New Century

Countrywide on the hot seat

Tue, 13 May 2008 06:59:59 -0400

Countrywide has no choice but to promise to do better. As the people increasingly question the wisdom of Bank of America's plans to purchase it, it faces criticism in other areas that get to internal control issues. At a congressional hearing, the mortgage giant said it will hire an independent auditor to review its treatment of loans whose borrowers have filed for bankruptcy and review claims of borrower abuse. It also will adopt a series of "best practices" issued by a national group of bankruptcy trustees. An interesting question: Is this a Sarbanes-Oxley issue? On one hand, the issue of abusive fees feeds revenue, which might bring it in-scope. You have to wonder how the auditor's assessed the issue. KPMG is its. As you recall, it took its lumps over the New Century implosion.

For more:
- here's some background from Dow Jones via CNNmoney.com

The mortgage mess and KPMG

Tue, 15 Apr 2008 06:59:59 -0400

We've noted that a damning report by an independent Justice Department had little good to say about KPMG's roles in the meltdown of New Century, which in many ways ignited the mortgage meltdown. But it is important to note that nowhere does the report indicate that KPMG helped manipulate earnings. Nor was was it accused of fraud. So what did it do? One issue, as the New York Times notes, is whether you can really fault the firm for work based on information available at the time. KPMG did flag some issues, like the use of simple spreadsheets to calculate securities holdings and the lack of a policy to calculate reserves. But these were deemed inconsequential. Some executives and directors were growing very uncomfortable. Still, this is another demerit for KPMG, if only from a PR perspective.

For more:
- here's the New York Times article

KPMG liable for mortgage lender implosion

Tue, 01 Apr 2008 07:59:59 -0400

Once again, we can ask: Wasn't Sarbanes-Oxley supposed to prevent this? Mortgage fraud has been front-page news. A 581-page report by a bankruptcy court examiner has found that New Century--a subprime leader--did a lot of shady stuff. The bombshell is that the report found that auditor KPMG enabled these practices, and thus should be held accountable. The New York Times raises the spectre of Enron and Arthur Andersen. KPMG denies the allegations. There is a big inside story here. Apparently, there were some emails from the KPMG partner suggesting the client was really playing hardball. But at some point, the auditor has to stand up. We'll likely hear more soon.

For more:
- here's the New York Times article
- more on auditors caving in

Related Articles:
Analysis slams Bear Stearns' subprime activity. Article
Some hedge funds hit by subprime meltdown. Article