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Mortgage Executive Who Took Rap for Crisis Prepares Her Appeal

Rebecca Mairone scarcely deserves a mention in the annals of finance, except for this: She's the only executive of a major U.S. mortgage lender found liable for her part in the 2008 financial crisis.

Mairone was chief operating officer for a division of Countrywide Financial Corp., the California giant that came to symbolize the excesses of the subprime era. While top executives there and elsewhere walked away, Mairone, now 48, was targeted by federal prosecutors. In October 2013, a Manhattan jury found her liable for misrepresenting the quality of mortgages her company sold to Fannie Mae and Freddie Mac. U.S. District Judge Jed Rakoff called her testimony "implausible" and slapped her with a $1 million fine. Bloggers said she helped destroy the U.S. economy and should be jailed or worse.

Two years later, Mairone is heading back to court in an attempt to overturn that ruling and restore her reputation. As she has all along, she maintains she did nothing wrong. Years after the housing bust, her case reminds Americans yet again that not a single senior executive has been held accountable for a mortgage meltdown that cost millions of people their homes, livelihoods and savings.

"She's not uniquely responsible," said Brad Miller, a Democratic congressman from North Carolina from 2003 to 2013 who served on the House Financial Services Committee. "But the question isn't whether there should've been a claim brought against Rebecca Mairone. It's why weren't a lot more brought?"

While jurors pinned liability on Mairone and her employer, Countrywide acquirer Bank of America Corp., they, too, questioned why she was the only individual named in U.S. Attorney Preet Bharara's complaint. Angelo Mozilo, Countrywide's chief executive officer, settled out of court despite billions in mortgage-related losses. And Mairone's supervisor, subprime-mortgage unit CEO Greg Lumsden, wasn't sued. Mozilo didn't respond to requests for comment.

"Rebecca was part of a group of midlevel and senior managers that made every decision together," Lumsden said in an interview. "There'd be no value created for anyone there to do anything that wasn’t ethical or right."

The government had "every incentive" to pursue cases related to the financial crisis it believed it could win, David Siegel, an attorney for Mozilo and a partner with Irell & Manella in Los Angeles, said in an email. "One reason additional cases were not brought undoubtedly was that the government apparently determined there was not sufficient evidence of wrongdoing."

From September 2008 through January 2015, 5.5 million U.S. homes were lost to foreclosure, according to data provider CoreLogic Inc.

Mairone lives outside Philadelphia now, a continent away from Countrywide's old headquarters, and uses her maiden name, Steele. She does consulting work and devotes herself to charity when she’s not meeting with clients, according to people with direct knowledge of her circumstances.

In her spare time she reads her appeal, and rereads it, again and again.

"Rebecca never intended to defraud anyone and she didn't defraud anyone," said Marc Mukasey, one of Mairone's lawyers, who said the government misapplied the law. "The Court of Appeals will see that." Bank of America, which acquired Countrywide in 2008, is also appealing.

Chemical Engineer

Mairone's path to notoriety is paved with irony. Her background is chemical engineering. She twice turned down the Countrywide job. Her loss in court was set in motion by a whistle-blower who the jurors said held a grudge against her.

The following account was pieced together from court documents, testimony and interviews with people who had direct knowledge of the circumstances.

Mairone was working for Teknion Corp., a Mount Laurel, N.J.-based cubicle manufacturer in 1998 when the company asked her to travel more than she wanted. So she took a job at Cendant Mortgage, where she worked on making the sales process more efficient.

"I really learned sort of the nuts and bolts of the mortgage company there," Mairone said in court testimony.

In 2000, she went to Advanta Corp. and then moved to JPMorgan Chase & Co. when the Wall Street lender bought the company's home-loan business the next year. She worked to streamline the bank’s mortgage call centers.

Countrywide started recruiting her in 2005.

Countrywide, one of the biggest mortgage companies in the U.S. at the time, wanted Mairone to help modernize its lending. They sent her a ticket to visit corporate headquarters in Calabasas, Calif., during a frosty winter in New Jersey, where Mairone lived with her family. Countrywide executives were bronzed from playing golf under the California sun. Soon Mairone would be, too.

