Countrywide's Final Days

Countrywide (CFC) has suffered a spectacular fall from grace.

Once the largest private mortgage lender in the country, Countrywide has been at the epicenter of the credit crunch since it first began last summer. The firm’s subsequent implosion was swift, culminating in a bailout-style takeover by Bank of America (BAC) late last year.

Shareholders will meet today to vote on that deal. By all accounts, however, the meeting is merely a formality: The merger has the support of the entire board as well as 14.7% owner Legg Mason (LM). Shareholders have little choice but to accept the bid.

Many observers -- myself included -- wrongly predicted the takeover would fall apart before it got this far. Countrywide’s balance sheet is littered with home equity loans and mortgage-backed securities of dubious quality. Its legal department is swamped by investigations and lawsuits. Layoffs, disturbing headlines about rampant fraud and a drop-off in business have decimated the once-proud company.

Not without irony, the Wall Street Journal reported this morning that Illinois would become the first state to formally file charges against Countrywide for its role in the mortgage crisis. The lawsuit alleges the company -- and CEO Angelo Mozilo -- engaged in deceptive lending practices, duping borrowers into taking out mortgages they had no hope of repaying.

Illinois Attorney General Lisa Madigan said the company disregarded borrowers’ inability to repay loans and issued new mortgages with the sole intention of gaining market share and feeding Wall Street’s hungry securitization machine. The state is seeking an injunction to stop all pending foreclosures and is demanding that all loans issued through “unfair and deceptive” practices be modified or canceled outright.

Mozilo, already under investigation for suspiciously timed stock sales, is named personally in the suit. Madigan says the CEO had intimate knowledge of the company's policies and procedures and should be held accountable for his firm's actions.

On a conference call last summer, Mozilo described the mortgage market as a battleship, one it would take years to turn around. Indeed, during much of the boom, Countrywide acted as if it were the ship’s commander: throwing its weight around, bullying competitors with its sheer size and dominating each market in which it played.

Now it’s under attack, besieged on all sides by the homeowners it claimed to serve and the regulators who looked the other way during its years of excess.

The company Mozilo founded with his life savings 40 years ago was once revered as an exemplar of virtuous capitalism. It will now be remembered as the most ruthless of corporate marauders - a case study in unchecked power and a losing battle fought by corporate ethics against the bottom line.