- Associated Press - Tuesday, August 24, 2010

Federal regulators say former Countrywide Chief Executive Angelo Mozilo personally approved mortgages for favored borrowers that violated the company’s policies and lending standards.

The Securities and Exchange Commission previously had accused Mr. Mozilo of civil fraud and illegal insider trading. Now the agency says the lender played a direct role in a program for preferential borrowers — including a number of top Washington figures — that has been the focus of congressional ethics inquiries.

Mr. Mozilo criticized Countrywide’s chief risk officer for trying to block one of the loans, telling the officer that the company could well afford to approve the special mortgages, the SEC said in a filing Aug. 18 in a Los Angeles federal court and made public this week.

California-based Countrywide Financial Corp. was a major player in the market for high-risk subprime mortgages, the collapse of which touched off the financial crisis. The company became the biggest U.S. mortgage lender overall before the meltdown. It was bought by Bank of America Corp. in July 2008.

Last year, the SEC accused Mr. Mozilo and two other former Countrywide executive of deliberately misleading investors about the risks the company took when the market was booming. He and the other former executives have denied any wrongdoing.

“The ‘exceptions’ culture at Countrywide started at the top,” the SEC said in its filing opposing the executives’ motion for dismissal of the SEC’s case. “In many instances, Mozilo approved loans that were in direct contravention of Countrywide’s own credit policies and underwriting guidelines.”

In addition, the three executives never disclosed “the high percentage of exception loans Countrywide was making” in company regulatory filings or sale documents for mortgage securities, the SEC said.

The SEC statements were first reported Tuesday by the Wall Street Journal.

Last year, the Senate’s ethics panel determined that Democratic Sens. Christopher J. Dodd of Connecticut and Kent Conrad of North Dakota did not break rules when they received mortgages from Countrywide. However, the panel scolded them for not being more careful to avoid the appearance of sweetheart deals.

Documents provided to another congressional panel under a subpoena show that Countrywide gave preferential mortgages to more than three dozen employees of Fannie Mae while the two big companies were locked in an expanding multibillion-dollar business relationship in subprime mortgages.

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