from Bank of America In 2008, and amid mounting pressure from a spectacular portfolio of subprime loans, Bank of America acquired Countrywide months before the global financial meltdown, the string of government bailouts and bank failures, and the avalanche of foreclosures across the United States. Financial analysts have not stopped questioning the logic behind Bank of America's purchase of Countrywide's dubious assets, although a bank spokesman was quick to point to CNN Money that the VIP program was immediately stopped upon acquisition.

The Congressional Investigation Media focus on the Friends of Angelo VIP Program dates back to the summer of 2008, and several months went by before the House Oversight and Government Reform Committee began investigating in earnest. In June of 2009, the Wall Street Journal published an article that mentioned Senators Chris Dodd and Kent Conrad among those who may have received sweetheart loans. Employees of the government-sponsored mortgage giants Fannie Mae and Freddie Mac may also be on the list. The nefarious practice of sweetheart loans is not only unethical because it amounts to graft; it also erodes value from the secondary mortgage market and goes against the principles of underwriting and mitigation of risk. When these sweetheart loans are packaged and bundled into mortgage-backed securities, investors are under the impression that they are purchasing solid debt instruments, when in fact they might be investing in sham mortgages.