[Bret L]

Countrywide’s Angelo Mozilo: He Warned Us—But Washington Didn’t Want
To Know

By Steve Sailer

"The Securities and Exchange Commission filed an insider-trading civil suit earlier this month against perhaps the most widely loathed wheeler-dealer of the Housing Bubble: Angelo Mozilo, co-founder and longtime CEO of Countrywide Financial Corporation, the largest mortgage lender at the peak of the boom.

The Economist writes: "As is the way these days, the SEC’s case rests
largely on internal emails." [Accusing Angelo June 5, 2009]The SEC
released excerpts from Mozilo’s emails to even more aggressive
Countrywide executives in which the boss privately questioned his own
firm’s new lax credit products. For example, on April 17, 2006, he
sensibly lambasted Countrywide’s subprime 80/20 loans (in which
borrowers would fund their nominal 20 percent downpayment by taking
out a simultaneous second mortgage):

"In all my years in the business I have never seen a more toxic prduct
[sic]. It's not only subordinated to the first, but the first is
subprime. In addition, the FICOs are below 600, below 500 and some
below 400[.]"

Unfortunately, Mozilo’s intermittent spasms of skepticism didn’t have
much effect—because he was also:

*

Imploring government regulators to allow more zero down payment
mortgages and liar loans in the name of fighting racist redlining;
*

Publicly reassuring investors about the creditworthiness of
Countrywide’s increasingly bottom-of-the-barrel borrowers;
*

And…accelerating his own stock sales.

In February 2007, Countrywide’s shares peaked at over $45. The
following summer the subprime resale market collapsed, setting off the
current global economic collapse. Mozilo was lucky to talk hapless
Bank of America into buying Countrywide in 2008 for less than one-
tenth of its peak price.

Still, you can’t say that Mozilo didn’t warn you in countless speeches
over the years that Countrywide’s corporate strategy depended upon
pouring colossal sums down the rathole of lending to "underserved
Americans" (i.e., minority and lower income borrowers).

For instance, in the top story in National Mortgage News on February
17, 2003:

"Mr. Mozilo labeled downpayments as 'nonsense' and said credit score
requirements are 'still much too high.'… the outspoken industry leader
called on his colleagues to 'take a chance on making mistakes rather
than foreclose on the opportunity' to put minorities and other
underserved families into homes of their own."

Or consider Mozilo’s January 14, 2005 press release that trumpeted
Countrywide’s commitment of one trillion dollars through 2010 to
politically favored groups:

"The $1 Trillion We House America Challenge … embodies Countrywide's
long-standing commitment to lead the mortgage industry in closing the
homeownership gap for minority and lower-income families and
communities," said Countrywide Financial Corporation Chairman and CEO
Angelo Mozilo…

And that was up $400 billion from the $600 billion Mozilo had promised
in 2003 during a prestigious Harvard address entitled The American
Dream of Homeownership: From Cliché to Mission.

I may have mentioned this before—but a trillion dollars here, a
trillion dollars there, pretty soon we’re talking about real money.

And that trillion dollar figure was not just talk. Mozilo testified to
Congress on March 7, 2008:

"To date, we have met $850 billion of that goal, and we remain
committed to beating the goal by 2010."

Countrywide’s reckless strategy in 2005-2006 is readily visible in the
federal government’s Home Mortgage Disclosure Act database. This graph
shows Countrywide’s subprime lending in just the Riverside-San
Bernardino exurbs of Southern California, which are home to close to
one-tenth of all the defaulted dollars in America. In the Inland
Empire, Countrywide quintupled its subprime lending in one year, with
the great majority going to minorities.

This 2005 data was downloadable by investors and journalists in
October 2006, months before Countrywide’s stock price reached its
apogee. But who would be so uncouth as to use the HMDA database to
raise doubts about minorities’ ability to repay mortgages? The HMDA
exists to help the federal government and community organizers drive
more lending to minorities, not less!

The roots of Countrywide’s catastrophic trillion dollar pledge go back
to the early years of the Clinton Administration. As Steve Malanga
explained in the Spring 2009 City Journal:

"Pressuring nonbank lenders to make more loans to poor minorities
didn’t stop … If it didn’t happen, Clinton officials warned, they’d
seek to extend [Community Reinvestment Act] regulations to all
mortgage makers. … To rebuff the criticism, the Mortgage Bankers
Association (MBA) shocked the financial world by signing a 1994
agreement with the Department of Housing and Urban Development (HUD),
pledging to increase lending to minorities and join in new efforts to
rewrite lending standards. The first MBA member to sign up:
Countrywide Financial, the mortgage firm that would be at the core of
the subprime meltdown."[Obsessive Housing Disorder]

Interestingly, the Secretary of Housing and Urban Development who
signed that 1994 deal with Countrywide was Henry Cisneros, who later
served on Countrywide’s Board of Directors from 2001 to 2007, the
Bubble Years. Cisneros made over $6 million from Countrywide fees and
stock options.

