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!Watch News/ By Michael Hudson
How Bank of America Covered Up Fraud by Silencing Whistleblowers
Countrywide made life hardfor an internal investigator, and a court ruled that when BolA took over, she was illegallyftred in retaliation.
In the summer
of 2007, a team of corporate inwstigators
silled through mounds of paper pulled from shred bins at Countrywide Corp. mortgage shops in and around Boston.
reddit the were able inwstigators
1. 12 Most Absurd Laws Used to Stifle
the Occupy Wall St. Movement Around the Country Rania Kha/ek, AlterNet
before they were sliced by the shredder,
to uncover what they belie..ed was elidence that branch employees PROGRESSIVE WIRE Why Romney Slammed Perry So Hard to Occupy Wall Street's $435,000 In Donations Could Last The Winter Protesting Austerity Mows, Unions Shut Down Greece U.S. Immigration Deported 400,000 in 2011 What's a Seasoned CIA Pgent Doing at the NVPD?
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had used scissors,
tape and Wite·Out create fake bank statements, inflated
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Base.: Its Full Extent Revealed for the First Time Nick
property appraisals and other phony paperwork. heaps of paper, for example, that workers had, as a matter they found mock-ups Inside the
rurse, AlterNet and TomDispatch
4. Eliot Spitzer: Why Occupy Wall
Street Ha. Already Won Eliot Spitzer, Slate
that indicated to in..estigators
of routine, literally cut and pasted the address for
different piece of property.
5. 10 Craziest Things Said About
Occupy Wall Street Lynn Parramore, A/terNet
one home onto an appraisal for a completely
Eileen Foster, the company's slippery behalior
new fraud in..estigations decades
chief, had seen a lot
in her two-plus like this.
in the banking business.
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6. How Christian Fundamentalism
Helped Empower the Top 1% to Exploit tho 99% A/terNet of
newr seen anything
"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 e..ery day and do these
7. 5 Reasons the Right Is Terrified
Occupy Wall St. Robert Creamer, Huffington Post
things and think it's okay?"
8. Wall Street's Second Occupation:
The Rise of the NYPO's Homeland Security State Tom Engelhardt, Tomdispatch.com Pathetic
followed. She began to get pushback,
officials who were unhappy with the inwstigation.
9. Andrew Breitbart'.
One executiw, Foster says, sent an email to
LIKE 1MIS ARllCLE 7 dozens
Attem pt to Smear Occupy Wall St. Mark Howard, AlterNet
of workers in the Boston region,
fa~e~rhe~JJ:::s u:u:~~~~. on the
IE-mail address ...
Join our mailing list:
waming them the fraud unit was on the case and not to put anything instant messages them. Another, in their emails or
10. One Month In. Occupy Wall Street
Protesters Appear Poised to Change US Politics Michael Cohen, Comment Is Free
that might be used against
she says, called her and
growied into the phone: "I'm g-<l--ed
sick and tired of these witch hunts.·
Her team was not allowed to interview a senior manager who m.ersaw the
branches. Instead, she says, Countrywide's and then let the manager's Employee Relations Department before it was did
R" •• onlng
SolVing I ntelllgence
boss let the transcript
prOl,;ded to Foster and the fraud unit.
Memory AttentJon Focus
Spallal Problem Fluid
In the end, dozens of employees
were let go and six branches were shut unscathed.
down. But Foster worried some of the worst actors had escaped suspected, she says, that something
wasn't right with Countrywide's
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.
