Countrywide Financial Corp., which epitomized the home-loan industry's boom and bust, has agreed to pay $600 million in the largest settlement yet of shareholder lawsuits stemming from the mortgage meltdown.
The agreement, given preliminary approval Monday by U.S. District Judge Mariana Pfaelzer in Los Angeles, would end several class actions brought on behalf of investors in Countrywide stock.
The Calabasas company, once the nation's largest mortgage lender, offered a full range of loans to customers whose credit varied from top flight to subprime. It was near failure when Bank of America Corp. acquired it in 2008. The lawsuits said Countrywide had fraudulently concealed its mounting risks as it and other lenders embraced ever-looser standards during the housing boom.
Countrywide's outside accounting firm, KPMG, which signed off on the lender's financial statements at the height of the boom in 2005 and 2006, has agreed to pay an additional $24 million under the settlement.
By ending the lawsuits, the accord would benefit a number of former Countrywide executives and directors who were named as defendants in the litigation. They would not have to help fund the payments to shareholders. The defendants include longtime Countrywide Chief Executive Angelo Mozilo, former President David Sambol, former Chief Financial Officer Eric Sieracki and ex-board members including former California Treasurer Kathleen Brown, 12-time NBA all-star Oscar P. Robertson and onetime U.S. Housing Secretary Henry G. Cisneros.
The settlement also would clear the liability of a list of financial firms that underwrote the Countrywide stock offerings and were named as defendants.
The defendants admitted no wrongdoing, and they have contested the allegations in the shareholder suit and other legal actions.
"Countrywide denies all allegations of wrongdoing and any liability under the federal securities laws," Bank of America legal spokeswoman Shirley Norton said in a statement. "We agreed to the settlement to avoid the additional expense and uncertainty associated with continued litigation."
Joel Bernstein, attorney for the New York state and city pension funds that were the lead plaintiffs, said the settlement was the result of long mediation by Eric Green, a Boston University law professor, and A. Howard Matz, a federal district judge in Los Angeles.
"It is the largest settlement of any shareholder case to come out of the subprime crisis this far," Bernstein said.
The settlement doesn't cover investments in mortgage-backed securities sold by Countrywide.
Countrywide remains the target of several other lawsuits and investigations, including a Securities and Exchange Commission civil lawsuit accusing Mozilo, Sambol and Sieracki of misleading investors.
The company and Mozilo also are under criminal investigation by the Justice Department and are targets of lawsuits brought on behalf of borrowers by the attorneys general of California and other states.
Bernstein said he couldn't estimate how many individual investors would be affected by the pending settlement. If Judge Pfaelzer gives final approval at a hearing in November, he said, checks could go out within six months to a year.
Word of the settlement follows news Friday that 13 former officers and directors of New Century Financial Corp., the largest publicly traded lender that focused on subprime mortgages, had agreed to pay more than $90 million to settle civil claims stemming from the Irvine company's collapse.
Nearly all those payments would be made by insurers under policies bought to protect New Century's officers and directors, according to court filings.
In addition, KPMG has agreed to pay nearly $45 million to settle claims related to New Century, whose books the accounting firm also audited. And Wall Street firms that underwrote New Century stock would kick in $15 million toward the settlement, bringing the total to more than $150 million.
The New Century agreement, which needs federal court approval, would cover shareholder class actions, a Securities and Exchange Commission lawsuit, a bankruptcy trustee's claim and a suit by a private equity firm.