In his 2005 “$1 Trillion We House America Challenge” press release,
Mozilo announced:

"We have also called upon one of our esteemed directors, the Honorable
Henry Cisneros … Henry will put to use his long and respected
experience as an advocate for affordable housing who understands the
benefits to communities of homeownership."

Cisneros chimed in:

"Countrywide's $1 trillion commitment is very tangible proof of this
company's commitment to fair, affordable and responsible lending. This
company is leading the industry in closing the homeownership gap …"

An October 18, 2008 New York Times article about Cisneros by David
Streitfeld and Gretchen Morgenson, Building Flawed American Dreams,
recounts:

"But until recently getting a mortgage was a challenge for low-income
families. Many of these families were minorities, which naturally made
the subject of special interest to Mr. Cisneros, who, in 1993, became
the first Hispanic head of the Department of Housing and Urban
Development. He had President Clinton’s ear, an easy charisma and a
determination to increase a homeownership rate that had been stagnant
for nearly three decades. Thus was born the National Homeownership
Strategy, which promoted ownership as patriotic and an easy win for
all."

Cisneros rationalized to the NYT:

"It was, he argues, impossible to know in the beginning that the
federal push to increase homeownership would end so badly. Once the
housing boom got going, he suggests, laws and regulations barely had a
chance. 'You think you have a finely tuned instrument that you can use
to say: 'Stop! We’re at 69 percent homeownership. We should not go
further. There are people who should remain renters,' he says. 'But
you really are just given a sledgehammer and an ax.' "

Mozilo was hardly a victim of the politicians, however. They were co-
conspirators.

For example, Mozilo notoriously provided special discount mortgages to
a host of politically connected "Friends of Angelo," such as the
chairman of the Senate Banking Committee, Chris Dodd (D-CN).

Mozilo pocketed an estimated $387 million from 2002 through 2006. As
it turns out, of course, it would have been cheaper for all concerned
if the Friends of Angelo in Congress had simply voted to give $387
million of the taxpayers’ money to Mozilo.

A tell-tale sign: According to his employment contract, Countrywide
paid $95,000 annually for Mozilo’s "country club dues at Sherwood
Country Club in Thousand Oaks, CA, Quarry Country Club in La Quinta,
CA and Robert Trent Jones Golf Club in Gainesville, VA." Why did the
Southern California financier belong to a golf club in the Washington
D.C. suburbs? Obviously, to aid in schmoozing Washington politicians,
regulators, and Fannie Mae / Freddie Mac executives, who bought vast
quantities of mortgage-backed securities from Mozilo.

Back when Mozilo was riding high, Jeff Bailey’s New York Times profile
of him pointed out:

"By buying his mortgages and thus freeing up his capital to solicit
even more business, Fannie and Freddie are a big reason Mr. Mozilo has
driven Countrywide past the Citigroups and the Wells Fargos to the top
of the mortgage heap. 'If it wasn't for them,' he said of Fannie and
Freddie, 'Wells knows they'd have us.'" [The Mortgage Maker vs. the
World, October 16, 2005]

(By the way, from the Unfortunate Metaphor Department:

“‘We didn’t really know what we were buying,’ said Marc Gott, a former
director in Fannie’s loan servicing department. ‘This system was
designed for plain vanilla loans, and we were trying to push chocolate
sundaes through the gears.’ “[Pressured to Take More Risk, Fannie
Reached Tipping Point, Charles Duhigg, New York Times, October 4,
2008])

It’s crucial to understand the subtle way in which government pressure
for more minority lending affected the mortgage industry—selecting for
success those executives like Mozilo who were both wildly ambitious
and true believers in the diversity mantra.

As I pointed out in my VDARE.com analysis of the 2008 failure of Kerry
Killinger’s Washington Mutual after it had pledged $375 billion in CRA
lending to win FDIC approval for acquisitions, the government can’t
force financial institutions to lend to likely deadbeats. You can
always stay small and under the radar.

What the government can do, using a host of threats, is block from
growing big those firms whose executives don’t share its dogma that
lending more to minorities is a great idea.

Further, the government can excommunicate with anti-discrimination
lawsuits anybody who expresses his skepticism on paper (or pixels).
Imagine if a financial executive’s private emails turned up in
discovery for a lawsuit had read: "Why are we lending so much money to
Mexicans in the Inland Empire? How can Mexicans ever pay off these
huge mortgages?" He would have been flayed alive in the press and in
the courts.

So nobody in Corporate America puts their Doubts about Diversity into
text where plaintiffs’ attorneys can later read them.

And that means they mostly don’t get communicated anymore—which
explains much about why the Mortgage Meltdown, which has been highly
concentrated among minority borrowers, was a surprise to so many.

