Tuesday, June 8, 2010

B of A Leaves Its Countrywide Frat Boy Days Behind

In a widely anticipated move, Bank of America agreed to pay $108 million to the Federal Trade Commission to settle charges that it cheated hundreds of thousands of customers facing foreclosure on their homes. I say the move was widely anticipated because anyone with a bit of knowledge about the banking industry knew when B of A announced its pre-crisis purchase of Countrywide either: B of A didn't know Countrywide's underwriting was corrupt to the core or the serial acquirer knew and figured it could settle charges, pay a small fine, (what's $100 mill or so to the banking behemoth?) and get on with its happy life of borrowing at zero and lending at 18% to its valued customers? I mean all of this bad stuff happened before B of A bought the mortgage lender, so really, they had no idea what was going on behind the scenes. Far be it for B of A to do a smidge of due diligence to figure out what the hell it was buying when it shelled out billions to buy a lender that would've gone bust like two months later.

The settlement money is to be used to reimburse all of those customers who were screwed over due to Countrywide's fraudulent practices of inflating fees and overstating amounts that customers owed. However, the FTC is having a hard time figuring out who should get the money because of Countrywide's abysmal record-keeping, which FTC's Chairman Jon Leibowitz compared unfavorably to those of a frat house. Actually, Mr. Leibowitz said "Most frat houses have better record-keeping." Back when I was in college, frat houses had stellar reputations for keeping scores of copies of old tests. I'm not sure how much better a mortgage lender should be about figuring out who it was busy ripping off. In any event, the lawyers will get paid, the FTC gets its press release, and Angelo Mozilo is still rich.

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