Congressional hearings, under investigation by the FBI, sued by the states of Illinois, Florida, Connecticut, West Virginia, and California, the U.S. Justice Department throwing wrenches in its bankruptcy agreement, Bank of America merger not working out as planned….  What is the deal with Countrywide?!?! In a nutshell… they are having issues.

Back in March, former Countrywide CEO, Angelo Mozilo was carted to the hot seat.  A congressional committee grilled him about his heft pay package.  In 2007, Mozilo pocketed over $120 million for providing his chief executive officer-ing services to Countrywide.  While Mr. Mozilo was living fat, the mortgage industry was drowning in a sea of $20 billion worth loans losses… which, many of these loans were thanks to Countrywide.  And how was Countrywide CEO punished for his diligent fleecing of the American people… he got to take home a $2.3 million dollar pay check every week. Nice bit of retribution if you ask me.

In the midst of the crumbling empire, Mozilo eventually left Countrywide.  But the residual fall out from his shoddy leadership is ever present.

So far, the Attorney General Office’s of five states have sued the mortgage lending giant.  In one way or another, each state claims that Countrywide hookwinked homeowners by using deceptive practices to sell dubious mortgage products.

They are being accused of things such as exaggerating home values and then writing mortgage loans for more than the house is worth.  If you have even been upside down on an auto loan, then you know what a pain that can be if you need to sell the car.  Now just imagine being upside down on a $250,000 mortgage?  Not a nice image, right?

And something else the states accuse Countrywide of doing… issuing balloon style mortgage loans. They offer these tantalizing interest only loans or low rate ARMs… when the honeymooning is done, they hit folks with huge, ballooning payments. 

I once got caught up in the same kind of bamboozlement when I bought my first new car.  I was offered a low payment, but after 3 years… I would either have to make a huge balloon payment or refinance the remaining balance.  Sounded fair enough at the time… I wasn’t too concerned with all the particulars, I just wanted the keys.  But when you are paying less on an asset than its worth, you can dig yourself into a deep financial hole without even realizing it… because when the honeymoon is over, what decent bank would refinance a $5,000 car for $10,000? 

In my case, it was a car… cars depreciated over time.  In Countrywide’s case, it’s a house.  It is supposed to appreciate.  But that usually happens over time.  In the short term, home values can fluctuate up or down.  And in the last few years, home values are falling.  Not a good situation to be in if you planned to refinance to avoid a balloon payment or to avoid the increased note when the interest on an ARM adjusts. 

And this just makes it even worse for those homeowner’s who opted for interest only loans… that means they have no equity or even negative equity.  It’s just a bad deal all the way around.

So anyway, foreclosures, lawsuits and poor management has forced Countrywide into bankruptcy.  And even the bankruptcy proceedings aren’t going well.  The federal judge presiding over the case recently rejected a settlement offered by Countrywide’s lawyer. 

The outlook for Countrywide is very bleak.  Maybe Bank of America has the savoir faire to whip Countrywide back into shape.  But I doubt that even Bank of America can save them.  Countrywide was once praised as being a great American success story, but now it’s a fiasco.