Countrywide Financial Corp Chief Executive Angelo Mozilo should give up his role as chairman, and the largest U.S. mortgage lender should overhaul its practices for granting stock options, a union-affiliated pension plan urged on Monday.

The proposal by the American Federation of State, County and Municipal Employees increases pressure on Mozilo, who has been faulted for realizing well over $100 million of gains from stock options in the last year, even as the U.S. housing slump caused Countrywide's fortunes to plummet.

Last week, CtW Investment Group, a pension fund group affiliated with seven labor unions, called on Mozilo to resign. Sen. Charles Schumer, a New York Democrat, asked the U.S. Securities and Exchange Commission to expand an informal probe into stock sales by Mozilo to include Countrywide itself.

Countrywide did not immediately return requests for comment. Neither it nor the SEC has confirmed the probe.

Shares of Countrywide rose 29 cents to $15.52 in morning trading. They began the year at $42.45.

In an October 18 letter to Countrywide lead director Harley Snyder, AFSCME said Countrywide should appoint two independent directors, name a special committee to review stock option practices, and reconstitute its compensation committee.

Shareholders of Calabasas, California-based Countrywide in June rejected AFSCME's proposal to give them an advisory vote on pay for top executives. Mozilo's employment contract runs through 2009, when he will be 71.

We're calling for structural changes in the board, which is responsible for the company and has demonstrated a lack of oversight, Richard Ferlauto, AFSCME's director of corporate governance, said in an interview. At this point, Mozilo is only a transitional figure, and we're going to hold him to leaving by 2009, if not much sooner.

Since October 2006, Mozilo has exercised options and sold shares under a type of trading plan that can allow executives to sell stock without raising suspicions of insider trading.

Mozilo amended the plan in December and again in February to boost the pace of sales. The latter amendment roughly coincided with the $45.19 record high for Countrywide's share price. Mozilo has repeatedly said his selling has been proper.

Countrywide has tightened its lending practices and plans to cut up to 12,000 jobs to cope with the housing downturn.

On October 16 it projected a $125 million to $150 million charge this year for the restructuring. Analysts, on average, expect Countrywide to post a third-quarter loss of $1.21 per share, or about $697 million, when it reports on Friday.

Lehman Brothers Inc. analyst Bruce Harting on Monday downgraded Countrywide to underweight from equal weight, and lowered his price target to $12 from $20.

(Additional reporting by Martha Graybow and Tim McLaughlin in New York and Rachelle Younglai in Washington, D.C., editing by Brian Moss)

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