Winner: Best Blogging, Best Podcast
Language Visual Perceptloil
By early 2008, she claims, command
that many in Countrywide's -
chain of outing
were working to cOler up masslve fraud within the company and then firing TAKE ACTION whistleblowers
who tried to
report forgery and other misconduct. People who
A DAILY ONLINE MAGAZINE OFJEWIS~ NEWS,IDEAS, AND CULTURE
spoke up, she says, were "taken out:
By the fall of 2008, she was out of a job too. Countrywide's
Facebook sodal plugin
new owner, Corp., told
Start an Online
Bank of America
her it was firing her for "unprofessional
conduct." Top 10 Best Momenls GOP Debate • Keeping Health Systems Accountable: A Critical Component of the Every Woman, Every Child Campaign RH RealilyCheck It isn't the Reverend Wright Scandal (Yet): Herman Cain's "Liberal" Black Church Problem Chauncey DeVega Grand Canyon State: Grijalva Endorses Wenona's Historic Race Against Tea Party Congressman in Arizona jeffbiggers From the katie hal per
Foster began a three-year other employees Department for exposing reinstate
baltle to clear her name and establish
that she and
had been punished for doing the right thing. Last week, the U.S. had illegally fired her as payback
of Labor ruled that Bank of America fraud and retaliation
H ordered the bank to
her and pay her some $930,000.
Bank of America
and stands behind its decision of her decision to keep fighting.
her. Foster sees the ruling as a vindication
"I don't let people bully me, intimidate News during a series of inte"';ews.
me and coerce me," Foster told iWatch
"And it's just not right that people don't know
/II .... ~ _.
what happened here and how it happened."
This is the story of Eileen Foster's what was once the nation's former Countrywide corruption America fight against the nation's largest bank and
.. . ~ .. .
An Open Leiter to the 2012
Republican Also-Rans karlfrisch The Message and Strategy That Needed by Occupy Wall Street Is
If You Eat, You Better
Occupy Wall Street largest mortgage lender. It is also the story of other
workers who claim they, too, fought against a culture of fraudsters, abused borrowers and helped land Bank of
Amid Crackdown on
that protected in a quagmire
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of legal and financial
records and in inte"';ews executiles
30 former employees fraud. The and other tactics
charge that Countrywide misconduct,
they say, included falsified income documentation into bad mortgages.
Shows Most Americans
that helped steer borrowers
Eighteen of these ex ... mployees, fired for questioning other company
Foster, claim they were demoted personnel executlses
GOP Debate: Romney Cain Given Perry Pass on and
fraud. They say sales managers,
officials used intimidation
and firings to silence whistleblowers.
A former loan-underwriting Countrywide retaliated
manager in northern California,
her after she sent an email to the company's lending practices.
founder and chief executhe, The ex-manager,
Angelo Mozilo, about questionable
wamed Mozilo in March 2007 that "greedy
people" were pressuring ability to pay, according
workers to appro""
loans without regard for
to a lawsuit  in Contra Costa Superior Court.
12 hours, Thompson claimed, Countrywide
reducing her duties and transferring ransacked
began a campaign
of reprisal, minions,
staffers off her team. Corporate and
her desk, broke her computer
printer and personal things.
Things Said About Occupy Wall Street
STORIES UPCOMING ON
BY DIGG'S USERS
I ABOUT DIGG
Soon after, she said, she was fired. Her lawsuit was resohed were not disclosed.
last year. The terms
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of America officials deny Countrywide
of America retaliated against
firing was and ne""r
or others who reported fraud. The bank says Foster's style." It says it takes fraud seriously up the corporate ladder.
based only on her "management
punishes workers who report wrongdoing
When fraud happens,
Bank of America
Rick Simon says, by indi"dual
is almost always a "ctim, Fraud is costly, in""stigating it."
e""n if the fraud is perpetrated in,...t hea"ly
so lenders necessarily
in both pre""nting
uncovers fraud, Simon says, the bank takes "appropriate actions,"
in\Olwd and cooperating with law-enforcement
including firing the employees authorities in criminal
Da"d Siegel, told iWatch
Ne ..... it was "unlikely that Mr. Mozilo
either would ha"" had a direct role with, or would recall, specific griewnces, employment and it would be inappropriate issues in any e""nt." for him to comment
on indi"dual that he e""r or fraudulent
Siegel added that "any implication to any extent misconduct ... is utterly baseless."
would ha"" tolerated acti"ty
much less condoned and underwriting
in loan production
closed.<Joor testimony federal Financial
a year ago, the ex-CEO
defended his company, "probably
telling the made in the
Crisis Inquiry Commission in the integrity
that Countrywide of our society,
more difference in society, history
than any company
Foster says that, in her experience,
Mozilo urged managers
to crack down on
fraud. W he saw an email about a fraudster within the ranks, she says, he would hit "reply all" and type, 'Track the bastard down and fire him."