Over the decades, the federal government changed the entire culture of
the mortgage industry from penny-pinching skeptics to politically
correct pollyannas.

Nobody took less persuading, however, than Mozilo. He always felt
discriminated against by the old WASP financial elite. He said: "At
least in my generation, when you are Italian in the financial services
industry, you are terribly underestimated. A natural reaction for some
in the financial community was to infer or suggest that perhaps you
were associated with the Mafia."

Bailey’s 2005 NYT article about Mozilo begins:

"A touch of resentment—based on income, education, social class—
motivates countless ambitious people, though few will admit to it once
they become successful. An exception is Angelo R. Mozilo … Modest
origins—a butcher's son from the Bronx who worked his way through
Fordham University—drove Mr. Mozilo to push Countrywide past the
mortgage businesses of far larger companies, including Citigroup,
Wells Fargo and Washington Mutual. He readily admits to having a chip
on his shoulder …"

Connie Bruck’s fairly sympathetic new article, Angelo’s Ashes: The man
who became the face of the financial crisis, in the June 29, 2009 New
Yorker (an abstract is online here) documents just how driven Mozilo
always has been by his Commitment to Diversity. Mozilo’s sister told
Bruck:

"He was always this Italian guy people didn’t want to accept. When he
tans he gets really dark. My mother told me that when he worked in
Florida he was asked to sit in the back of the bus."

(Actually, in many photographs, Mozilo looks less brown than orange,
more like an Oompa-Loompa in Willy Wonka and the Chocolate Factory, or
the victim of a bad spray-on tan.)

Bruck notes:

"Mozilo always saw himself as providing mortgages to many who were
like him -- disenfranchised. ('So they’re not upper-middle-class white
people—so what?' he would say. 'They’re Hispanics, and maybe their
money is not in a bank—but they are responsible.')'

Bruck’s article suggests that Mozilo actually believes what he told
Congress in 2008:

"By the early 1990s, the government had recognized the obvious truth
that our housing finance system was leaving major segments of society
behind. In 1992, a landmark study by the Federal Reserve Bank of
Boston made it clear that there were systemic underwriting issues
relating to the treatment of African American and Hispanic borrowers.
Policymakers called upon the mortgage industry to change their
practices and redouble their efforts to better serve minorities and
underserved communities. While many in the industry discounted the
Boston Fed study as flawed, at Countrywide, we stepped up to the
challenge by creating our affordable lending initiative known as
'House America.' "

Bruck’s New Yorker article supports Mozilo’s sincerity—or self-
delusion:

"… In 1992, shortly after Mozilo became chairman of the Mortgage
Bankers Association, the Federal Reserve Bank of Boston issued a
report stating that it had found systemic discrimination by mortgage
lenders against African-American and Hispanic borrowers. … Mozilo was
appalled. He ordered that all Countrywide’s records on rejected
minority applicants be sent to him, and he retroactively approved
about half of them. …"

(This Boston Fed report was the one that Peter Brimelow and Leslie
Spencer easily refuted in Forbes Magazine at the time, by
demonstrating that it had misunderstood the meaning of mortgage
default rates. But no-one, not just Mozilo, wanted to hear that.)

In 2002, a UCLA business professor named Eric Flamholtz suggested to
Mozilo the disastrous strategy of trying to grow Countrywide’s share
of the mortgage market from ten percent to an oligopolistic 30 to 40
percent. But to pursue its goal of market dominance, Countrywide’s
marginal customers would inevitably have to be drawn increasingly from
the ranks of those who had never qualified for a mortgage befo in
other words, they’d be largely minority.

Result: Mozilo grew into the ultimate embodiment of the type of
financial executive the federal government had been cultivating: a
monster of ambition combined with a diva of diversity.

Bruck goes on:

"By 2004, Countrywide had become a leading U.S. mortgage lender to
what it called ‘multicultural market communities.’ Mozilo always
described Countrywide’s inclusion of minority and immigrant
populations as both business and mission, and he had become perhaps
the single most important advocate of those who believed in advancing
homeownership as a means of achieving a more equitable society."

According to The New Yorker, my kind of thinking about the Minority
Mortgage Meltdown is personally and politically offensive to Mozilo:

"Several years ago, at the Midwinter Housing Conference, in Park City,
Utah, after hearing some mortgage bankers saying that minorities
didn’t deserve loans, he declared in a speech, ‘Homeownership is not a
privilege but a right!’ Now he abhors the idea that the retrograde
view has gained credence. As the Fox Business Network anchor Neil
Cavuto said last September, 'Loaning to minorities and risky folks is
a disaster.'"

Sorry about that, Angelo. Tell you what: don’t worry yourself about
bringing down the world financial system."


http://www.vdare.com/sailer/090622_mozilo.htm