How Bank of America Covered Up Fraud by Silencing Whistleblowers

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A Bank of America spokesman declined to respond to questions about allegations by Bonjean and other former Countrywide employees, noting that their claims “are related to situations and investigations that took place at Countrywide prior to Bank of America acquiring the company.”

‘Fund the loans’

Countrywide had been slower than many other mortgage lenders to fully embrace making subprime loans to borrowers with modest incomes or weak credit. By 2004, though, Countrywide had become a player in the market for subprime deals and many other nontraditional mortgages, including loans that didn’t require much documentation of borrowers’ income and assets.

These loans were part of the plan for meeting its CEO’s audacious goal of growing his company from a giant to a colossus. Mozilo had vowed that his company would double its share of the home-loan market to 30 percent by 2008.

Some former Countrywide employees say the pressure to push through more and more loans encouraged an anything-goes attitude. Questionable underwriting practices often helped risky loans sail through the lender’s loan-approval process, they say.

In one example, Countrywide approved a loan for a borrower whose application listed him as a dairy foreman earning $126,000 a year, according to a legal claim later filed by Mortgage Guaranty Insurance Co., a mortgage insurer. It turned out that the borrower actually milked cows at the dairy and earned $13,200 a year, the lawsuit alleged.

The borrower provided the correct information, but the lender booked the loan based on data that inflated his wages by more than 800 percent, the legal claim said.

In another instance, according to a former manager cited as a “confidential witness” in  shareholders’ litigation [9]against the company, employees appeared to be involved in a “loan flipping” scheme, persuading borrowers to refinance again and again, giving them little new money, but piling on more fees and ratcheting up their debt. The witness recalled that when the scheme was pointed out to Lumsden, Countrywide’s subprime loan chief, the response from Lumsden was “short and sweet”: “Fund the loans.”

Such episodes weren’t uncommon, the witness said. In early 2004, he claimed, he discovered that Nick Markopoulos, a high-producing loan officer in Massachusetts, had cut and pasted information from the Internet to create a fake verification of employment for a loan applicant. Markopoulos left the company of his own accord, the witness said, but he was soon rehired as a branch manager.

The witness said he contacted a regional vice president to object to rehiring an employee with a history of fraud. But he said the regional VP — citing Markopoulos’s high productivity — overruled his objections.

Markopoulos couldn’t be reached for a response. Lumsden says he doesn’t recall any incident involving “loan flipping” allegations.

Brushed off

Eileen Foster knew little about Countrywide’s fraud problems when she took a job with the company in September 2005.

For Foster, the

move seemed like a natural progression. She’d accumulated 21 years’ experience in the banking business, starting out as a teller at Great Western Bank and working her way up to vice president for fraud prevention and investigation at First Bank Inc.

Countrywide brought her on as a first vice president and put her in charge of a high-priority project: An overhaul of how the company handled customer complaints.

The company’s systems for handling complaints, Foster recalls, were disjointed and ineffective. Various divisions had differing policies and there wasn’t much effort to ensure that complaints got addressed. Things had gotten so bad, she says, federal banking regulators ordered the company to do something about the problem. Foster’s task was to standardize the company’s procedures and ensure that people with complaints didn’t get brushed off.