The Securities and Exchange Commission staff is readying civil fraud charges against Countrywide Financial Corp. co-founder Angelo Mozilo, in what would be the highest-profile government legal action against a chief executive connected to the financial crisis.
The SEC staff sent a so-called Wells notice to Mr. Mozilo several weeks ago alerting him to the potential charges, people familiar with the matter said. Mr. Mozilo’s lawyers could still persuade the SEC’s commissioners that there isn’t sufficient evidence to bring a case.
David Siegel, a lawyer for the 70-year-old Mr. Mozilo, declined to comment on the investigation and said there is no “fair basis” for any allegations against the former Countrywide chief executive.
The charges the SEC is considering include alleged violations of insider-trading laws and alleged failure to disclose material information to shareholders, according to people familiar with the matter.
Mr. Mozilo sold $130 million of Countrywide stock in the first half of 2007 under an executive sales plan, according to securities filings, compared with $60 million in the year-earlier period. He had modified his prearranged plan in late 2006 to accelerate the sales.
Mr. Siegel said the sales were proper. Talk that Mr. Mozilo “was selling Countrywide stock because he was aware of some supposedly ‘secret’ adverse information about the company is scandalous and inconsistent with even a cursory examination of the facts,” the lawyer said.
A Wells notice is a precursor to a civil lawsuit in an SEC investigation. It outlines to an individual or company what charges might be filed and gives a target a chance to respond. If the SEC’s commissioners approve filing a suit against Mr. Mozilo, it could be announced within the next few weeks, said people familiar with the matter. An SEC spokesman declined to comment.
Suits in Four States
Mr. Mozilo has been named in civil suits by attorneys general in four states. In a recent response to such a suit in Florida, Mr. Siegel, the Mozilo attorney, said, “When the true facts are heard, it will be clear that Mr. Mozilo has no personal liability for alleged improper lending practices in the state of Florida or elsewhere.”
Countrywide is also one of many mortgage companies under criminal investigation by federal prosecutors over possible violations during the boom. It isn’t clear whether these probes will produce charges. Criminal investigations require a higher level of proof than civil suits. Criminal investigators are finding a lot of “greed and stupidity” at lenders, but “greed and stupidity are not criminal acts,” said a person familiar with these investigations.
Mr. Mozilo, born in New York’s Bronx borough, the son of a butcher, went to work at 14 as a messenger for a mortgage company. He and a colleague set up shop in 1969 to form Countrywide.
Good to know the ashes of the economy have the firemen watching over the embers.
[Jim was kind enough to leave a JimTV in the cue. Enjoy. -RD]
On second look, the 10% undercut mentioned in this video is harder to discern. We’ll call the ‘upgrades’ credit even, figuring all buyers got something similar.
They have a slightly smaller house (2,976sf) listed for $539,950, which is $30,000 less than the last golf-course-front sale. So it’s not a full 10% discount, but heading downward.
It is amazing how so many people continue to misunderstand the intent, extent and impact of California’s Proposition 13.
• Is $6,000/yr on a modest 2br tract home too low?
• Is it fair to charge tax based on the stupidest person’s in the neighborhood’s price?
• Is it fair to charge tax based on what the government thinks you owe?
• Is it fair to charge based on your pro rata share of what the government wants to spend?
California and Prop 13 is the stuff of legend and many a Doctoral Thesis. Starting at the beginning:
1974-1975 property valuations and property mil rates were spiraling out of control relative to municipal services rendered. So what. BFD. The big bad government was stealing and people were balking. Enter the “democratic” process. So in 1978 the “people” voted their bread and circuses by limiting property taxes to 1% of the 1975 assessed value and -sales- price thereafter.
Using a theoretical example. A house bought bought in 1995 for $250,000. Today’s price, $1m. Yeah, weird. So anyway the effective property tax rate is 1/4 of 1% annually. The sames house provided
outright, at today’s price, property taxes would be $900 per month. The owner cannot relocate to a different but equivalent home because of the tax consequences. Think of it reversed. The owners’ personal travel budget makes it desirable to commute $900 worth (direct costs and my value) rather than move closer to work.
Prop 13 so raised the value of good housing that it also all but requires two earner income families. That means two sub-optimal commutes and child care travel trips. See where the Exurban Nation comes from?
Prop 13 correctly protects people and businesses against arbitrary government distortions of the market. That’s one point of government regulation in the first place isn’t it?
