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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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Countrywide in turn funded a stream of loans arranged by One Source, the suit said, even as the broker misled borrowers about how much they’d be paying on their loans and falsified information on their loan applications. One borrower provided pay stubs and tax returns showing he earned no more than $48,000 per year, but One Source listed his income as twice that much, according to the suit.

Mangold couldn’t be reached for comment. His attorney said in 2007 that Mangold denied all of the state’s allegations against him.

Countrywide, the state’s suit said, kept up its partnership with One Source for more than three years. It didn’t end the relationship until the state sued One Source for fraud and slapped Countrywide with a subpoena seeking documents relating to the broker.

As questionable practices continued, Countrywide’s fraud investigation unit had trouble keeping up, according to Larry Forwood, who worked as a California-based fraud investigator for Countrywide in 2005 and 2006, before Foster took over the fraud unit. His personal caseload totaled as many as 100 cases at a time, many of them involving dozens or hundreds of loans each.

Some cases involved mortgage brokers or in-house staffers who pressured real-estate appraisers to inflate property values. The company maintained a “do not use” list of crooked appraisers who’d been caught falsifying home values, but the sales force often ignored the list and used these appraisers anyway, Forwood says.

Countrywide’s fraud investigation unit did have some successes during Forwood’s tenure. It shut down a branch in the Chicago area, he said, after a rash of quick-defaulting loans sparked a review that uncovered evidence of bogus appraisals and

forged signatures on loan paperwork. One manager, Forwood says, tried to rationalize the fraud, telling investigators: What was the big deal if, say, five out of every 30 loans was fraudulent?

When the unit shut down a branch in southern California after uncovering similar evidence of fraud, Forwood recalls, it got some pushback. It came all the way from the top, he says, via a phone call to the fraud unit from Mozilo.

“He got very upset,” Forwood says. “He basically got on the phone and said: ‘Next time you need to do that, clear it with me.’”

Mozilo’s attorney didn’t respond to questions from iWatch News about Forwood’s account.

For Part 2 of Eileen Foster’s story, go to iWatch News and read  Mortgage industry tanks, fraud continues at Countrywide

 

Michael Hudson, a former Wall Street Journal reporter, is a staff writer at the Center for Public Integrity ( http://www.publicintegrity.org), a nonprofit journalist organization. He is the author of " " (2010, Times Books)

 
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