In Part 1 of this series, I discussed the acquisition of Countrywide by Bank of America, a deal which was announced a few months ago and is to take place later this year. I stated that the value of the servicing portfolio of almost $1.5 trillion was probably the most valuable asset of the company. The lingering questions are what the other assets are worth and what hidden liabilities might yet be uncovered.  You always wonder about when the next shoe is going to drop.

We can now say that another shoe has dropped. A lingering issue has been that of the precipitous decline in the value of Countrywide&39;s stock. It reached a high of $45 per share last year and is now less than $5 per share. Particularly distressing were management&39;s continuing reassuring public statements about the health of the company while they themselves were systematically unloading shares that they owned.

Angelo Mozilo had filed with the SEC a planned liquidation of stock. Indeed, the purpose of these filings is to establish a long-term liquidation plan that is not tied to performance that the executive would know about as an insider. However, Mr. Mozilo kept modifying his plan so as to increase the rate of liquidation of his stock. You&39;d have to have come to town on a turnip truck not to believe that he increased his sales rate due to the mounting evidence of bad news. Ultimately Mr. Mozilo sold $474 million during a period when his fellow shareholders were getting virtually wiped out.

It should come as no surprise that executives would enrich themselves at the expense of shareholders. That is deplorable but not uncommon practice these days. Those of us on the sidelines in the mortgage business certainly believed it was worse than was being admitted.

However, the Countrywide executives are in a state of denial. Only last week a senior executive admitted that some loan officers may have erred "from time to time." There is a great difference between "from time to time" and "all the time" and "we were encouraging them to cheat." What is more depressing is the extent to which executives seem to have not only condoned but encouraged widespread and ongoing disregard of underwriting standards that resulted in billions of dollars of losses and bringing the nation&39;s largest mortgage lender to its knees.

In a suit filed previously by irate shareholders, a Federal judge ruled yesterday that the executives must answer charges. A report in The New York Times on May 15, 2008 quoted the judge as saying, "It defies reason, given the entirety of the allegations, that these committee members could be blind to widespread deviations from the underwriting policies and standards being committed by employees at all levels."

This is not what has been said in the media. Indeed the politically expedient thing to do is to accuse mortgage brokers. Indeed current legislation being discussed in Congress focuses many additional requirements on mortgage brokers. 

Indeed, malfeasance among mortgage brokers occurred in large part because they were being encouraged by the lenders. The lender&39;s sales people were out beating the bushes telling brokers of lax standards. The brokers knew that the lender would approve most packages they submitted regardless of quality.

My belief is that non-broker entities were at least as culpable. Lenders like Countrywide were just as quick to approve bad packages submitted by their own employees as they were loans submitted by brokers.

This demonstration of the lack of ethical conduct at the nation&39;s largest lender should serve to tell both the public and Congress that new regulations need to apply to everyone in the industry, large and small, brokers and lenders alike.

They and borrowers also need to know that there always have been a large number of mortgage brokers whose ethical standards were never compromised, regardless of temptation. Those people are still in business and are still trustworthy advisors to borrowers who seek them out. A good place to start is http://upfrontmortgagebrokers.org