On Thursday, the SEC prior Countrywide CEO Angelo Mozilo and two old lieutenants - David Sambol and Eric Sieracki - of fraud, and unveiled emails from the acme of the accommodation resound in which Mr. Mozilo warned of his company’s "toxic" subprime mortgages. In a statement, Mr. Mozilo’s counselor called the SEC’s allegations "baseless" and said "Mr. Mozilo acted nicely and lawfully at all times as the CEO of Countrywide.
" He added: The SEC’s allegations that Mr. Mozilo allegedly knew about some undisclosed hazard to unchanging loans made by Countrywide also is demonstrably false. The gripe does not mound the uninjured dispatch of either internal communications or the following disclosures. " Attorneys for Sambol and Sieracki also said their clients will quarrel the charges.
Here are some precisely excerpts from SEC’s , which cite internal followers emails involving Mozilo as borrowers were falling behind on payments and the terseness was starting to sour. Borrowers Misstated Income Both Mozilo and Sambol were wise as anciently as June 2006 that a significant cut of borrowers who were compelling out stated return loans were affianced in mortgage fraud. On June 1, 2006, Mozilo advised Sambol in an email that he had become apprised that the Pay-Option ARM portfolio was mainly underwritten on a reduced documentation bottom and that there was testimony that borrowers were deceptive about their revenue in the reference process. On June 2, 2006, Sambol received an email reporting on the results of a eminence pilot audit at Countrywide Bank that showed that 50% of the stated proceeds loans audited by the bank showed a variation in receipts from the borrowers’ IRS filings of greater than 10%. Of those, 69 % had an gain divergence of greater than 50%.
These concrete facts were never disclosed to investors. Concerns about 80/20 Loans Mozilo knew of the risks Countrywide incurred by originating subprime 80/20 loans and frequently questioned the clear-sightedness of continuing to put up for sale the product. Mozilo became solicitous about the loans in the earliest put up of 2006, when HSBC, a purchaser of Countrywide’s 80/20 loans, began to contractually effectiveness Countrywide to "buy back" dependable of these loans that HSBC contended were defective. On March 28, 2006, Mozilo sent an e-mail to Sambol and others, directing them to execute a series of corrective measures to "avoid the errors of both judgment and minute that have led to the issues that we experience today caused by the buybacks mandated by HSBC." Mozilo further stated that the 100% loan-to-value (also known as 80/20) subprime offshoot is "the most risky work in life and there can be nothing more toxic and therefore requires that no deviation from guidelines be permitted irrespective of the circumstances." Milk Vs.
Poison Mozilo went on to create that he had "personally observed a precarious be deficient in of compliance within our origination organization as it relates to documentation and conventionally a deterioration in the value of loans originated versus the pricing of those advance [sic]." Mozilo famed that, "[i]n my conversations with Sambol he calls the 100% sub best years seconds as the ‘milk’ of the business. Frankly, I make allowance for that commodity activity to be the destroy of ours." Furthermore, in an April 7, 2006 email to Sambol in Countrywide’s subprime 80/20 loans, Mozilo fumed: "In all my years in the concern I have never seen a more toxic prduct. [sic] It’s not only subordinated to the first, but the principal is subprime.
In addition, the FICOs are below 600, below 500 and some below 400[.] With existent property values coming down …the outcome will become increasingly worse. There has [sic] to be crucial changes in this program, including tidy increases in the lowest FICO….
Whether you observe the role wring or not, I am predisposed to go without tap irrespective of the consequences to our production." Pay-Option Arms Countrywide began originating Pay-Option ARM loans in 2004; by the alternative leniency of 2005 21% of Countrywide’s allowance output was Pay-Option ARMS.·· Pay-Option ARMs allowed borrowers to decide between four pay options: (l)a reduced payment which was scant to submerge accruing interest;(2) an interest-only payment; (3) a fully amortizing payment with a 30 year get even off; and (4) a fully amortizing payment with a 20 year pay-off. If the nadir payment was selected, then the accruing engross would be added to the loan’s dominant balance, a occasion known as adverse amortization.
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