Bank of America Corp.'s (NYSE:BAC) story has long been that Countrywide did it. But a lawsuit filed last week by the Federal Housing Finance Agency tells a different tale.
The lawsuit claims that when former Countrywide Financial Corp. CEO Angelo Mozilo marveled at the dizzying recklessness of the mortgage-lending business, he was in fact looking at Charlotte-based Bank of America.
This is perhaps one of the most insulting claims ever leveled in a mortgage-fraud lawsuit. Bank of America would probably feel outraged if it wasn't so overwhelmed with its nauseating plunge on the stock market.
Mozilo has easily eclipsed Enron's brass as one of the most-hated executives of all time. He has become the poster child for the fraudulent mortgage-lending practices that torpedoed the U.S. banking system and the entire global economy.
But he was smart enough to sell Countrywide as it nearly collapsed in January 2008. And Bank of America was dumb enough to buy it for $4.1 billion.
Since then, Bank of America has been blaming Countrywide for a litany of problems.
Last May, for instance, Bank of America put up $22 million to settle charges it improperly foreclosed on active-duty troops.
There is no worse public-relations fete than sending foreclosure notices to the people risking their lives on a battlefield. So Bank of America set the record straight in a prepared statement:
"While most cases involve loans originated by Countrywide and the improper foreclosures were taken or started by Countrywide prior to our acquisition, it is our responsibility to make things right," Bank of America executive Terry Laughlin said.
Ooh-Rah, Bank of America!
There was also that time Bank of America CEO Brian Moynihan testified before the Financial Crisis Inquiry Commission. "Our primary window into the mortgage crisis came through the acquisition of Countrywide," he said in January 2010, as if Bank of America hadn't been brewing a mortgage crisis of its own before its acquisition of Countrywide.
In November 2010, Moynihan was about as plainspoken as possible: "At the end of the day, we'll pay for the things that Countrywide did."
Hey, it wasn't Moynihan's idea to buy Countrywide. He's simply cleaning up the mess of former CEO Ken Lewis. Yet no truer words were ever spoken.
Bank of America was even on the hook for a big chunk of the $67.5 million Mozilo agreed to pay the Securities and Exchange Commission last October to settle civil-fraud charges--without admitting nor denying guilt, of course.
The Federal Housing Finance Agency, which oversees government-owned mortgage giants Fannie Mae and Freddie Mac, last week sued 17 banks, including Bank of America, Citigroup Inc. (C), J.P. Morgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and some European banks such as Credit Suisse Group (CS, CSGN.VX), Barclays Bank (BCS) and the Royal Bank of Scotland (RBS).
You've heard the allegations before: These banks sold billions worth of mortgage-backed securities while lying about the thousands of funny little mortgages behind them.
Since Bank of America bought Countrywide, it will indeed pay for things Countrywide did. But it will pay for things it did, too.
The government is suing Bank of America for Countrywide, and it is suing Bank of America, separately, for things it did without Countrywide.
Bank of America issued a statement in response to the lawsuits, essentially saying Fannie and Freddie knew the risks of the securities they bought, and that the losses are due to a downturn in the housing market. But the United States of America would rather blame the Bank of America.
"BOA was one of the most aggressive competitors in the mortgage origination market," the government's lawsuit reads.
And that's where it hints that Bank of America was even worse than Countrywide:
"Even the top executives of Countrywide Financial Corp., the notorious mortgage lender ...complained to each other...that BOA's appetite for risky products was greater than that of Countywide," the lawsuit reads.
"In a June 13, 2005 email, Countrywide CEO Angelo Mozilo wrote to President and COO David Sambol: "This is the third deal in the last 10 days that BOA has offered that is impossible to beat. In fact, the other two were substantially worse than this one. It appears to me that BOA is making an aggressive move into mortgages once again.'"
Imagine that. Bank of America doing mortgage deals that even Mozilo found shocking.
This would be like Frankenstein convincing Godzilla that he is the bigger monster.
This explains how Mozilo figured Bank of America was so crazy about flipping mortgage paper, it would even buy him.
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at email@example.com or tellittoal.com)