Countrywide Settles for $600M in Sub-Prime Lending Suit
In what amounts to the largest shareholder settlement since the mortgage meltdown in 2007, Countrywide has agreed to pay $624 million to former shareholders for the company's failure to disclose essential information relating to the company's dealings with subprime mortgages. Countrywide (which was purchased by Bank of America Corporation in 2008) hopes the settlement will put an end to several securities class action suits currently against the company on this issue.
CNN quotes New York Comptroller John Yu's statement regarding the settlement: "This historic settlement sends a strong message that this type of behavior is unacceptable in Corporate America, and that management will be accountable to shareholders, especially when they put self-interest ahead of shareholders' interest." Although Countrywide did not admit any wrongdoing in the settlement, class-action suits against sub-prime lending are not unique to Countrywide as companies such as Washington Mutual and Merrill Lynch have also felt the sting of a subprime lender lawsuit.
The current settlement will not directly affect the pocketbooks of the top Countrywide executives that underwrote Countrywide's stock during the time in question. Countrywide CEO Angelo Mozilo and two other high-ranking executives do not have to pay into any of the settlement, but each face individual fraud charges brought on by the Securities and Exchange Commission. The fraud charges relate to the failure to disclose the risks associated with the loosened mortgage standards the company was employing during the housing boom from 2004-2006, according to CNN.
Although it may seem like a $600 million admission of fault, the terms of the settlement will not be as helpful in the individual cases against Countrywide executives as it seems. In individual cases of fraud, the SEC will need to directly connect (rather than simply showing that the company as a whole engaged in the practice) the individuals to the fraud they are accused of perpetrating.
Countrywide Agrees to Pay $600M to Settle Lawsuits (Los Angeles Times)
The SEC's Goldman Sachs Suit (FindLaw's Law and Dailey Life)
- Walk Away from Mortgage or Bulldoze House? (FindLaw's Legally Weird)
- Bankruptcy/Loan Modification Options for Homeowners (provided by wantafreshstart.com)
- Glossary of Real Estate Topics (provided by Law Offices of Kenny Tan)
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