Documents released as part of the $16.65 billion settlement between Bank of America and the Justice Department read like a highlight reel of the mortgage sins that fed the 2008 financial crisis, according to an analysis in today’s New York Times. As part of the deal, the bank and the Justice Department agreed to a “statement of facts” that offers a window into some of the darkest corners of the Countrywide and Merrill mortgage machine that was responsible for funneling a stream of troubled loans that helped devastate the global financial system. The settlement comes as federal prosecutors in Los Angeles are preparing a lawsuit against Mozilo, who built Countrywide into one of the nation’s largest mortgage lenders before Bank of America acquired the company in 2008. According to the statement of facts, Mr. Mozilo sent an email to a Countrywide executive on Aug. 1, 2005, warning about a collapse in some condominium markets in Las Vegas and Florida, which were then swarming with speculators looking for quick profits. “I am becoming increasingly concerned about the environment surrounding the borrowers who are utilizing the pay option loan and the price level of real estate in general but particularly relative to condos,” Mozilo wrote, according to the Justice Department documents. Mozilo said Countrywide should stop holding those loans on its books. Yet for the next two years, according to the documents, Countrywide continued to originate pay option loans — which had interest rates that would reset after a few years — and sell them to Wall Street. The Justice Department documents also show the failings of the government’s efforts to protect itself against insuring defective mortgages.
