Countrywide Fires Manager, Citing Ethics

Countrywide Financial Corp. said Friday that it fired a mid-level executive at one of its mortgage units after he encouraged loan officers in a memo to downgrade borrowers’ credit ratings in order to steer them into more expensive loans.

The memo was sent via e-mail Oct. 27 by a regional vice president of Full Spectrum Lending, a Countrywide subsidiary that specializes in so-called sub-prime home loans to consumers with credit problems. Lenders typically charge higher fees, or points, for sub-prime loans because they tend to carry higher risk.

Calabasas-based Countrywide, the nation’s largest mortgage lender, said it dismissed the supervisor after his e-mail was brought to the attention of upper management this week.

“We are fortunate that one of our conscientious employees made us aware of inappropriate conduct by one of our managers,” said the company’s chief ethics officer, Richard Wentz. He said Countrywide had “no tolerance” for such actions, adding that “we are committed to responsible lending practices.”

Countrywide declined to identify the manager. But The Times obtained a copy of the e-mail, which was circulated by Shane Pew, regional vice president of Full Spectrum’s Van Nuys office. In the note, he exhorts his team of 85 to fund more non-conventional loans because “we will not make money if we don’t do Subprime PERIOD.”

He goes on to suggest five ways loan agents can steer borrowers, including those with good credit, into the sub-prime category, including listing only one income when there are two wage earners, increasing the amount of the loan and not listing any of a borrower’s assets.

“These are just a few examples we can use,” the memo said. “We have to think outside the box to make this happen.” Efforts to reach Pew on Friday were unsuccessful.

Full Spectrum Lending, based in Pasadena, is the nation’s ninth-largest sub-prime mortgage lender, according to the Mortgage Bankers Assn.

The memo was issued amid a slowdown in the housing market and rising interest rates, which was cutting into loan volume. Pew noted in his memo that the Van Nuys offices signed “only” 56 sub-prime loans out of 167 in October.

That trend was felt industrywide in the third quarter, when the dollar volume of sub-prime mortgages dropped 8.8% from the April-to-June period, the steepest drop since the third quarter of 1999, according to Inside B&C; Lending, a trade publication.

Some employees of the Van Nuys call center, whose job is to find the best rates for customers seeking home loans, said they were troubled by the directive.

“We love what we do,” said one employee. “But we don’t love what they wanted us to do.”

One loan officer was distressed enough to forward the e-mail to Countrywide Chief Executive Angelo Mozilo, one employee told The Times.

It was unclear whether any Full Spectrum employees followed Pew’s directive. A Countrywide spokeswoman said the company was reviewing loans funded since the memo was first circulated.

Kevin Stein of the California Reinvestment Coalition, a nonprofit organization that promotes fair lending, said that although Countrywide should be commended for taking action, he urged a broader review of operations.

“Kudos to them for firing the manager,” Stein said. “I would hope that they would look into other possible problems.”

Stein’s group and other consumer advocacy organizations have been at the forefront of fighting so-called predatory lending practices. They claim the tactics are widespread and end up stripping billions of dollars in equity from homeowners.

The mortgage industry has been successful in forestalling tougher legislation at all levels of government, consumer advocates charge. The city of Los Angeles recently passed an anti-predatory lending ordinance, but it has not yet been enacted. A similar ordinance in Oakland is being challenged by the industry in court.

“Predatory lending is not just a problem for folks with credit problems,” said Jordan Ash of the Assn. of Community Organizations for Reform Now. “Even people with good credit are misled and steered to certain loan products.”

One reason, he said, is that loans with less attractive terms for borrowers often carry higher fees and commissions for loan agents and lenders. “The worse the terms are for the customer, the better the deal” for the loan officer, he said.

Because of their impaired credit, sub-prime borrowers pay higher interest rates on home loans or refinancings. On top of that, they are typically charged more points than those with good credit. One point equals 1% of the loan amount.

In recent weeks, the head of the Federal National Mortgage Assn., known as Fannie Mae, has expressed concern that the practice of loan steering could be widespread. Chief Executive Franklin Raines said that “as many as half of the people getting sub-prime loans could qualify for conventional loans if they were offered.”

Representatives of the industry have asked Raines to meet with them and provide any evidence he may have.