I have no truck with the market aspects nor even the speculative portion of home buying decisions. I just think Prop 13 does a good job of capitating some of the non market risks with no external costs. I’m sure others feel otherwise and I’m only expressing an opinion among many. Perhaps we can go about this in reverse. I’ve got a 4 bed 2.5 bath SFR California ranch. How much should I be paying in taxes? California has 36.6 million people and spends/incurs $116 billion. That’s a whopping $3400 per person. How much of that should come from property taxes? It isn’t easy to answer in part because, for instance, what happens to the property tax that is sent off to Sacramento so that from there lots of money can be transferred from the high performing school districts to the worst school districts. You see in 1978 the same year as Prop 13 it was deemed illegal to spend different amounts locally as previously when California was 4th in the nation for school performance. So now we spend different amounts locally as directed by the State as commanded by the Supremes and are now lowered to the 4th worst in terms of results.
Sorry, I got distracted. Were we talking about investments and government meddling? No! We are talking North San Diego County real estate. As long as Prop 13 continues to protect NSD real estate from fractional confiscation it will continue to be a nice place to live and invest. [At the right price of course.]
While Jim the Realtor is on a well deserved and long overdue break he has foolishly handed the helm over to me. Rob Dawg.
When last we did this it was a different world. Think back to the halcyon days of 2007. A bucolic time when people were still discussing “if” there was a bubble and anyone predicting 10% declines was checked for drug abuse. We certainly have mostly burned off the excesses in normal residential housing. It still remains to see if the high end will join the rest. I’ve loved reading JtR getting an education about San Diego and lots of laughs in the process.
So, today’s question: Are there any more shoes to drop on Southern California? And please, not the old earthquake meme.
This week I’ll be with our daughter Natalie on her 6th grade trip to Astro Camp in Idyllwild. I’ll be back Friday, and in the interim Donna, Richard, and crew will be handling the business as usual.
The last time we went on a real vacation was August, 2007, and during that week the mortgage industry meltdown began – what will happen this week?
And most importantly, who’ll be minding the blog?
I’ll leave you with this short youtube from Encinitas. The first house is an REO listed for $479,900 that has several offers on it, and was marked pending on Friday. The second house is the closed comp, and the third house just listed for $551,000. The video ends abruptly when the memory card runs out, but you’ll get the idea – will house #3 be able to benefit from the other two, price-wise?
The builder of the 14 homes called Emerald Pointe is just hanging on – hoping that some retail buyers might surface that could put a couple of bucks in his pocket.
In 2007 they sold the two prime locations at the end of the culdesac for $1,870,000 and $1,934,500.
In 2008 they sold five others from $1,370,000 to $1,600,000. Half way home!
But we’ve had further deterioration in the market of ‘high-end homes that are close to the busiest one-runway airport in the country’. Sales have stalled on the other five they are trying to unload for $1,200,000 to $1,300,000.
You’ll see in the beginning a couple of old builder tricks:
1. Putting sky-high prices on homes not yet built, to make current inventory look like a deal.
2. Putting sold signs on those not sold, in an attempt to create some urgency.
For the first time since home prices started diving three years ago, the median price for a house in North County showed a meaningful uptick in April, a sign the region’s housing market might be transitioning toward stability.
To be sure, there remain substantial pressures on the market that could push prices down further.
Nonetheless, the increase in the median price – the middle point of all sales – is significant.
In April the median price for a detached house was $390,000, an increase from $364,000 in March but still down 24 percent from $510,000 a year earlier, according to a report released Friday by the North San Diego County Association of Realtors.
At the same time, the report showed two distinctly different markets: the high-end, with few foreclosures and no sales; and the low-end, with lots of foreclosures and booming sales.
For example, the market in Del Mar has 30 months of inventory, a measure of how long it would take to sell all active listings based on last month’s sales rate. That is five times higher than the six months of inventory that is widely considered to describe a normal Southern California market.
On the other hand, western Vista showed two months of inventory.
Further, that same ZIP code in Vista – 92083 – has more homes that are “pending,” meaning the sales are in escrow and could close in May, than active listings for sale, according to numbers provided by Jim Klinge, a real estate agent in Carlsbad.
“That is smoking,” Klinge said. “You could be 10 percent too high on price and sell right now because of this frenzy on the low end.”
Indeed, several real estate agents have reported that there are so many buyers interested in low-priced foreclosures that bidding wars have erupted, with 10 to 20 offers per listing.
