Bank of America Completes $4 Billion Acquisition of Countrywide Financial After Predatory Lending and Fraud Schemes Targeting Minorities Caused $50 Billion in Losses, with CEO Angelo Mozilo Paying Only $67.5 Million SEC Settlement and Facing Zero Criminal Charges

Bank of America completed its acquisition of Countrywide Financial on July 1, 2008, purchasing the nation’s largest mortgage lender for approximately $4 billion in a Federal Reserve-approved transaction that would ultimately cost Bank of America and its shareholders at least $50 billion in legal settlements, mortgage repurchases, and related expenses. Countrywide, under CEO Angelo Mozilo’s leadership, had grown from its founding in 1969 to become the largest originator of single-family mortgages in the United States by 1992, and by 2006 was ranked 122 on the Fortune 500 list. The company’s dominance was built on a systematic race to the bottom in lending standards, where Mozilo’s quest to control the mortgage market led Countrywide to repeatedly relax borrowing requirements, lending to people with weak credit scores and sometimes no documented income or employment. The acquisition allowed Mozilo and President David Sambol to exit Countrywide before the full scale of its fraudulent lending practices became public, while Bank of America acquired what would become one of the worst corporate deals in American banking history.

Countrywide’s predatory lending practices systematically targeted vulnerable borrowers, particularly African-American and Hispanic families, through deceptive loan products and discriminatory pricing. The company lured borrowers with low “teaser” adjustable-rate loans often starting at just 1% interest, while loan officers deliberately obscured critical downsides including rapidly rising rates after teaser periods expired, substantial prepayment penalties, and negative amortization features that caused loan balances to increase even as borrowers made payments. Internal company practices documented that Countrywide charged higher fees and rates to minority borrowers even when they qualified for better terms, leading to a $335 million Department of Justice residential fair-lending settlement for systematic discrimination against African-American and Hispanic borrowers. State attorneys general investigations revealed that Countrywide originated approximately $1.4 trillion in mortgages between 2005 and 2007, with a substantial portion involving predatory features, fraudulent income documentation, or discriminatory terms. The systematic nature of these practices demonstrated that Countrywide’s business model depended on fraud and exploitation rather than legitimate mortgage lending.

In October 2010, Angelo Mozilo settled Securities and Exchange Commission charges for $67.5 million, which the SEC hailed as “the largest penalty ever against a senior executive of a public company.” However, the settlement structure revealed the impunity afforded to financial executives: Bank of America paid $45 million of the total, meaning Mozilo personally paid only $22.5 million despite accumulating hundreds of millions in compensation while running what CNN described as a “doomed mortgage machine.” The SEC accused Mozilo of securities fraud for misleading investors about Countrywide’s deteriorating loan quality and of insider trading for selling $140 million worth of Countrywide stock after he knew the company was doomed but before public disclosure. Internal emails showed Mozilo was aware that Countrywide was originating “toxic” and “poison” loans as early as 2006, yet he continued publicly promoting the company’s financial health while systematically selling his personal stock holdings. Despite this evidence of fraud and insider trading, Mozilo faced no criminal prosecution, was not barred from serving as an officer or director of public companies, and retained the vast majority of his crisis-era compensation.

The absence of criminal prosecution for Mozilo became emblematic of the Justice Department’s failure to hold financial crisis perpetrators accountable. Despite overwhelming evidence of securities fraud, insider trading, and systematic predatory lending that violated fair housing laws, the Department of Justice never filed criminal charges against Mozilo or any other senior Countrywide executive. The decision not to prosecute occurred during the Obama administration, when Attorney General Eric Holder and Criminal Division Chief Lanny Breuer—both of whom came from white-collar defense firm Covington & Burling and would return there after government service—implemented what critics called a “too big to jail” policy for financial executives. Breuer publicly stated that the Justice Department considered “collateral consequences” including effects on companies, industries, and markets when deciding whether to prosecute financial institutions or their executives, creating a framework where executives running systemically important firms enjoyed de facto immunity from criminal prosecution regardless of fraud severity.

Countrywide’s state-level settlements further demonstrated the scale of harm and inadequacy of accountability measures. In October 2008, Countrywide agreed to provide $8.4 billion in loan modifications affecting approximately 400,000 borrowers nationwide to settle lawsuits brought by state attorneys general over predatory lending practices. In 2016, California Attorney General Kamala Harris announced a $6.5 million settlement with Mozilo and Sambol over predatory lending claims, with funds establishing a statewide California Foreclosure Crisis Relief Fund. These settlements, while providing some relief to victims, represented a tiny fraction of the estimated $50 billion in total losses that Countrywide’s fraudulent practices imposed on Bank of America shareholders, homeowners, and the broader economy. The gap between harm caused and accountability imposed revealed how corporate and executive liability structures allowed individuals to profit enormously from fraud while facing only modest civil penalties paid primarily by corporations and shareholders rather than the executives who designed and implemented fraudulent schemes.

The Countrywide scandal exposed systematic regulatory failures and agency capture that enabled predatory lending on a massive scale. Despite numerous red flags about Countrywide’s lending practices dating back to the early 2000s, federal banking regulators including the Office of Thrift Supervision (Countrywide’s primary regulator), the Federal Reserve, and the Office of the Comptroller of the Currency failed to take enforcement action to stop predatory lending practices before they metastasized into a national crisis. The regulatory failures occurred because agencies were captured by industry interests, relied on industry-friendly examination standards that treated loan volume growth as evidence of success rather than potential fraud, and maintained cozy relationships with executives like Mozilo who wielded enormous political influence through campaign contributions and lobbying. The regulatory collapse meant that Countrywide could originate over $1 trillion in often-fraudulent mortgages over several years while regulators with statutory authority to stop these practices took no meaningful enforcement action.

Angelo Mozilo became a symbol of financial crisis impunity and the failure of accountability systems to punish fraud-driven wealth extraction. CNN named him one of the “Ten Most Wanted: Culprits” of the 2008 financial collapse, and the Academy Award-winning documentary “Inside Job” prominently featured Countrywide’s role in the crisis. Yet Mozilo lived comfortably in retirement in California until his death on July 16, 2023, at age 84, having never spent a day in jail, never faced criminal charges, and having retained hundreds of millions in wealth accumulated through fraudulent lending practices. The contrast between Mozilo’s comfortable retirement and the hundreds of thousands of families who lost homes due to Countrywide’s predatory lending illustrated the two-tier justice system where financial executives face civil settlements while lower-income Americans who commit far less harmful fraud face criminal prosecution and imprisonment.

The Bank of America acquisition of Countrywide, approved by the Federal Reserve despite knowledge of Countrywide’s fraudulent practices, demonstrated regulatory prioritization of industry consolidation over accountability or consumer protection. By approving the acquisition, federal regulators ensured that Countrywide’s executives could exit with their wealth intact, that no comprehensive criminal investigation would examine the full scope of fraud, and that victims’ primary recourse would be civil settlements with a corporation rather than criminal prosecution of individual executives. The $50 billion in losses that Bank of America ultimately absorbed were borne by Bank of America shareholders rather than the Countrywide executives who designed and implemented predatory lending schemes. The structure revealed how modern corporate liability shields allow executives to extract enormous wealth through fraud, exit before consequences materialize, and leave shareholders and customers to bear losses—a pattern that would repeat throughout the financial crisis and in subsequent decades of corporate fraud and impunity.