She says, though, that others within the company it's likely Mozilo ne""r saw Thompson's fraud.
his emails, about
email or many other messages
"My sense is they kept things from Angelo,'
'An old matter'
When Bank of America Countrywide
in January 2008 that it was going to buy thought it was a great rnoie, one market recmered.
at a fire-sale price, some analysts
that would lea"" the bank well positioned
once the home-loan
three years later, defaults on loans originated
and Bank of America's agencies
stock price has plunged as in,...tors claims totaling tens
ha"" pursued mortgage-related
of billions of dollars.
Federal and state officials are pressing
of America and other big players to
settle charges foreclosure.
they used falsified documents
to speed homeowners claim Countrywide
through lied about the
filed on behalf of in\estors
quality of the pools of mortgages boom.
that the lender sold them during the home-loan
Bank of America spokesman
says issues related to Countrywide fraud claims
are old news. Last year a
by state officials as ''water under the bridge,"
noting that the bank settled with dozens of states soon after buying Countrywide.
When federal officials announced dismissed
Foster's ,,;ctory last week, Bank of America
the case as "an old matter dating from 2008."
from Foster and other former employees, position. lhese accounts,
put the bank in an pushed by in\eStors, the
as well as lawsuits
borrowers and gO\emment
about how diligently -
bank has worked to clean up the mess caused the bank has tried to curtail its legal liability
by papering o\er the history of
corruption at its controwrsial acquisition.
In Foster's officials -
case, the Labor Department not former Countrywide
notes [4[that two senior Bank of America made the decision to fire her.
lhe agency says the in\eStigations fraud" that, Foster claimed,
led by Foster found "widespread committed ranks.
went beyond misconduct management
at the branch
le\el and reached into Countrywide's
Foster told the agency that instead of defending the rights of honest employees, Countrywide's company. Relations employee relations unit sheltered fraudsters inside the Employee
to the Labor Department,
''was engaged in the systematic harassing,
coser-up of various types of fraud trying to silence employees who
reported the unde~ying
fraud and misconduct."
In gO\emment other top-down
records and in interviews with iWatch misconduct:
NelMl , Foster describes
big loan producers
used fraud to put up big sales numbers. they frequently • alOided termination. subprime
ff they were caught, she says,
Foster claims Countrywide's the le\el of "suspicious
lending di,,;sion concealed
in tum reduced the number of Financial Crimes
fraud reports Countrywide Enforcement • Network.
gale to the U.S. Treasury's
Foster claims Countrywide
failed to notify in\estors
when it disco\ered assets
fraud or other problems with loans that it had sold as the unde~ying in "mortgage-backed" document securities.
When she created a report designed to
these loans on a regular basis going forward, she says, she was officials and told to stop doing the report.
"shut down" by company In Foster's
lost its way as it became a place where e\eryone dri\en by a whate\er-it-takes
was expected ethos.
to bend to the will of salespeople
she says, was: "The rules don't matter. Regulations
our game and we can play it the way we want."
Bank of America allegations. Foster's
declined to answer detailed questions told iWatch
about Foster's News
Simon, the bank spokesman,
''we are certain" that
claims "were prope~y and fully in\eStigated actions were taken."
And not all former Countrywide
workers say that fraud was condoned
Frank San Pedro, who worked as a manager within the inloeStigations unit from 2004 to 2008, told the Financial hard Crisis Inquiry Commission the company worked
10 root out all the fraud that we could possibly find. We continued to get
better and better at it."
