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Governance, Risk Management, and Compliance: It Can't Happen to Us—Avoiding Corporate Disaster While Driving Success by Richard M. Steinberg

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Countrywide Financial Corporation

Circumstances at this huge mortgage generator reportedly were similar to those at WaMu, so there's no need to repeat the details here. But it is worth focusing on what came out of the SEC's investigations.

To refresh memories, Countrywide's chief executive and two other senior officers were charged by the SEC with hiding risk information from investors, as well as improper sales of the company's stock. The SEC said CEO Angelo Mozilo was touting the company's loan portfolio while in private e-mails he was calling its products “toxic” and saying he “personally observed a serious lack of compliance within our origination system as it relates to documentation and generally a deterioration in the quality of loans originated.” He also said internally that the company's subprime second mortgage product line was “poison,” and later wrote about holding pay-option adjustable rate mortgages on the company's balance sheet: “The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales.”

A couple of things are especially interesting. First is that while Mozilo as CEO expressed concerns, he wasn't willing or able to turn the direction of the company in time to avoid having to be taken over in a forced fire sale. Second, you'll remember that Jerome Kerviel of Soc Gen was motivated at least in part by his feelings about his background—he reportedly felt he didn't ...

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