2008-01-14wsj.com

During a hearing last month, U.S. Bankruptcy Judge Jeff Bohm chastised Countrywide and its lawyers after the company admitted making numerous errors in the case. "How many times do I have to listen to that before I conclude, 'You know, there's got to be some kind of reckoning' when I keep hearing time after time, 'we made a mistake, we made a mistake, we made a mistake, we made a mistake?'" Judge Bohm said. He is considering sanctions against the company.

Countrywide says it has incurred at least $400,000 in costs associated with the case after having its employees deposed by the U.S. Trustee Program, a division of the Justice Department that oversees the bankruptcy system. The agency has been investigating the company's handling of loan payments and court claims in cases across the country.

In Miami, Bankruptcy Judge A. Jay Cristol last month approved a U.S. trustee's requests to subpoena and depose Countrywide to obtain information about how it made mistakes in a case. Initially, the company claimed in court that the borrower would need to pay $4,800 a month for a mortgage during bankruptcy. But after the borrower objected, Countrywide said it had erred and reduced its claim to about $2,400 a month. In a hearing in December, Judge Cristol said Countrywide had been found "with its hand in the cookie jar."

$400,000 is a lot for one case. We're going to hazard a guess that this is more than the value of most houses/loans. This is not a good sign. And here's an even worse sign:

Among the areas of interest to the SEC is whether Countrywide adequately increased its loan-loss reserves to reflect slowing or delayed payments from homeowners or if the mortgage lender failed to increase the reserve to purposefully forestall taking a charge to its financial statements. The SEC is also investigating stock sales made by Countrywide founder Angelo Mozilo made through prearranged sales plans.

(emphasis ours) Wow, a new form of potential securities fraud by Tangelo. Kinda makes you wonder if the BofA deal will even be consummated, at this rate...


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