Beleaguered Countrywide Financial Corporation, which was acquired by Bank of America Corporation (BAC), has been accused of influencing key members of the Congress to earn favors by providing them with discounted loans. Following an intensive investigation, House of Representatives’ Oversight and Government Reform Committee concluded this in a report.

The report noted that Countrywide employed ‘VIP program’ to build good rapport with lawmakers and other prominent figures including government officials, who held important positions and could influence proceedings in favor of the company for a considerable period, the company carried on its foul lending scheme. Consequently, it was able to influence several legislations in its favor.

The Favors

For a VIP loan, of the interest rate was decreased and junk fees ranging as much as $350 to $400 were relinquished. Moreover, Countrywide launched several lobbyists in the House of Representatives to refrain the committee from passing a legislation pertaining to new sub-prime lending rules, which would have been detrimental for the company. Even the legislation passed to initiate reform measures at Fannie Mae and Freddie Mac were influenced by Countrywide’s lobbyists.

Countrywide went to the extent of building up a separate division, fully supported by its lobbyists. The public interest was completely ignored and legislations were designed according to the whims of Countrywide.

The Charges

The U. S Department of Justice has not prosecuted any personnel of the defunct Countrywide so far, but the House of Representatives’ report has accused that the company’s CEO and his lobbyist team have been constantly trying to meet their ends through wrongful means.

In 2010, Securities Exchange Commission had charged Countrywide CEO along with two other employees a penalty of $22.5 million for providing misleading statements to investors during the sub-prime crisis. Further, another penalty of $45 million was charged in lieu of settlement of total claims by investors.

BofA acquired Countrywide in 2008. The finance experts have considered the deal as disastrous. The acquisition has already cost $40 million to BofA, stemming from real-estate-related balance-sheet write-offs, funds set aside for mortgage-backed securities claims, and litigation costs relating to the Countrywide acquisition. The experts anticipate these costs to rise in the future.

Conclusion

The sub prime mortgage crisis had severe ramification on the economy. The economy has not yet been fully recovered from the effects of the crisis. In such scenario, self-indulgent acts by companies like Countrywide display lack of corporate responsibility. The investors’ needs are completely overlooked and by rigging Federal Statutes, the public interest is totally undermined.

As for BofA, the already escalating costs arising from the Countrywide purchase are enough to put off the investors. Moreover, the taxpayers’ money goes out in funding bailouts for these banks.

Currently, BofA retains its Zacks #3 Rank, which translates into a short-term Hold rating. One of its peers, JPMorgan Chase & Co.’s (JPM) retains a Zacks #4 Rank, which translates into a short-term Sell rating.

Read the Full Research Report on JPM

Read the Full Research Report on BAC

Zacks Investment Research

More From Zacks.com

• Read the analyst report on JPM,BAC