At the same time, the median price is a crude metric that does not necessarily translate to overall price increases. It is simply the middle point of all homes that sold in April.
Robert Brown, an economics professor at Cal State San Marcos who compiles the HomeDex report for the Realtors association, said the market is split into three segments: red-hot sales on the low-end; a slight resurgence in homes priced from $400,000 to $600,000; and very few sales in the high end.
Indeed, the median price increase could be the result of more “normal” sellers getting into the market – homeowners who have taken care of their properties commanding a premium over a glut of beat-up foreclosures, said Kurt Kinsey, a real estate agent in Oceanside.
And buyers are looking to stay in the home for longer, meaning they might be willing to pay more, Kinsey said.
“A home is becoming a home again,” he said, speculating that the average homeowner during the last few years moved after two years and that time in a home is going to increase to five years.
HomeDex reported relatively mild sales for North County, increasing 6 percent from a year ago to 723 sales in April – well below the 1,117 houses sold in April 2005.
And even the increasing median price left plenty of room for uncertainty, with some analysts hesitant to declare recovery for the housing market.
“It’s hard to say,” said Brown, the economics professor. “We did have this little bump up, but I don’t expect any major price movement barring something happening.”
For Brown and other analysts, the largest area of concern is a glut of “pre-foreclosures,” representing mortgages in default but not yet seized by the bank.
In March, North County set a new high for this recession in such default notices. April numbers, due out early next week, are expected to be just as large.
And even though areas such as western Vista have just as many homes in the sales process as homes up for sale, those pre-foreclosures loom.
Indeed, despite booming sales in western Vista, for every home sold, two others were in default, according to ForeclosureRadar, a tracking firm in Northern California.
Analysts say banks have slowed the foreclosure process, meaning thousands of homes in foreclosure have not hit the market.
For even more skepticism, Klinge, the Carlsbad real estate agent, said the buying frenzy on low-end properties could be purely seasonal – sales traditionally pick up during the summer.
“My guess is it will settle down again,” Klinge said regarding the emerging bidding wars and 10 to 15 offers per listing. “You’ve got a bunch more foreclosures coming on, so when you get to the last three to four months of this year, you’ll get one to two offers – if you’re lucky.”
ZACH MENTIONED THE GLUT OF PRE-FORECLOSURES
(I’d guess that 25% are in MLS active or pending already)
For those who have sent in requests for more information from this blog’s ‘foreclosures’ button (above right), I apologize for being a little behind – I’ll catch up this weekend!
The Senate voted 91-5 in favor of the Helping Families Save Their Homes Act of 2009 (S896), which includes legal protection for servicers that modify residential mortgages. Five Senate Republicans voted against the housing bill.
The safe harbor protects mortgage servicers from lawsuits by investors holding relevant modified mortgage bonds.
The provision is intended to encourage more servicers to modify more mortgages, but critics say it will hurt private investors whose funds help maintain banks’ liquidity and stimulate lending.
Modifications often involve altering original mortgage terms and forbearing a portion of the principal for lump repayment at the end of the loan life. The reduced principal lowers monthly payments, increasing affordability for borrowers and consequentially reducing the monthly return for investors.
If the mortgage is securitized, then the principal payment coupons, or pass-throughs, will also take a hit. For the long investor, change to term is a bad thing and likely to shake-up an already nervous financial market.
However, the aim of the bill essentially provides legal protection for servicers to alter mortgage contracts and, as the argument goes, investor contracts where mortgages have been securitized.
The bill also changes the borrower certifications under Hope for Homeowners, a program that encourages refinancing into Federal Housing Administration-guaranteed mortgages. The bill’s changes mean borrowers going forward must provide proof they didn’t intentionally default on their mortgage in order to qualify.
The bill provides the Federal Deposit Insurance Corp. with increased borrowing authority, extends the time period for restoration of the insurance fund from five to eight years, provides a temporary extension of the FDIC’s $250,000 deposit insurance limit. Supporters of the bill say these changes will bolster confidence in the FDIC and meet banks’ lending needs.
“During this time of economic uncertainty, bankers recognize the importance of maintaining public confidence in the FDIC,” American Banker Association executive director Floyd Stoner. “We also believe that it is important to strike the right balance between maintaining a strong deposit insurance fund without unnecessarily taking money out of the system.
The Securities and Exchange Commission staff is readying civil fraud charges against Countrywide Financial Corp. co-founder Angelo Mozilo, in what would be the highest-profile government legal action against a chief executive connected to the financial crisis.
