Countrywide exec often warned about mortgage risks

By Steve Eder

NEW YORK (Reuters) - John P. McMurray made it clear to his Countrywide Financial Corp bosses that they were playing a dangerous game with risk. But they didn't listen.

Even so, he is being called a hero.

Warnings from McMurray are cited often in a lawsuit filed by the U.S. Securities and Exchange Commission against Countrywide's co-founder Angelo Mozilo and two lieutenants.

McMurray was chief risk officer of the lender that became a symbol of some of the worst excesses of the subprime mortgage crisis.

Mozilo, now the most prominent defendant in investigations into the U.S. housing bust and subsequent financial crisis, was charged on Thursday with securities fraud and insider trading as he made profits of more than $139 million from share sales in 2006 and 2007. Countrywide's former president David Sambol and former chief financial officer Eric Sieracki were also charged with fraud.

McMurray, who is mentioned 31 times in the complaint filed by the SEC, comes across as an internal watchdog who raised concerns that were ignored by company officers.

It is a story that may have some echoes of the role played by internal whistleblowers in other corporate scandals like Enron and WorldCom, where executives were warned about financial problems but the messengers were shunned or ignored.

"He is the classic whistleblower," said Stephen Kohn, president of the Washington, D.C.-based National Whistleblowers Center, who reviewed the 53-page complaint.

"He reported significant issues that would impact investors, the public, and apparently the company did not listen to him, which really caused tremendous harm."

EMAILS TELL THE STORY

Frequently cited in the lawsuit are emails from McMurray warning Mozilo, Sambol and Sieracki about the rapidly increasing risk of the loan portfolio at Countrywide, which by September 2006 estimated it had almost 16 percent of the U.S. home loan market.

He entreated them to follow the company's risk procedures.

McMurray left Countrywide in August 2007, a month after the company's surprise disclosure that it had drawn down an $11.5 billion credit line because it had trouble selling short-term debt. On August 31, 2007, Washington Mutual announced it had hired McMurray as chief credit officer, and within a week, Countrywide announced his replacement.

It wasn't immediately clear under what circumstances McMurray left Countrywide.

At WaMu, he was promoted in April, 2008 to chief enterprise risk officer. He is no longer with the company, whose banking units were acquired by JPMorgan Chase & Co after it failed and was seized by federal authorities last September.