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Economic Recovery on Edge

In the summer of 2007, a team of corporate investigators sifted through mounds of paper pulled from shred bins at Countrywide Financial Corp. mortgage shops in and around Boston.

By intercepting the documents before they were sliced by the shredder, the investigators were able to uncover what they believed was evidence that branch employees had used scissors, tape, and Wite-Out to create fake bank statements, inflated property appraisals and other phony paperwork. Inside the heaps of paper, for example, they found mock-ups that indicated to investigators that workers had, as a matter of routine, literally cut and pasted the address for one home onto an appraisal for a completely different piece of property.

Eileen Foster, the company’s new fraud investigations chief, had seen a lot of slippery behavior in her two-plus decades in the banking business. But she’d never seen anything like this.

“You’re looking at it and you’re going, Oh my God, how did it get to this point?” Foster recalls. “How do you get people to go to work every day and do these things and think it’s okay?”

More surprises followed. She began to get pushback, she claims, from company officials who were unhappy with the investigation.

One executive, Foster says, sent an email to dozens of workers in the Boston region, warning them the fraud unit was on the case and not to put anything in their emails or instant messages that might be used against them. Another, she says, called her and growled into the phone: “I’m g--d---ed sick and tired of these witch hunts.”

Her team was not allowed to interview a senior manager who oversaw the branches. Instead, she says, Countrywide’s Employee Relations Department did the interview and then let the manager’s boss vet the transcript before it was provided to Foster and the fraud unit.

In the end, dozens of employees were let go and six branches were shut down. But Foster worried some of the worst actors had escaped unscathed. She suspected, she says, that something wasn’t right with Countrywide’s culture—and that it was going to be rough going for her as she and her team dug into the methods used by Countrywide’s sales machine.

California withdraws from negotiations on mortgage crisis

Those of you who have been following the negotiations between the big banks and the Attorneys General of the 50 states with regard to the mortgage crisis, know that the Justice Department has actually been a detriment to settlement talks, trying to bully the Attorneys General into accepting a settlement that is favorable to the banks and their investors but leaves very little relief for actual homeowners. Mr. Harte said an agreement that covered only foreclosure missteps, like robo-signing, would be unlikely to generate the amount of money that federal and state officials had been seeking for homeowner aid because the banks want to hold onto some of those funds to settle claims about their mortgage securities with fat cat wall streeters as well as future losses on mortgages they own.

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