He said most of the fraud was "extemal"
trying to rip
off the lender-
and in-house sales staffers who tried to push through fraudulent away with it."
loans "seldom got
former head of Countrywide's
di,,;sion, Full Spectrum
Lending, says there are thousands company's swift action. honesty.
who can ,""uch for the took
When bad actors were caught,
he says, Countrywide
"I don't care if you're Microsoft companies 'What
or you're the Golf Channel or Dupont or MSNBC: Lumsden told iWatch News.
are going to make some mistakes,"
you hope is that companies
will deal with employees
that do wrong. That's
what we did."
In February 2003, Countrywide's
founder and CEO, Angelo
Mozilo, gave a lecture Dream
hosted by Harvard's Joint Center for Housing Studies titled '111e American of Homeownership: From Cliche to Mission."
Mozilo, the Bronx-born
son of a butcher,
had started Countrywide
with a partner in
1969 and built it into a home-loan the nation's largest home lender.
empire that was now on the verge of becoming
But he saw trouble on the horizon. business people, he complained and other "reputable"
Before his audience
that a "regulatory mortgage
mania" was hurting Overreaching predatory
lending laws, he said, were threatening working low-income
shut the door to homeowners hip for hardIndustry and citizenry needed to work
and minority families.
market, he said.
Mozilo added, that he was against cracking ofwlnerable bonowers.
down on bad apples that
"These lenders," the CEO said, "dese"., guilty, an unforgi,,;ng punishment."
and, when found
Around the time Mozilo was gi,,;ng his speech
back east, one of his employees
was finding what she later claimed to be evidence of serious fraud at Countrywide's Rose,,;lIe, Calif., branch.
forging their names on loan documents, Brunelli, who was a loan processor Countrywide.
to a lawsuit [5[ filed by Michele manager for "ethics
and later a branch operations
In March 2003, Brunelli recalled, she used the company's complaint.
hotline" and lodged what she thought was a confidential
after, Brunelli claimed,
her regional manager yelled at her for calling supervisor called her in and
the hotline. Then, she said, her immediate reprimanded her for making the complaint.
"Not e\eryone's according
hands are clean in this office," the branch manager said,
to Brunelli. "Are you ready for that?"
Brunelli didn't back down. She continued executbes
reporting e,,;dence of fraud to the her concerns, she said,
abo\e her, her lawsuit said. They dismissed outbursts"
saying she was ha,,;ng "emotional witch hunt."
her of being "on a
In court papers, the company
flatly denied her allegations, in 2010.
acting in "bad faith." Her lawsuit was resobed
Two other former Countrywide
Sabrina Arroyo and Linda Court, claimed supen,;sors were directing them
they lost their jobs in 2004 after they complained to forge borrowers' Relations signatures on loan paperwork. the company
After they informed Employee fired them, they claimed.
about the forgeries,
"Corporate told iWatch
came in. We told them the story. We told them e\erything," News. "They said don't worry, whate\er
you say, you're going to be
cO\ered. A month or so later, I was let go."
Arroyo and Court sued Countrywide Countrywide
in state court in Sacramento,
won an order forcing the case into arbitration. against workers
They decided to drop in arbitration, their
their claim because the odds are stacked attomey, William Wright, said.
say they went high up Countrywide's
chain of command unit manager in to a lawsuit  in
raise red flags about fraud. Mark Bonjean, a former operations Arizona, complained to a dillisionaillice president, according
state court in Maricopa
County. Within two hours of sending the VP an email of the state's organized crime and fraud
about what he belie\ed were lliolations statutes, according
the suit said, he was placed on administrati\e to the lawsuit, he was fired.
lea\e. The next day,
claimed she took her complaints
the \ery top. Like Enid Thompson
before her, she said she wrote an email directly She ne\er heard back from
to Mozilo, the CEO, about fraud and retaliation. Mozilo, according
to her lawsuit  in Contra Costa Superior Court. Instead, the to a campaign of harassment by company
suit said, she was subjected executbes
that forced her to lea\e her job.
case was settled out of court, her attomey
A Bank of America allegations
declined to respond to questions
about employees, that took
Bonjean and other former Countrywide "are related to situations and in\estigations acquiring
noting that their claims place at Countrywide
prior to Bank of America
had been slower than many other mortgage loans to borrowers with modest incomes
lenders to fully embrace or weak credit. By deals
2004, though, Countrywide
had become a player in the market for subprime mortgages, including
and many other nontraditional
loans that didn't require much
documentation of borrowers' income and assets.
