'Fast & Easy' at Countrywide

It's the lending giant’s absurd mortgage program that federal investigators have been honing in on, according to the WSJ. Under "Fast and Easy," borrowers were asked to provide little or no documentation about their finances, the Journal reports. That includes not having to produce pay stubs or tax forms to document earnings. In many cases, Countrywide didn't even require employment to be verified. You can see how this would be a problem.

That left the program vulnerable to abuse by Countrywide loan officers and outside mortgage brokers seeking loans for customers who might have been turned away if their finances had been more closely scrutinized, according to three current and former Countrywide senior executives and to several mortgage brokers who arranged loans through the program.

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During a conference call with investors last July, Countrywide acknowledged that Fast and Easy loans were riskier than fully documented prime loans. A chart provided to investors showed that a borrower who wasn't required to document income would be at least 50% more likely to fall behind on payments than a similar borrower who did provide documentation. The Federal Bureau of Investigation is looking into a wide variety of Countrywide mortgages that didn't require full documentation, not just the Fast and Easy loans. People involved in the inquiry say the FBI has concluded that extensive fraud occurred on the loans, and they are looking into whether the company violated securities law by failing to disclose that to investors.

The Journal story comes on the day that Countrywide reported an $893 million first-quarter loss, the result of an increase in foreclosures and late payments. The company would not offer details about the "Fast and Easy" loans, though a spokesman said they were not overloaded with defaults. All this puts even more pressure on Bank of America, which agreed in January to purchase Countrywide. While the acquisition has not gone down well among shareholders, B of A executives appear determined to carry it through.

By the way, I was on Larry Mantle's "Airtalk" this morning to discuss the Countrywide situation. Here's the link to the KPCC Web site.