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How Bank of America Covered Up Fraud by Silencing Whistleblowers

Countrywide made life hard for an internal investigator, and a court ruled that when BofA took over, she was illegally fired in retaliation.

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As she set about fixing the problems, she says, she encountered things that gave her pause.

The company’s mortgage fraud investigation unit, Foster says, refused to share data about the complaints it received. Each time she requested the stats, she says, she hit a brick wall.

Foster says she also ran into a hitch when she began distributing a monthly report that broke down complaint data for each of the companies’ operating divisions.

Countrywide Home Loans Servicing, which collected borrowers’ payments each month, was the subject of complaints about its foreclosure practices and other issues. The volume of serious complaints involving the servicing unit topped 1,000 per month, dwarfing the number for other divisions.

This upset officials with the servicing unit, Foster recalls. The complaints weren’t “real complaints,” the servicing execs argued, and Foster was making the unit look bad by including them in her reports.

The upshot: Foster was ordered, she says, not to include many of the complaints about the servicing unit in her reports. She thought it was odd, she says, but she didn’t think it was evidence of a larger pattern. She figured it was mostly an exercise in backside-covering.

“When we lost at the meeting, I was like, ‘OK, they want to just cover this up,’” Foster says. “But it wasn’t anything to the scale that I thought it would cause great harm.”

Only later — after she took over the mortgage fraud investigation unit — did she realize, she says, that cover ups were part of the culture of Countrywide, and that efforts to paper over problems had less to do with bureaucratic infighting and more to do with hiding something darker within the company’s culture.

“What I came to find out,” she says, “was that it was all by design.”

Bouquets and handbags

State law enforcers would later charge that Countrywide executives designed fraud into the lender’s systems as a way of boosting loan production. During the mortgage boom, critics say, Countrywide and other lenders didn’t worry about the quality of the loans they were making because they often sold the loans to Wall Street banks and investors. So long as borrowers made their first few payments, the investors were usually the ones who took the hit if homeowners couldn’t keep up with payments.

Countrywide treated borrowers, California’s attorney general later claimed, “as nothing more than the means for producing more loans,” manipulating them into signing up for loans with little regard for whether they could afford them.

Countrywide’s drive to boost loan production encouraged fraud, for example, on loans that required little or no documentation of borrowers’ finances, according to a lawsuit by the Illinois attorney general. One former employee, the suit said, estimated that borrowers’ incomes were exaggerated on 90 percent of the reduced-documentation loans sold out of his branch in Chicago.

One way that Countrywide booked loans was by paying generous fees to independent mortgage brokers who steered customers its way. Countrywide gave so little scrutiny to these deals that borrowers often ended up in loans that they couldn’t pay, the state of Illinois’ suit said.

In Chicago, the suit said, Countrywide’s business partners included a mortgage broker controlled by a five-time convicted felon. One Source Mortgage Inc.’s owner, Charles Mangold, had served time for weapons charges and other crimes, the suit said.

One Source received as much as $100,000 per month in fees from Countrywide, banking as much as $11,000 for each loan it steered to the lender. Mangold, in turn, showered a Countrywide branch manager and other employees with expensive gifts, including flowers and Coach handbags, the suit said.

 
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