She headed west to Pasadena, where she moved her family into a multimillion-dollar home with Mediterranean landscaping.

Archaic Systems

Lumsden, the subprime-unit CEO, put her and a group of other executives in charge of creating a faster production line for prime mortgages, given to borrowers with high credit scores.

"Our systems were pretty archaic," Audrey Hester, a former Countrywide assistant vice president, said in an interview. "She would come in and ask: 'How labor intensive is this form? How extensive is it to fill out? What purpose does it serve? Is it something that we can exclude?'"

In 2007, a nine-member committee that included Lumsden, Mairone and head of underwriting Edward O'Donnell put together a list of governing principles for employees to follow: loans move forward, never backward; minimize hand-offs; get the paperwork right.

The program became known as the High Speed Swim Lane, or HSSL — later nicknamed The Hustle. Computer software, instead of humans, evaluated whether the loans would be funded. Borrowers had to meet requirements set by Fannie Mae and Freddie Mac, the government-backed companies planning to buy the loans to bundle into bonds for sale to investors.

Subprime delinquencies were starting their acceleration to historic highs, so Countrywide decided to scale back on lending to those less reliable borrowers. Mairone led a shift of the subprime division and its 8,000 employees to focus more on prime borrowers. The Hustle was the new model.

Mairone needed someone to help run the operation who’d report directly to her. There were two internal candidates: O'Donnell, head of underwriting, and Wade Comeaux, an executive vice president with a background in sales. Comeaux got the gig.

Loan Quality

Mortgage employees had a new sequence of steps to follow. Missing a step triggered an error message. When some employees questioned the quality of the loans, managers including Mairone assured them that many of the errors were clerical and not evidence of questionable underwriting.

O'Donnell disagreed. He chafed because Mairone's system relied on technology, reducing the role of human underwriters. He complained that mortgage quality was deteriorating and executives including Mairone weren't doing enough about it. In an email to one of his employees, he said that Mairone has "got rubber bullets in her gun and we are going nuclear." O'Donnell declined to comment for this story.

Comeaux, Mairone's No. 2, grew concerned about O’Donnell's growing discontent.

"You have seen what he is capable of when he wants something, and he was telling everyone he was after your job," Comeaux wrote in an email. Comeaux declined to comment for this story.

Files Lawsuit

Five years later, O'Donnell filed a whistle-blower lawsuit under the False Claims Act against Countrywide and Bank of America. The suit claims his former employer was engaged in a scheme to defraud Freddie Mac and Fannie Mae, where he was then working, by selling the companies bad mortgages made through The Hustle. The U.S. government joined the case and added Mairone as the only individual defendant.

"Suddenly it's Rebecca’s fault?" Cheri Shine, a Countrywide employee for 17 years, said in an interview. "I think she was a scapegoat."

Mairone first learned about the lawsuit from news coverage, in between meetings at JPMorgan, where she was again working in the mortgage unit.

On the day of the verdict she sat in the courtroom across the aisle from O'Donnell, waiting while the jury deliberated.

In a back room, the jurors agreed the whistle-blower had a grudge and stood to make lots of money, according to people who were there. But that didn't change Mairone's liability. Still, they asked the judge why other executives hadn't been charged. Rakoff had an answer: That's not for you to consider.

The jurors would reach a unanimous verdict a few hours later.

Autograph Newspaper

The next morning Mairone tried to relieve the awkwardness by offering to autograph her photo in the Wall Street Journal for her co-workers.

Soon after, she left JPMorgan. Friends and former co-workers stopped returning her phone calls.

While awaiting her appeal, Mairone watched the "60 Minutes" episode about ex-Duke University lacrosse coach Mike Pressler, fixating on his downfall and exoneration. He was the only person fired after an alleged rape scandal that involved three of his players — who were judged not guilty a year later.

Mairone played the episode again from the beginning, and then again, and again. She watched it eight times.

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