• Prosecutors give up 2-year quest over mortgage practices
  • Pioneered subprime lending at heart of financial crisis

U.S. prosecutors have abandoned their case against Angelo Mozilo, a leader in selling the risky subprime mortgages that fueled the financial crisis, after a two-year quest to bring a civil suit against him.

The Justice Department sent a letter informing Mozilo, the co-founder of Countrywide Financial Corp., that it isn’t moving ahead with any action against him, according to people familiar with the matter. That effectively ends nearly a decade of U.S. scrutiny of a man who became a face of risky lending practices and later an emblem of the government’s mixed success in holding individuals accountable. 

Angelo Mozilo
Angelo Mozilo
Photographer: Jay Mallin/Bloomberg

In recent years, the 77-year-old has been living in a 12,692-square-foot house in Santa Barbara, California, investing in real estate and writing a book about his life so his grandchildren will “know the truth.” Interviewed in late 2014, shortly after news of prosecutors’ civil pursuit became public, he denied any wrongdoing and said the national real-estate collapse, not Countrywide’s lending, was at the root of the crisis. 

“Countrywide or Mozilo didn’t cause any of that,” he said at the time.

Justice Department officials in Washington and Los Angeles made the decision not to move forward with civil cases against Mozilo and other Countrywide executives, according to people familiar with the matter.

The Justice Department, through a spokesman, declined to comment.

"We are pleased and gratified with the Department of Justice decision” to close the investigation without any further litigation, said David Siegel, an attorney for Mozilo.

Risky Borrowers

Countrywide, which was bought by Bank of America Corp. in 2008, originated more than $408 billion of worth of loans in 2007, at the height of the housing market. Many of them went to poorly vetted and risky borrowers, the Justice Department has said. 

After the 2008 crash in housing -- and the accompanying meltdown of complex financial instruments containing nonperforming mortgage loans -- the Justice Department opened widespread investigations into industry practices. Prosecutors in the U.S. Attorney’s office in Los Angeles dug deeply into Countrywide’s actions, including Mozilo’s stock sales in the months leading up to the bursting of the mortgage bubble. They brought no criminal case against him.

Lawmakers and public-interest groups complained that executives walked away from the housing bust enriched and mostly unscathed. Mozilo -- who earned at least $500 million over a decade leading up to the crisis, according to compensation-research firm Equilar Inc. -- paid a $67.5 million penalty to the Securities and Exchange Commission in 2010, without admitting or denying wrongdoing. Bank of America covered a portion of his penalties.

Civil Case

In 2014, the Justice Department began trying to build a civil case against Mozilo, using the same anti-fraud laws it had employed to extract more than $37 billion from Wall Street banks, people familiar with the situation have said. The Financial Institutions Reform, Recovery and Enforcement Act, known as Firrea, gave the department a low threshold for bringing civil suits and a long period to bring cases.

The Justice Department used Firrea to reach a settlement of nearly $17 billion with Bank of Bank of America over how Countrywide and Merrill Lynch & Co. -- which the bank bought in 2009 -- marketed mortgage-backed bonds to investors in the run-up to the financial crisis.

The closure of the Mozilo case comes weeks after a federal appeals court reversed a 2013 Firrea ruling against Bank of America and Rebecca Mairone, the only executive of a major U.S. bank to be found liable for their part in the mortgage crisis.

Mairone, the former chief operating officer for a division of Countrywide, was found liable by a Manhattan jury for misrepresenting the quality of mortgages her company sold to Fannie Mae and Freddie Mac. 

The Justice Department claimed the bank and Countrywide generated thousands of defective loans and sold them to Fannie Mae and Freddie Mac, now under government control. Countrywide sold the loans to boost revenue in the tightening credit market in mid-2007, according to the government. The program became known as the High Speed Swim Lane, or HSSL -- later nicknamed The Hustle.

A three-judge appeals panel in New York ruled in May that prosecutors failed to prove Mairone, and Bank of America, defrauded the government. The court threw out a $1 million fine against Mairone and a a $1.3 billion judgment against Bank of America.

Success Story

Mozilo, known for his tanned visage, became an American success story after co-founding Countrywide in 1969 and building it into the nation’s largest mortgage lender. His fortunes turned in 2007 during a surge in defaults of loans the company made to borrowers with poor credit. That year, Countrywide, based in Calabasas, California, reported its first annual loss in more than two decades.

By March 2008, lawmakers tried to make Mozilo a poster child of Wall Street greed as the U.S. economy slumped. They beckoned him to Washington, where he testified before a combative congressional committee about his pay along with the ousted CEOs of Merrill and Citigroup Inc. U.S. Senator Charles Schumer, a New York Democrat, said in a Bloomberg Television interview two months later that Countrywide “will come to symbolize what went wrong with housing.”

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