These loans were part of the plan for meeting his company from a giant to a colossus.
its CEO's audacious
goal of growing
Mozilo had wwed that his company market to 30 percent by 2008.
would double its share of the home-loan
Some former Countrywide
say the pressure to push through more and
more loans encouragea an anytnlng-goes atutuoe. wuestiOnaDle unoerwnunq practices often helped risky loans sail through the lender's loan-approval process, they say. In one example, Countrywide applU\ed a loan for a borrower whose application listed him as a dairy foreman eaming $126,000 a year, according to a legal claim later filed by Mortgage Guaranty Insurance Co., a mortgage insurer. Hturned out that the borrower actually milked cows at the dairy and earned $13,200 a year, the lawsuit alleged. The borrower prolAded the correct information, but the lender booked the loan based on data that inflated his wages by more than 800 percent, the legal claim said. In another instance, according to a former manager cited as a "confidential witness' in shareholders' litigation against the company, employees appeared to be im.,l""d in a "loan flipping" scheme, persuading borrowers to refinance again and again, gi",;ng them little new money, but piling on more fees and ratcheting up their debt. The witness recalled that when the scheme was pointed out to Lumsden, Countrywide's subprime loan chief, the response from Lumsden was "short and sweet": "Fund the loans." Such episodes weren't uncommon, the witness said. In early 2004, he claimed, he discovered that Nick Markopoulos, a high-producing loan officer in Massachusetts, had cut and pasted information from the Internet to create a fake ""rification of employment for a loan applicant. Markopoulos left the company of his own accord, the witness said, but he was soon rehired as a branch manager. The witness said he contacted a regional ",;ce president to object to rehiring an employee with a history of fraud. But he said the regional VP Markopoulos's high productilAty o""rruled his objections. citing
Markopoulos couldn't be reached for a response. Lumsden says he doesn't recall any incident im.,I"';ng "loan flipping" allegations.
Eileen Foster knew little about Countrywide's fraud problems when she took a job with the company in September 2005. For Foster, the mo"" seemed like a natural progression. She'd accumulated 21 years' experience in the banking business, starting out as a teller at Great Western Bank and working her way up to ",;ce president for fraud pre""ntion and in".,.tigation at First Bank Inc. Countrywide brought her on as a first lAce president and put her in charge of a high-priority project: An o""rhaul of how the company handled customer complaints. The company's systems for handling complaints, Foster recalls, were disjointed and ineffecti"". Various dilAsions had differing policies and there wasn't much effort to ensure that complaints got addressed. Things had gotten so bad, she says, federal banking regulators ordered the company to do something about the problem. Foster's task was to standardize the company's procedures and ensure that people with complaints didn't get brushed off. As she set about fixing the problems, she says, she encountered things that ga"" her pause.
fraud imestigation it receiled.
unit, Foster says, refused to share the stats, she
data about the complaints says, she hit a brick wall.
Each time she requested
Foster says she also ran into a hitch when she began distributing report that broke down complaint di\1sions. data for each of the companies'
a monthly operating
Home Loans SeNcing, of complaints
month, was the subject issues.
about its foreclosure
The \Olume of serious
in\OhAng the seNcing
unit topped 1,000
per month, dwarfing the number for other diloisions.
This upset officials with the seNcing "real complaints," the seNcing
unit, Foster recalls. The complaints
execs argued, and Foster was making the unit
look bad by including them in her reports.
Foster was ordered, she says, not to include many of the complaints unit in her reports. She thought it was odd, she says, but she of a larger pattem. She figured it was mostly an
about the seNcing
didn't think it was e"dence
exercise in backside-cmering. cover this up, ...
