A lawsuit accusing Countrywide (CFC) of fraud is moving forward. The mortgage lender’s officers and directors must answer shareholder claims that they failed to adequately monitor the company’s lending practices, The New York Times reports. The Times reports the decision was made Tuesday by federal Judge Mariana R. Pfaelzer in Los Angeles, who rejected a motion to dismiss the suit. The lead plaintiff, the Arkansas Teacher Retirement System, said “it is our duty to seek recourse when a company’s directors engage in practices that are not in the best interests of shareholders.”

The legal problems at Countrywide could be a source of anxiety for investors who are wondering whether Bank of America (BAC) will go through with its agreement to buy the lender for around $4 billion in stock. Bank of America said again this week that it plans to complete the deal in the third quarter and is looking forward to becoming the nation’s biggest mortgage lender after the closing.

But the suit, which also alleges insider trading, brings renewed scrutiny of the millions of dollars in stock-sale profits reaped by Countrywide executives as the company was making thousands of ill-advised loans. CEO Angelo Mozilo’s $474 million in stock sales between 2004 and 2007 will get particular attention because the exec repeatedly changed the terms of his 10b5-1 prearranged stock-sale program to allow more shares to be sold. “Mozilo’s actions,” the judge wrote, “appear to defeat the very purpose of 10b5-1 plans.”

The unrest in the credit markets is intensifying worries about Countrywide (CFC). Shares of the mortgage company dropped 9% in Thursday’s marketwide selloff, amid fears that steep declines in mortgage-related securities will lead to more losses at big lenders. Particularly hard hit Thursday were mortgage companies such as Countrywide, Fannie Mae (FNM) and Freddie Mac (FRE), along with mortgage real estate investment trusts like Annaly (NLY). Less affected were big banks such as Bank of America (BAC), which agreed in January to buy Countrywide in an all-stock deal then valued at $4 billion.

As a result, Countrywide shares now trade at a 22% discount to their value as implied in the merger agreement. That spread is up from just 9% last Wednesday - suggesting investors are increasingly concerned the deal won’t get done - even though Bank of America said this week the combination is on track to close in the third quarter.

Meanwhile, Countrywide chief Angelo Mozilo is due to appear Friday morning before the House Committee on Oversight and Government Reform, which is holding a hearing on CEO pay. Mozilo will surely focus on his success in building Countrywide from scratch over 39 years, and his decision earlier this year to relinquish some change-of-control pay tied to the merger. But Democrats on the committee will no doubt be asking how Mozilo can justify taking home millions of dollars in stock-sale gains over the past decade while Countrywide and the rest of the industry careened toward a damaging housing bust. Don’t hold your breath waiting for an answer.

Countrywide (CFC) chief Angelo Mozilo is giving something back. The embattled executive said early Monday he will waive his right to $37.5 million in payments tied to the agreement Countrywide signed this month to sell itself for $4 billion to Bank of America (BAC). The decision comes after Democratic politicians ranging from U.S. Sen. Hillary Clinton to U.S. Rep. Barney Frank criticized Mozilo’s lush pay package, given the distress being felt by many homeowners amid a surge in mortgage defaults. Mozilo has reaped hundreds of millions of dollars in recent years by selling Countrywide shares - a fact that began to rankle over the past year, as Countrywide shares lost more than 80 percent of their value and the company endured two brushes with bankruptcy amid worries about possible losses in its loan portfolio.

Beyond showing that he’s not just in it for the money, Mozilo has a bone to pick with the press. He stressed in Monday’s press release that media estimates of his severance package have been overstated. Under the merger agreement, Countrywide says, “Mr. Mozilo would be entitled to $36.4 million in cash severance pay and $400,000 per year in consulting fees, as well as private airplane use and other perquisites. These are the amounts and benefits he will be forfeiting.” Well, it’s a start.

It’s open season on Countrywide (CFC) chief Angelo Mozilo. U.S. Sen. Hillary Clinton became the latest political leader to criticize the riches Mozilo has accumulated in recent years while leading his mortgage company to the brink of collapse. Bank of America (BAC) last week agreed to pay $4 billion in stock to buy Countrywide, just days after the company was forced to deny bankruptcy rumors for the second time in less than a year. The deal allows BofA to buy Countrywide near its 52-week low, locking in losses for many shareholders - while handing Mozilo a severance package valued in the tens of millions of dollars. Some observers see Mozilo’s massive paychecks as a troubling case of perverse incentives.

Clinton called Mozilo’s pay package “outrageous” and told CNBC that the deeply tanned executive is “one of the principal architects of this whole house of cards, with these exotic subprime mortgage vehicles,” Reuters reports. Others in Congress have already taken aim at Mozilo: U.S. Rep. Henry Waxman invited him to testify about his pay next month, and U.S. Sen. Charles Schumer and U.S. Rep. Barney Frank have urged him to give some of his massive severance package to families that could lose their homes. Don’t hold your breath. For its part, Countrywide is trying to change the subject, claiming in a recent press release that its recently redoubled loan modification and related efforts “helped more than 80,000 borrowers retain their homes in 2007.” Too bad Mozilo and his minions didn’t care about home retention until it was too late for thousands of others.

Fortune’s Shawn Tully says the $4 billion Bank of America (BAC)-Countrywide (CFC) deal is a smart one, but not everyone agrees. The Service Employees International Union took issue with the deal Friday, urging lawmakers to curb the growth of big banks. The union takes issue with the notion that Countrywide will, as BofA said in its press release Friday, “benefit from the stability of being part of the largest and one of the most financially strong financial institutions in the United States.”

Instead, the union sees the Countrywide deal as increasing the prospect that BofA itself will fail. “Permitting such concentration of risk,” it writes, “would be like putting a sick patient, Bank of America, together in the same room with a highly contagious and terminally-ill patient, Countrywide, and expecting both of them to get better.” If that scenario doesn’t doesn’t strike you as likely, Fortune’s Roddy Boyd offers another: that Countrywide will never again reach its recent profitability levels and faces big writedowns to boot. Regardless, the market seems to like the deal, even given its risks. Maybe investors are just taking BofA chief Ken Lewis at his word. “We are aware,” he said in Friday’s press release, “of the issues within the housing and mortgage industries.” It’s not clear the same was always true of his richly tanned counterpart at Countrywide.

The Countrywide (CFC) disconnect continues. Shares of the mortgage lender sank Friday morning on news that Bank of America (BAC) plans to pay just over $7 a share to take over Countrywide - nearly a dollar below the $7.75 the stock closed at following Thursday’s rip-roaring rally. But as always, deeply tanned chief Angelo Mozilo will do just fine for himself, thank you. Mozilo stands to walk off with a going-away gift of $115 million, including company jet time and country club fees, the Los Angeles Times reports. The number, which is based on a reading of Countrywide’s regulatory filings, reflects the company’s obligation to pay him triple his salary and bonus, plus pensions and stock grants. It’s not like Mozilo needs or even deserves the money: he cashed in more than $100 million worth of stock over the past year even as Countrywide shares lost more than three-quarters of their value. Unsurprisingly, BofA chief Ken Lewis told investors Friday that he doesn’t expect Mozilo to stick around for long: “I would want him to stay until the deal gets done,” Lewis said on a conference call, Reuters reports, “and then probably I would guess that he would then want to go have some fun.” At shareholder expense, of course.