FBI probes Countrywide for possible fraud

Federal authorities are looking into whether the troubled home loan servicer used fraudulent lending practices, financial reporting.

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NEW YORK (CNNMoney.com) -- The FBI is looking into fraud allegations against Countrywide Financial Corporation, a U.S. government official told CNN.

The investigation is still in its early stages, another government official familiar to the situation said.

The story was first reported in The Wall Street Journal Saturday.

The probe will examine underwriting and mortgage origination practices, and whether the company misrepresented losses related to subprime loans, the paper said.

Subprime mortgages, or home loans given to borrowers with weak credit, have been at the root of a crisis that has rocked the U.S. economy.

Though the Federal Bureau of Investigation has acknowledged ongoing investigations related to the subprime debacle, neither the FBI nor the Justice Department would comment on the specific targets.

"The FBI has been investigating potential fraud in the mortgage/sub-prime lending industry, however, we can not confirm or deny which companies are under investigation," said FBI spokesman Richard Kolko.

A law enforcement official told CNN that there are currently 16 companies being investigated.

Both Countrywide and Bank of America (BAC, Fortune 500), which agreed in January to acquire Countrywide for $4 billion in stock, did not return calls to CNN.

Calabasas, Calif.-based Countrywide is the nation's largest home lender, responsible for roughly one-fifth of the mortgages in the United States.

When the housing crash began, Countrywide (CFC, Fortune 500) was faced with an increasing number of subprime customers who were delinquent with their mortgage payments. The company was forced to essentially shut down its subprime lending operations last year to focus on originating loans that conform to Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500) guidelines, considered to be safe investments.

On Friday Countrywide's founder and CEO, Angelo Mozilo, testified before the House Committee on Government and Oversight Reform, along with two other CEOs who resigned in the wake of the mortgage crisis - Charles Prince of Citigroup (C, Fortune 500) and Stanley O'Neal of Merrill Lynch (MER, Fortune 500). All three defended their lofty compensation packages, despite the loss of billions to their companies and shareholders.

-- CNN America Bureau Producer Kevin Bohn contributed to this report.  To top of page

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