'When we lost at the meeting,
I was like, 'OK, they want to just
Foster says. "But it wasn't anything great harm."
to the scale that I thought it would cause
Only later -
after she took owr the mortgage fraud inwstigation
did she and that
realize, she says, that cover ups were part of the culture of Countrywide, efforts to paper owr problems to do with hiding something had less to do with bureaucratic
infighting and more
darker within the company's
I came to find out," she says, "was that it was all by design."
State law enforcers would later charge that Countrywide fraud into the lender's systems mortgage as a way of boosting
designed During the
boom, critics say, Countrywide
and other lenders didn't worry about the they often sold the loans to Wall made their first
quality of the loans they were making because Street banks and inwstors.
So long as bonowers
the in\9Stors were usually the ones who took the hit if homeowners up with payments.
general later claimed,
nothing more than the means for producing
more loans," manipulating
signing up for loans with little regard for whether they could afford them.
driw to boost loan production
encouraged of bonowers'
fraud, for example, finances,
loans that required little or no documentation a lawsuit by the Illinois attomey estimated that bonowers'
general. One former employee, were exaggerated
the suit said,
on 90 percent of the
loans sold out of his branch in Chicago.
One way that Countrywide independent mortgage
booked loans was by paying generous
brokers who steered customers
its way. Countrywide
so little scrutiny couldn't
to these deals that bonowers
often ended up in loans that they
pay, the state of Illinois' suit said.
In Chicago, the suit said, Countrywide's broker controlled by a file-time convicted
partners included a mortgage Inc.'s
felon. One Source Mortgage
UWI It:ll , vlli::Illt:lti
lUI vvt:I!tllJUllti I;lltllijt:lti
the suit said.
One Source recei ....d as much as $100,000
per month in fees from Countrywide, in
banking as much as $11,000 for each loan it steered to the lender. Mangold, tum, showered a Countrywide branch manager and other employees the suit said. with
expensi .... gifts, including flowers and Coach handbags,
in tum funded a stream 01 loans arranged by One Source, the suit
said, e....n as the broker misled borrowers about how much they'd be paying on their loans and falsified information on their loan applications. One borrower
provided pay stubs and tax retums showing
he eamed no more than $48,000 per to the suit.
year, but One Source listed his income as twice that much, according
be reached for comment. allegations
His attorney said in 2007 that against him.
Mangold denied all 01 the state's
suit said, kept up its partnership
with One Source for
more than three years. It didn't end the relationship Source for fraud and slapped Countrywide relating to the broker.
until the state sued One seeking documents
with a subpoena
trouble keeping up, according
to Larry Forwood, who worked as a Califomia-based in 2005 and 2006, before Foster took owr the totaled as many as 100 cases at a time, many
fraud in..... tigator for Countrywide fraud unit. His personal caseload
01 them im,olving dozens or hundreds of loans each.
Some cases inwl ....d mortgage estate appraisers use" list of crooked
brokers or in-house staffers who pressured maintained
to inflate property values. The company appraisers who'd been caught falsifying
a "do not
home values, but the anyway, Forwood
sales force often ignored the list and used these appraisers says.
unit did ha .... some successes
tenure. It shut down a branch in the Chicago area, he said, after a rash 01 quickdefaulting and loans sparked a review that uncowred elAdence 01 bogus appraisals
forged signatures rationalize
on loan paperwork.
Forwood says, tried to
the fraud, telling in....stigators:
What was the big deal iI, say,
fi.... out of
e....ry 30 loans was fraudulent?
When the unit shut down a branch in southem evidence of fraud, Forwood recalls,
Califomia after unco ....ring similar ~ came all the way
it got some pushback.
from the top, he says, lAa a phone call to the fraud unit from Mozilo.
"He got ....ry upset:
Forwood says. "He basically
got on the phone and said:
'Next time you need to do that, clear it with me.'"
attorney didn't respond to questions
News about Forwood's
of Eileen Foster's story, go to lWatch News and iIU:lustry tanks.fraud continues at Countrywide
Michael Hudson, for Public Integrity organization.
WaH Street Journal reporter,
is a staffwriter
at the Center
a nonprofit journalist
He is the author of ""(2010, Times Books) I r ..... -,
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